Soaring income inequality is increasingly the story of our economy and Metro areas like Louisville are becoming a tale of two cities. In 2012, the average income of the richest 5 percent of Louisville households was over $260,000, while the poorest 20 percent averaged just $9,000.
The U.S. Conference of Mayors recently released a report calling widening income inequality “an alarming trend that must be addressed,” saying that “the nation’s mayors have an obligation to do what we can to address issues of inequality in this country while Washington languishes in dysfunction.”
One way a growing number of cities are acting is by increasing their minimum wage. To date, 14 U.S. cities and counties have raised their minimum wage above their state’s minimum, joining 25 states plus the District of Columbia that now have a higher minimum than the federal floor of $7.25. Louisville Metro Council members recently introduced an ordinance to increase the minimum wage here.
Localities are taking action because the federal government has let the real value of the minimum wage erode over time. It’s now worth 25 percent less than it was at its peak in 1968.
That’s made the gap grow between the minimum wage and what it takes to afford the basics like housing, gas, child care and other necessities. A family of four in Louisville needs about $61,000 a year for a “secure yet modest” standard of living, while a family of two needs $43,000, according to a national study. But a full-time, year-round minimum-wage worker makes only about $15,000.
As a result, more than half of all fast food workers around the country rely on food stamps and other public benefits to make ends meet.
Those workers at the bottom — who often work in restaurants, retail stores and motels — have little control over their wages because they lack adequate bargaining power with their employers. So worker productivity, profits and incomes at the top rise even as wages at the bottom remain stuck.
My organization recently produced a report analyzing who in Louisville would benefit from increasing the minimum wage to $10.10 an hour over three years, as proposed by Metro Council members.
Using U.S. Census data, we estimate that 22 percent of workers would get a raise, including 16 percent who would otherwise make less than $10.10 and another 6 percent who make slightly above $10.10 but are also likely to get a small increase when the floor is raised. That’s 62,500 workers who would benefit directly and another 24,800 indirectly.
Contrary to common assumptions, these workers are overwhelmingly adults, not teenagers. Ninety-two percent are at least 20 years old. In fact, more workers over the age of 50 would benefit than teens. Sixty-three percent of those who would benefit work full time.
Also contrary to the claims of opponents, minimum wage increases are a big help to workers who live in poverty and near-poverty. Seventy-seven percent of workers whose family incomes are below the poverty line would benefit, along with 53 percent of workers whose family incomes are a little above poverty but are still considered low-income. Most of the beneficiaries are women. And an estimated 3,300 veterans would get a raise.
Minimum-wage increases are often met with claims about big job loss. But a growing body of research shows that reasonable minimum-wage increases have little to no negative effect on employment, including at the local level.
Rigorous studies of minimum-wage increases in Santa Fe and San Francisco found no statistically significant negative effects on jobs or hours worked, as have studies of bordering counties between states after one state raises its minimum wage.
The fact is that employers save money through reduced employee turnover due to higher wages, and many businesses benefit from the extra spending in the local economy by workers who get a raise. A higher minimum wage also levels the playing field for businesses that already believe in paying adequate compensation, allowing them to compete fairly with profitable corporations that keep wages down.
For Louisville to prosper, more of its jobs must be economy boosting, not economy busting. Lifting the wage floor is a key way to help workers, families and the city as a whole.