Minimum Wage vs. Living Wage Revisited
With the start of the new year, the minimum wage in Seattle will be boosted to $20.76 per hour, a modest increase for larger companies and a significant hike, depending on how applied, for smaller companies, representing some trepidation, especially in the restaurant industry, according to a recent article by The Seattle Times.
Current wages:
While local legislation, minimum wage pay is an area where Seattle has been a leader in setting a national trend. It was the first major city to pass the minimum $15 per hour pay level. It went into effect April 1, 2015, so nearly ten years ago.
Amazingly, four states still have a minimum wage of $7.25 (Indiana, Iowa, Kansas, Kentucky).
The issue has spurred debate in many higher cost urban areas in the country about how those in lower income jobs can earn a more sustainable wage and keep up with rapidly rising costs, especially for housing, as an income gap continues to grow with higher income workers.
The raised awareness of the issue with the pending boost prompts me to reinforce the difference between a minimum wage income vs. the ability to earn a living wage income.
Let me expand on the wage issue on a broader economic basis.
The big squeeze, from a business standpoint, comes on two main fronts:
1) Businesses vary in profit margins for what are "normal" based on their industry segments which, in turn, affect their mix of labor at different pay levels. For those skewed toward more low wage workers, the relative impact of increasing minimum wages may be significant.
The restaurant industry is usually on the frontline of this issue along with smaller companies in retail and services. Also non-profits, which tend to pay less to maximize services they are providing, face a significant challenge to wage costs.
2) In economic terms, all people, including you and me, are "units of production" in the economic value chain. Labor costs are just one area of the cost of operating a business along with others like rent, transportation, materials and inventory, travel and entertainment, outsourced services (ex: accounting firm or marketing agency) plus public obligations like government user fees, compliance costs or general taxes.?
Along with generating revenue, a business owner is always examining all costs in an effort to optimize the overall operation to manage expenses, achieve a profit and also, ideally, increase margin--as he or she should.
This includes examining the "input" of labor to harken back to my college economics classes.
Labor costs can be managed in many ways including:
A government can mandate an increase in wages but cannot mandate an overall increase in income as an absolute. There are too many variables outside of its control.
A "jobless recovery" has been a phenomenon in our economy over the last generation. Each succeeding recession since the early 1980s has seen a longer period of time for job growth to return to pre-recession levels and for unemployment to ease.
With the lingering effects of the Great Recession, which accelerated in 2008, unemployment did not drop below 8% until September 2012.
This was the month, by coincidence, I returned to Seattle from California, which was still at a 10.2% unemployment rate, the second highest in he nation.
The high point nationally was 10.0% in October 2009, doubling from 5.0% in April 2008. It did not reach 5.0% again until December 2015, seven years and nine months later.
In contrast, the current unemployment rate is 4.2%.
The exception of slow post recession recovery was the rapid job growth during the Covid-related recession because it was such a dramatic shutdown then start-up again in a short window and under special circumstances.
While the official unemployment rate has trended down, when counting those working part-time who want to work full time and those who want to work but have dropped out of actively seeking a job officially and, thus, are not calculated in the more commonly cited unemployment rate (called the U3), the?Federal Reserve, in their most recent report, pegged the second unemployment standard, called the U6, at 7.4%, below the historical average.
At face value the overall job market seems relatively strong, but unemployment is up .5% this year and long-term unemployment (27+ weeks or longer) has grown sharply. That is a topic for another post.
Income growth in the top 20% of workers in the economy, which has been growing faster than the rest of the labor market for many years, has created inflationary pressure in markets that squeeze those in lower incomes with rent and mortgage financing the biggest challenge.
A progressively increasing minimum wage can be an important boost to individual workers, but it is critical to keep in mind that a higher minimum wage is just one part of why wages go up, down or stay flat.
Ultimately a minimum wage does not address the issue of a living wage, "naturally" increasing wages beyond the rate of inflation justified by greater productivity or the level of total employment based on the growth or reduction of job demand in various segments of the economy.
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Related: Middle Managers Feeling the Squeeze
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About me
I have been a career sales professional in B2B sales. This has included managing my own territories, selling jointly with others and managing sales teams.
My sales career started in Seattle with the Puget Sound Business Journal, but a significant portion of my professional time was in California, split between Los Angeles and Orange County, before a return to Seattle.
I am community manager for the LinkedIn group?Seattle Sales, Marketing and Advertising Professionals, which has 5000+ members. I am also one of the first million members of LinkedIn (2004).
I have been a regular blogger on LinkedIn since the platform opened it to members in 2014.
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