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Emotions running high over minimum wage-related issues

When U.S. lawmakers enacted national minimum wage legislation in 1938, it was far from pioneering. New Zealand and Australia established minimum pay legislation in the 1800s. In the U.S., the first attempt at establishing a national minimum wage law in 1933 was successful, but was subsequently ruled unconstitutional by the U.S. Supreme Court in 1935 and abolished. National minimum wage law was established for good in 1938 as part of the Fair Labor Standards Act, and was set at 25¢ per hour.

Nearly 70 years later, the issue of minimum wage still raises the blood pressure of those on both sides of the debate, and the volume of the “discussion” has only increased. Not only is a hike in the national minimum wage currently being debated in both houses of Congress, a bill was introduced in the Mississippi Legislature earlier this year that would establish, for the first time, a separate state minimum wage in the Magnolia State.

While emotions run high, there is objective data available that show what effect raising the minimum wage would have on workers as well as business here at home. Unfortunately, that data establish that raising minimum pay would adversely affect some workers while benefiting others, and the same is true for business and industry. In other words, there is no win-win situation here, so the debate will almost certainly continue unabated.

Yes or no?

According to the U.S. Department of Labor, 29 states plus the District of Columbia and the Virgin Islands have separate minimum wage regulations set higher than the national minimum. (One state, Kansas, actually has a state minimum wage lower than the national standard.)

Only five states have no separate minimum wage law, and they are all in the Southeast. They are Alabama, Tennessee, South Carolina, Louisiana — and Mississippi. North Carolina’s minimum wage is $6.15 per hour, Arkansas’ is $6.25 per hour while Florida’s is $6.67 per hour.

It remains questionable whether Mississippi will be joining those states with separate minimum wage laws this year. During the current session, District 1 Rep. Rickey Cummings introduced HB 237, also called the Mississippi Working Person’s Act. It would establish Mississippi’s minimum wage at $6.25 per hour beginning July 1, 2007, and $7.25 beginning January 15, 2008, mirroring the national standard. The bill was amended and then passed by the Mississippi House of Representatives, and has been referred to the Mississippi Senate Labor Committee. As of February 9, the committee had not acted on the bill.

And, it may not. Mississippi AFL-CIO president Robert Shaffer, in a statement to the Associated Press, said he thought Mississippi lawmakers would wait and see what happened in Washington concerning increasing the national minimum wage. Shaffer said he hopes not, because the national legislation is also facing an uncertain future.

Indeed, the U.S. House of Representatives and the U.S. Senate have passed their own versions, which differ, particularly the U.S. Senate’s inclusion of a tax break for small businesses. Considering the partisanship and political volatility that exists over the issue, getting a compromise bill may be a tall order. Whether Republican President George W. Bush would sign it if it did pass is just as iffy.

Just the facts

“There needs to be more objective discussion on exactly what raising the minimum wage would mean to workers and businesses here in Mississippi,” said Dr. Marianne Hill, senior economist with the Mississippi Institutions of Higher Learning (IHL).

Hill has written an article that appeared in the June 2006 issue of the IHL’s Mississippi Economic Review and Outlook titled “Raise the Minimum Wage? A Perennial Issue.” Hill offers concrete numbers on the issue, many of which are surprising.

According to data she obtained from the Bureau of Labor Statistics (BLS), only approximately 2.6% of hourly workers in Mississippi were paid at or below the minimum wage in 2004, which was actually lower than the nationwide average (2.7%).

According to BLS reports, there were more workers paid less than minimum wage (11,000) than were paid the minimum (6,000). Hill wrote, “To the extent that workers are exempted from minimum wage coverage, they would not be covered by the proposed new minimum wage, either.”

Hill also found that bumping up the minimum wage to $7.25 per hour would only increase total wages paid in Mississippi by approximately 0.2% annually for two years. “The increase is low because minimum wage hourly workers take up such a small percentage of total employment and even less of the total wage bill,” she wrote.

Opponents of minimum wage often point to the potential adverse effect on employment due to an increase in payroll. Hill found it difficult to isolate the effect of changes in the minimum wage on aggregate employment. However, she points out that following the last minimum wage increase (1997-1998), Mississippi saw strong employment growth, and studies have shown little impact on employment nationwide.

“However, a higher minimum wage does tend to reduce the number of hours of labor demanded by employers, while increasing the willingness of labor to work those hours,” Hill wrote.

As far as the effect on business and industry, Hill found that “low-profit firms with a high percentage of minimum wage workers are particularly affected.” And, “the industry breakdown of workers earning the minimum wage or less (when the last minimum wage hike was enacted) shows that 30% were in retail trade, 19% in professional and related, 17% in manufacturing, 6% in personal services, 6% in agriculture/forestry/fisheries and 4.5% in construction.”

In synopsis, Hill found that some workers and industries would be positively affected by increasing the minimum wage, while others would see an adverse impact. In conclusion, she wrote, “In any case, knowledge of basic data relating to costs versus benefits, including the statistics provided here, enables a more informed debate.”
(Hill’s article can be found in its entirety at http://www.ihl.state.ms.us/urc.html/. Click on the Mississippi Economic Review and Outlook link, then choose “June 2006.”)

Supply and demand

Hill did say she was aware of an industry wiped out by minimum wage. There was once a lace-making industry in Puerto Rico. Women made the lace by hand, but when minimum wage was enacted, the industry simply could not absorb the extra costs.

That example boils labor down to what it is — a commodity. After wading through all the numbers and navigating through all the emotions, what is left is an issue of supply and demand, said Dr. William Gunther, economics professor at the University of Southern Mississippi.

Gunther’s numbers back up Hill’s findings. Some workers and industry would benefit, others would hurt. It is all about market forces.

“There are many labor market areas where the market wage is already above the federal minimum wage. How many workers can you find along the Gulf Coast for $5.15 per hour? Not many, I suspect,” he said.

“The sad fact is that the U.S. labor force is growing at a very low historical rate. In the 1960s, it was not uncommon to have labor force growth of 3%-plus annually as the baby boomers entered the labor market. Now with the population aging, labor force growth of 1% is more normal. And, in states with low immigration (including Mississippi), it could be difficult to get to 1%. This means there is going to be market pressure on wages for some time to come.”

Contact MBJ staff writer Wally Northway at northway@msbusiness.com.

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