Policy Wonk: Will Portland drop the ball on minimum wage?

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In January 2014, Portland Mayor Michael Brennan in his State of the City address called for raising the minimum wage. This began 18 months of research, discussion, study committee meetings and draft proposals.

After all this, Portland’s finance committee has tendered a recommendation to the City Council that can only be described as timid and embarrassing. The recommendation calls for a minimum wage of $8.75 in 2016, $9.25 in 2018 and $9.75 in 2020, with no increase (not even cost of living) thereafter.

The insensitivity of this recommendation to the real needs of minimum-wage earners is shocking. It does little more than keep up with inflation, since the state’s $7.50 minimum wage was last raised in 2009.

The committee proposal ignores the fact that even if these employees work full time, their income remains below the poverty level; this at a time when the income of the wealthy – the top 20 percent of Mainers – has never been higher and is rising.

It ignores the fact that cities in all parts of the country (Los Angeles, San Diego, Oakland, San Francisco, Seattle, Santa Fe, Louisville, Chicago, New York, and Washington, D.C.) have already established a higher minimum wage than the Portland committee has proposed (most are at $10-15 per hour).

Moreover, in these cities higher minimum wage levels are reached sooner than in the Portland proposal, and thereafter, unlike the Portland proposal, are indexed to inflation.

The Portland proposal also ignores the fact that a growing list of major corporations, many of which operate in Portland or surrounding towns (Wal-Mart, T. J. Maxx, Starbucks, Gap Co., Ben & Jerry’s, Whole Foods Market) have increased the minimum wage of their employees. They are already paying $10-12 per hour.

Though some of these corporations cite employee morale, goodwill and fundamental fairness for their decision, it is not altruism that moves them. They all cite reduced labor turnover costs, lower job training costs and the increased competition for quality staff as the basis for their decision. In short, raising minimum wages makes economic sense.

Economists are unanimous in recognizing that the increased wages of workers whose income is at or below the poverty level will almost immediately be spent to purchase essential goods and services. The aggregate demand for all goods and services in the economy will increase.

In other words, raising the minimum wage will have a healthy, ongoing stimulating effect on the overall economy.

Keeping minimum wages low, on the other hand, does not have the same effect. The wealthy already have sufficient income to purchase all of the goods and services that they want or need. The difference between their level of income and their spending is saved.

As the real income of minimum-wage workers declines relative to the real income of the wealthy, aggregate savings of the wealthy (individuals and corporations) increases. As aggregate savings increase, aggregate demand declines.

U. S. corporations are hoarding $1.5 trillion in cash and the wealthiest consumers in the U.S. are sitting on approximately $6 trillion in savings that could balloon to $12 trillion by 2014. A decrease in aggregate demand is precisely what happened in, and was a root cause of, the 2007 recession.

In other words, keeping minimum wages low does not produce a healthy economy. On the contrary, it ultimately produces a drag on the overall economy.

The drag on the economy caused by low minimum wages is compounded by tax cuts skewed towards the wealthy. Continuing to increase the wealth of the wealthiest in our society simply increases the level of aggregate saving in the society. Aggregate demand is further reduced, and recessions are deepened and more prolonged.

The events of 2007-2009 make the point: Low minimum wages and tax cuts for rich individuals and corporations did not prevent recession, or help get us out of recession.

Sadly these economics lessons were ignored when the Portland committee formed its minimum wage recommendation. Instead of fashioning some equity for Portland’s working poor, as other states and municipalities have, the panel stalled and dithered and finally released a “let-them-eat-cake” recommendation.

Portland seems to have accepted the view that raising the minimum wage in any meaningful way will stifle the economy and raise unemployment, despite overwhelming evidence, and the consensus of economists, to the contrary.

It’s shameful.

And where was Brennan as this process and recommendation unfolded? Strangely silent and impotent. As the issue moves to the full council for debate and resolution, it remains to be seen whether he will find the courage to put strengthening amendments (his own more meaningful minimum wage proposal) on the table.

Portland in the past has led the state in enacting legislation addressing civil rights issues.

Today it falls to Portland to lead the state on an issue of economic justice. The working poor can only hope the mayor and council will rise to the occasion.

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Orlando Delogu of Portland is emeritus professor of law at the University of Maine School of Law and a longtime public policy consultant to federal, state, and local government agencies and officials. He can be reached at orlando.delogu@maine.edu.