A Strong Minimum Wage Delivers a Strong Economy

The Pitch: Economic Update for June 2nd, 2022

Friends,

The Fight for $15 turns a decade old this year, which means we have a decade of receipts for fear-mongering from minimum wage opponents, as well as a decade of results to put their sky-is-falling claims to rest once and for all. Sometimes it’s valuable to go back and check the record in order to remember how far we’ve come, and how much the argument has changed. Consider my home city of Seattle. More than eight years ago, the Seattle Times editorial board warned Seattle’s incoming elected leaders that their plans to adopt a $15 minimum wage “could undercut the economy’s resurgence” from the Great Recession. Less than two months later, they harrumphed that the Fight for $15 was “good political theater, but bad public policy.”

Once it became clear that city leaders were about to adopt $15, the Seattle Times editorial board tried to bargain the price down, warning that Seattle’s minimum wage could “rise to, or even slightly above $10.74 — San Francisco’s top-in-the-nation rate — without harming the local economy. But the higher it goes beyond historic precedent, the higher the risk,” they warned.

Of course, Seattle did adopt a $15 minimum wage — San Francisco would do the same not very long after — and despite the cries of critics like the editorial board, the sky did not fall. More workers made more money, restaurants continued to open, and consumer spending rose.

Last week, a Seattle Times columnist named Gene Balk — known locally as “The FYI Guy” because of his data-driven approach to journalism — published a new column with some very interesting findings. Despite the fact that Seattle is home to multiple billionaires and tens of thousands of wealthy tech workers, our city’s income inequality is much smaller than other cities of equivalent size and wealth, like Boston, Atlanta, and Washington DC.

How can Seattle keep inequality so much lower than our peers? “One factor keeping Seattle’s income gap in check is the city’s famously high minimum wage,” Balk explained. “Seattle passed its wage law in 2014, which gradually increased the minimum wage citywide. It’s now as high as $17.27 per hour for some workers — the highest in the nation. The average income for the lowest 20% of households in Seattle ($18,800) is the third-highest among the 50 largest U.S. cities.”

So in less than 10 years, the Seattle Times has gone from publishing op-eds warning that the $15 minimum wage will destroy the local economy to publishing data-driven journalism proving that our high minimum wage has accomplished exactly what it was supposed to do — keeping income inequality in check by growing paychecks for those at the bottom of the wage scale. When more people have more money to spend in their communities, that’s better for everyone because businesses have more customers so they have to hire more workers to meet increased demand. The theories behind the Fight for $15 have been proven correct, and the results are good news for everyone — even those Chicken Littles who warned that the sky would fall if we raised the minimum wage.

The Latest Economic News and Updates

For workers, the job market is still strong

Abha Bhattarai reports for the Washington Post that new data released from the Bureau of Labor Statistics shows there were 11.4 million job openings in America in April, and 4.4 million Americans changed their jobs that month. Perhaps most importantly, Bhattarai notes, “job openings still outnumber job seekers by close to 2 to 1.”

Also in April, layoffs reached a historic low of 1.2 million and employers have added more than 400,000 jobs to the economy per month for the last 12 months — that’s a full year of massive job growth.

As always, Economic Policy Institute economist Elise Gould’s snap BLS analysis on Twitter is invaluable. “Hiring continues to outpace quits in every major sector as workers seek and find new jobs,” Gould writes. “Churn is highest in low-wage accommodation and food services. Faster wage growth in that sector suggests workers are finding better jobs when they quit.”

Inflation is slowing down. Will prices follow suit?

If prices weren’t soaring right now, America’s soaring job market would be the lead story in every business section for six months running. But the fact remains that inflation is very high, and all those gains Americans are seeing in their paychecks are being swallowed up by higher price tags at the gas pump and in grocery stores — to say nothing of higher rents and home prices.

That said, consumer spending rose by nearly one percent in April, defying expert predictions and showing that Americans aren’t being scared away by inflation. That’s good news for the economy. And in even more good news, Reuters’ Lucia Mukitani writes that the spike in inflation seems to be slowing down.

“Although consumer prices continued to increase in April, it was not at the same magnitude as in recent months. The personal consumption expenditures (PCE) price index rose 0.2%, the smallest gain since November 2020, after shooting up 0.9% in March,” Mukitani explains.

