January 11, 2022

How Long Can Low Wages Outrun Inflation?

Federal labor officials are giving Amazon employees in Alabama a second shot at forming a union, and their coworkers in Staten Island are seeking clearance to hold a vote. Americans, more confident of their employment prospects, are leaving their jobs in record numbers, with much of the activity in low-wage industries like hospitality.

Employers, having taken note, are combatting high quit rates and staff shortages by raising pay at the bottom of the wage scale. Also fueling the hikes has been a series of increases in state minimum wages, including automatic annual cost-of-living increases in a growing number of states.

Various economists, using different data sources, have reached a similar conclusion about these recent developments: pay for low-income workers – the same people who suffered the highest unemployment rates during the pandemic – is currently outpacing inflation.

It’s unclear whether that trend will continue in 2022, if, as some economists now predict, inflation becomes more persistent. The government will report December’s inflation rate tomorrow.

But between the third quarters of 2020 and 2021, Arindrajit Dube, at the University of Massachusetts at Amherst, estimated that wage increases for workers in the bottom 30 percent of the pay scale outpaced inflation. Another economist, Geoffrey Sanzenbacher at Boston College, reached a similar finding: inflation-adjusted pay for people with earnings in the bottom 25 percent of all earnings rose last year while workers in the top 10 percent saw a decline.

When inflation first started picking up, economists said it would be a temporary blip that would ease when the goods piled up at West Coast ports started moving onto store shelves. But some economists are changing their tune and worry that high inflation will last longer than they’d predicted.

This would especially be a problem for low-wage workers, who spend most of their income on necessities. Rental housing is a good example. In a recent Federal Reserve survey, consumers estimated their rents would rise by 10 percent over the next year. An increase of this size would mark a new high for low-wage workers’ largest single expense – rent consumes more than half of their monthly income. …Learn More

November 18, 2021

The Economy, Minimum Wage, and Disability

The federal minimum wage is $7.25 an hour and hasn’t budged since 2009. But many states and some municipalities have raised their minimum wages. Today, more than half of the state minimums exceed the federal minimum.

Now a new trend has emerged: 19 states have enacted or approved automatic yearly increases in their minimum wages to protect their residents from inflation. These adjustments just went into effect this year in Arizona, Colorado, Maine, and Washington D.C.

How might higher minimum wages affect applications for disability insurance? On the one hand, the higher pay could prevent some people with mild disabilities from resorting to the fallback option: applying for disability benefits. But if small employers lay people off to cut costs or feel they can’t afford to hire workers at the new higher minimum wage, applications could go up. Facing fewer job opportunities, more low-wage workers might apply for benefits from a program that currently covers some 16 million Americans.

A new study finds that a rising minimum wage does, indeed, increase disability applications to the U.S. Social Security Administration. But the researchers stress that this impact is minimal compared with the increase driven by an economic downturn that throws more people out of work.

In their analysis of nearly 3,000 counties from 2000 through 2015, a one-dollar increase in the minimum wage added some 80,000 more applications to the disability program and its companion, the Supplemental Security Income program for the poor, elderly, and adults with disabilities. That represents a 2 percent increase.

Contrast that to the impact of a rising unemployment rate, which was about three times larger. …Learn More

May 27, 2021

Working from Home: the Next Inequity

An impressive consensus has emerged around the benefits of working from home.

More employers have come to accept the practice after being pleasantly surprised at how productive their employees are. If remote workers were once viewed as insufficiently committed to the company, they no longer feel as marginalized. And people seem to like it – with the notable exception of the mothers juggling Zoom meetings and childcare.

An NBER study out this month estimates that about 20 percent of the workdays in this country, post-pandemic, will be carried out at home. That’s less than half the at-home time that was clocked last year as the pandemic raged but is multiples of the very low levels prior to COVID-19.

There is “little doubt that the stigma associated with [working from home] diminished during the pandemic,” concluded the study, based on a series of surveys last year. This seismic shift in workplace conventions “will stick long after the pandemic ends.”

But a second theme running through this research is just as important: the benefits of telecommuting flow mainly to the more educated, higher-paid labor force.

More than 50 percent of U.S. workers earning more than $100,000 a year have been allowed to work at home, rather than in the office, giving them more protection from layoffs during the economic shutdowns and from COVID-19. On the other end of the spectrum are lower-paid and minority workers, who have been much more likely to lose their jobs and be exposed to the disease. Just 25 percent of employees earning under $50,000 work at home – and only 10 percent of the lowest-paid workers who didn’t complete high school work.