For Project Syndicate, Jason Furman explores the question of whether those high prices might eventually slow down consumer spending. He argues that because Americans didn’t dramatically increase their spending after last year’s huge wage gains, they “thus were able to avoid cutting back amid the recent rapid declines in income. It is anyone’s guess whether this smoothing behavior will continue; but I expect that it will, at least by enough to keep consumer spending growing at a roughly 2% annualized rate in the second half of the year.”

Don’t listen to Larry Summers. Your raise didn’t cause inflation.

In the latest edition of his excellent newsletter, American Prospect columnist Robert Kuttner deftly debunks former Treasury Secretary Larry Summers’s latest claims that the ongoing rise in wages — or what Summers ridiculously calls “wage inflation” — is the reason behind the current inflationary spike.

“Summers keeps getting things wrong — not just the interpretation but the easily available data,” Kuttner writes. “Why is he taken seriously? Maybe because he tells corporate elites what they want to hear. Want to fix the economy? Cut workers’ wages!”

I couldn’t have put it better myself. You should always beware the stunningly credentialed experts who claim that ordinary Americans are to fault for economic turmoil. They are always trying to provide a smokescreen to protect the elite wealthy few at the top who are actually causing economic distress. In this case, record-high corporate profits have a lot more to do with the high prices you’re paying than a few extra dollars in someone’s weekly paycheck.

And Navigator research finds that a growing number of Americans blame corporate greed for those inflationary pressures. A majority of Americans now cite corporate greed as “a major cause” of higher prices we pay, and the number of Americans who believe corporate greed doesn’t play a role in price increases has decreased by three percentage points from January. An astonishing 71 percent of Republicans now acknowledge that corporate greed is playing a role in higher prices:

Unless Congress acts, millions of kids will go without school lunch

When the pandemic began to interfere with food distribution in March of 2020, Congress acted on a bipartisan basis to provide waivers to public schools to deliver school lunches and breakfasts to kids. Congressional Republicans and Democrats voted twice to renew the program as supply chain snags and inflationary price increases drove up the price of food. As a result, some ten million kids around the country have had access to nutritious breakfasts and lunches over the past two years.

But as Rachel Cohen notes at Vox, the program is set to end at the end of this month unless Congress renews it. But the renewal was surprisingly stripped out of the last Congressional spending bill, and now seven million kids from low-income households who were going to rely on the summer lunch program might go hungry.

“Many people would certainly like to see the waiver authorizing universal free meals made permanent, reducing the stigma for children and administrative burdens on parents and school districts,” Cohen writes. “But advocates say that’s not what this fight is about. Instead, they’re seeking just one more year of flexibility to help schools weather the inflation and supply chain crises, and to contact the millions of families who have not filled out school meal application forms for the last 2.5 years.”

If you want to reach out to your local legislator and urge them to renew the program, the excellent charity No Kid Hungry has shared a tool to make that act of advocacy as simple as possible. Kids who don’t eat healthy meals are less likely to learn. Cohen points out in her article that free and affordable school lunches are essential for learning and public health, and they increase attendance among poor and at-risk kids. So there are plenty of economic reasons to support the renewal of this program, but really, this should be a no-brainer: In America, no child should go without food.

The gig economy is ruthlessly exploiting workers

Our friends at the Economic Policy Institute report on a nationwide survey of gig economy workers, creating a sort of state of the union for those who work for Uber, Lyft, or delivery apps. What they found probably isn’t surprising to anyone who knows a gig economy worker, but it’s still sobering to see all the data in one place.

In short, gig economy workers are paid less than their hourly counterparts, they have less job security, and they have none of the benefits — including paid sick time and sexual harassment and discrimination protections — that traditional employees have access to.

Perhaps the single most damning figure in the whole report, though, is the fact that 14 percent of all respondents said they earned less than the federal minimum wage of $7.25 per hour. That’s one in seven gig workers who are earning less than the minimum wage, and nearly 30 percent of the gig workers report earning less than the minimum wage in the state where they work. Here’s how gig worker pay breaks down, compared to their counterparts in traditional work:

Additionally, more gig workers reported being unable to pay for food or to pay a utility bill in full than their hourly counterparts. And 30 percent of those who responded to the survey said they had to supplement their gig economy income through SNAP benefits, which means that we’re all subsidizing the exploitative practices of gig economy employers.