Yet the desire to work at home is pervasive. Regardless of their income, years of education, or family situation, workers view it as a perk – so much so that most people said they would accept a pay cut if they could work remotely two or three days a week.

Another potential impact on equity in the study is the effect of remote work on commerce in the urban centers. …Learn More

April 6, 2021

Minimum Wage and Disability Applications

Do applications for federal disability benefits rise, fall, or remain unchanged when the minimum wage increases?

Understanding whether the minimum wage affects disability applications is an important issue as Congress debates an increase in the federal minimum and the states have been very active: 14 states began last year with a higher minimum wage after passing new legislation or ballot initiatives. Another seven states had previously enacted automatic yearly increases in their minimums.

One possibility considered in a new study is that applications to the U.S. Social Security Administration for disability benefits could decline if wages increase enough to make a steady paycheck that much more appealing than a modest monthly disability check. But Syracuse University economist Gary Engelhardt finds that hiking the minimum wage did not reduce applications from 2002 through 2017.

Since applications didn’t go down, could a higher minimum wage increase applications instead? Some economists argue that employers, when faced with a higher mandatory wage, may lay off some of their less-skilled hourly employees or cut back their hours. This might – indirectly – be a motivation to apply for disability.

Engelhardt tested this idea in a second analysis, recognizing that it takes time for employers to make staffing changes in response to a higher wage. Once again, he found no impact on disability applications.

“Changes in the minimum wage are not moving individuals on and off” of disability, the researcher concluded. 

To read this study, authored by Gary Engelhardt, see “The Impact of the Minimum Wage on DI Participation.”  …Learn More

March 30, 2021

Working Multiple Jobs to Make Ends Meet

If people need to work and can work, they will work. That’s my takeaway from a new set of data that sketches a clearer picture of U.S. workers who are holding down multiple jobs.

Nearly 8 percent of workers had two or more jobs in 2018, the latest year of data available from the U.S. Census Bureau. The data also show that holding two or more jobs becomes more common during economic expansions, when jobs are plentiful, and falls during recessions, when the opportunities dry up.

But the longer-term trend is up: the share of people holding multiple jobs has slowly increased over the past two decades. In a recent webinar, Census Bureau economist James Spletzer provided a couple of reasons.

First, the country has lost millions of manufacturing jobs over several decades. They have been replaced by lower-quality jobs in retail and in service industries like health care, hotels and food preparation – and that’s where multiple job holders tend to work.

A second, related reason for working in multiple jobs is the “stagnation of earnings at the lower end of the earnings distribution,” Spletzer said. …Learn More

March 4, 2021

Federal Minimum Wage is 40% Below 1968

Largely missing from the debate about raising the federal minimum wage is how much its value has eroded over the past 50 years.

The current federal minimum is $7.25 an hour. If the 1968 wage were converted to today’s dollars, it would be worth about $12 an hour.

At $7.25 an hour, a full-time worker earns just over $15,000 a year before taxes, which is less than the federal poverty standard for a family of two. The Biden administration has proposed more than doubling the federal minimum to $15 by 2025, and one proposal in Congress would begin indexing the minimum wage to general wages so it keeps up with inflation.

A $15 an hour minimum isn’t enough, said one sympathetic Florida contractor who voted in November to gradually increase the state’s mandatory minimum wage to $15. “I’d like to see some of the American people go out there and try to make a living and put a roof over their head and raise a family,” he told a reporter. “It’s literally impossible.”

But small businesses say raising the minimum wage would increase their financial pressures at the worst time – during a pandemic. At least 100,000 U.S. small businesses closed last year as governments restricted public gatherings to suppress the virus, and the Congressional Budget Office (CBO) estimates a higher federal minimum could eliminate 1.4 million jobs.

This evidence ignores the complexity of low-wage workers’ situations. Employee turnover is extremely common in low-wage jobs in fast food establishments, for example, and workers frequently have bouts of unemployment that further reduce their already low earning power. Raising the minimum wage could somewhat compensate for their spotty employment and provide more money for essential items. And while the CBO warns of job losses, it also predicts that a higher federal minimum wage would lift 900,000 million workers out of poverty.

Many states have approved incremental automatic annual increases, and a $15 minimum wage has been approved in eight states, including Florida. Voters – over the objections of the Florida Chamber of Commerce – approved raising the state’s minimum wage from $8.65 this year to $15 in 2026.

“We won’t get fifteen for another five years. We need that now,” an Orlando McDonald’s worker, Cristian Cardona, told The New Yorker.

Once again, inflation is a problem. “By the time we get fifteen, it’s going to be even less,” he said. …Learn More