As to solutions, “One key to improving conditions for these workers is enforcement of existing federal wage and hour laws,” EPI writes. “DOL must hold companies accountable for misclassification and ensure that workers have access to fundamental workplace protections guaranteed them under federal law.”

In the conclusion to this email, I’ve written about an exciting new development here in Seattle that could change the game for gig economy workers around the country.

Democracy is in peril where income inequality is highest

In the May 30th installment of his excellent Substack The Liberal Patriot, John Halpin shares the discouraging results of a survey that explored how citizens of 9 western nations feel their countries are doing to protect democracy and democratic freedoms.

As you can see in this table, Americans ranked near the bottom of the survey, just behind Poland, when asked to rate how their well or badly democracy is working in their country:

I encourage you to go check out the whole report, which is a fascinating snapshot of the world in this moment, but because I spend my days viewing issues through an economic lens, I immediately noticed that a majority of respondents from nations that have less income inequality — Norway, German, Finland, Sweden — all report that democracy is doing well in their countries.

When an economy is more inclusive, the democratic process seems to be more inclusive as well. In nations like the United States that have higher inequality, respondents perceive the democratic process, and the rights that spring from that process, as being under attack. That’s not a coincidence. If people believe the wealthy and powerful don’t face the same consequences that they do for violating the law, their faith in the nation begins to crumble. Our massive inequality and our crumbling election system are not two separate problems — they’re interrelated, and as they decline, they make each other worse.

Real-Time Economic Analysis

Civic Ventures provides regular commentary on our content channels, including analysis of the trickle-down policies that have dramatically expanded inequality over the last 40 years, and explanations of policies that will build a stronger and more inclusive economy. Every week I provide a roundup of some of our work here, but you can also subscribe to our podcast, Pitchfork Economics; sign up for the email list of our political action allies at Civic Action; subscribe to our Medium publication, Civic Skunk Works; and follow us on Twitter and Facebook.

• On Civic Action Live this week, we’ll discuss how Seattle’s highest-in-the-nation minimum wage has become a factor in fighting income inequality, we’ll examine the latest jobs data to see if the labor market is still favoring workers, and we’ll discuss the ways in which the gig economy has exploited workers — and how some lawmakers are fighting back. Join us at 10:30 am PST.
• On Pitchfork Economics , Faiza Shaheen explains that massive income inequality doesn’t come standard with capitalism. America belongs to roughly a third of all capitalist nations that suffer from outsized inequality. About one third of all capitalist nations have relatively low income inequality, and another third are lessening inequality through policy interventions. Shaheen talks about what experts have learned from those capitalist economies that don’t have massive inequality — and what the U.S. can do to shrink the gap between the haves and have-nots.
• In his Insider column, Paul talks about how “belonging” is a better metric to measure the success of policies over simply “inclusion.” Laws that give people joint ownership over prosperity are always more successful than laws which simply require a set number of people to be included in the opportunity to prosper.

Closing Thoughts

At the opening of this email, I talked about Seattle leading the nation in the Fight for $15 — and how we’ve reaped the rewards of that move. I hope you’ll indulge me with a little more local conversation at the end of this email because two days ago, Seattle became the first U.S. city to require employers to pay gig-economy delivery drivers a minimum wage, rather than simply contracting their services for the time in which they’re actively engaged with customers on the app.

This is a huge deal for the workers who delivered our food and groceries throughout the pandemic, and it’s the beginning of a conversation that needs to happen as the gig economy continues to grow. While it’s true that many workers choose gig economy jobs because they like the scheduling flexibility offered through app-based employment, the contractor classification means that workers don’t enjoy the same benefits, safety regulations, and job security that other workers do.

For too long, employers have used the newness of app-based work to operate in legal gray areas. (To learn more about the human costs of these practices, look no further than the EPI survey of gig workers I mentioned earlier in this newsletter.) Gig economy employers kept labor costs low so they could hook customers and mow profits into rapid-fire growth strategies. But that’s an extractive policy that hurts workers and, in the long term, customers. This is only the first step toward rethinking a more sustainable gig economy that doesn’t treat workers like disposable cogs, and toward building a broad understanding that work is work, no matter what technology is involved. I look forward to watching this fight unfold across the country.

Be kind. Be brave. Get vaccinated — and don’t forget your booster.

Zach