(MintPress) – It’s an economic platform that New York City Mayor Michael Bloomberg compared to a “big managed economy” like that of the old USSR. For Bloomberg, the suggestion that two bills recently passed by New York City’s City Council were harsh enough to echo a communist reference has been seen as a reach for some, particularly when the bills pertain to raising minimum wage.
Bloomberg is now suing the City Council, saying the Council’s push to increase the minimum wage and prevailing wage infringes on the mayor’s power. But an increase to the minimum wage could help consumers combat inflation and better their purchasing power.
Despite the initial veto from Bloomberg, the City Council passed a living wage measure that would require employers who receive more than $1 million in taxpayer subsidies to pay their workers at least $10 an hour with benefits or $11.50 an hour without benefits. The prevailing wage bill would increase wages to $20 an hour for certain service workers in buildings that receive more than $1 million in subsidies, or where the city leases a certain amount of property.
Bloomberg criticized the council, saying that’s not the way the free market works. He argued that a set requirement to pay higher minimum wages would create higher job loss rates and discourage future companies from doing business in New York City. Formal complaints in the lawsuit say that the City Council does not have the power to set minimum wages, arguing that only state and federal governments have that capacity. It also claims that the mayor has the sole right to set terms of real estate deals as they pertain to New York City.
In a written statement, Council speaker Christine Quinn opined that Bloomberg was playing politics and was using the lawsuit as a means to reject the legislation while saving face.
“It is disappointing that the mayor has chosen to challenge these laws rather than enforce them,” she wrote. “The Council stands by this legislation, and we look forward to proving our case in court.”
Under current law, a state, city or other local law official may set a minimum wage standard if the job it affects is not subject to the Fair Labor Standards Act. Eighteen states currently have a minimum wage that is higher than the federal standard of $7.25.
A tale of two cities
At the beginning of the year, San Francisco increased its minimum wage to $10.24 – the highest rate in the nation. Despite the unprecedented figure, the San Francisco Living Wage coalition has argued that the pay rate is still far too low when one accounts for inflation and the city’s cost of living. The coalition said that a living wage in the city would be $15 an hour, while a parent with children would need to make $36 an hour.
But the business community in San Francisco lambasted the coalition’s claim and said that the business district, mainly restaurants, has already been suffering with the added expenses by having to cut staff or increase the prices of services or menu items to make up for it.
California State University, Northridge economics professor Shirley Svorny said that business reaction is predictable, particularly in today’s struggling economic climate.
“Minimum wage forces employers to pay employees at such a rate that the price of goods goes way up. That affects consumers, especially young people,” Svorny told the Daily Sundial. “Employers don’t have that much incentive to hire young college-aged students to pay minimum wage to. It in some ways hurts the same people it is trying to help.”
But a study by the Center for American Progress Action Fund reported that increasing minimum wage does not kill jobs, particularly during an economic downturn, like many business owners is San Francisco suggested. The study examined states’ minimum wage fluctuations throughout the recession and during other points between 1990 and 2011.
“Of the 35 cases where a state minimum wage was increased during a period of high unemployment, 21 saw job increases over the next year at a rate faster than the national average, while 14 witnessed job growth at a rate below the national average,” the study’s authors reported. “The average rate of job creation for a state after a minimum wage increase during a period of high unemployment was 0.48 percentage points above the national average. The median employment growth was also slightly above the national average.”
On the other end of the spectrum is Scranton, Penn., where the city’s mayor used the minimum wage as a cost-cutting measure as the city explores ways to erase a growing deficit. Mayor Chris Doherty reduced the pay of the city’s police, firefighters and other public workers to $7.25 an hour, causing backlash and several lawsuits filed by unions on behalf of the workers.
Different visions of a fix
If the federal minimum wage had kept up with the rate of inflation over the past 40 years, it would currently sit at $10.55 instead of $7.25. RaisetheMinimumWage, a project of the National Employment Law Project, said. America’s poorest paid workers would be making $23 an hour if minimum wage had kept pace with the rise of executive salaries since 1900.
The project advocates raising the minimum wage to increase the purchasing power of millions of Americans, which would benefit consumers but also alleviate a portion of the country’s budget deficit, the group said.
“By boosting pay in the low-wage jobs on which more families are relying than ever, a stronger minimum wage will help restore the consumer spending that powers our economy and that local businesses need in order to grow,” the group wrote. “A robust minimum wage is a key building block of sustainable economic recovery.”
Currently, 1.8 million workers in American earn an hourly pay of $7.25, while 2.5 million workers earn less per hour due to certain exemptions, such as being a tipped worker in the restaurant industry.
But Svorny feels that increasing the minimum wage would hardly make an impact for the economy when the average American is thousands of dollars in debt. He said maybe a couple dollars more per hour would benefit the worker’s household, but it would be far from the push toward economic recovery that RaisetheMinimumWage was referencing.
Instead, he noted, those making minimum wage or being deemed low- and medium-income individuals or couples should worry more about keeping the earned income tax credit (EITC) alive. The credit provides a refund for those who qualify within the income brackets and when their qualifying credit exceeds the total amount of their taxes owed. The maximum EITC for a single person or a couple with a child is nearly $3,100.
“While it is true and not unprecedented for cities and states to set their own minimum wage to reflect their average cost of living, if you really care about the working poor you shouldn’t be looking at the minimum wage,” Svorny said. “It doesn’t really have that much effect on the poorest Americans. You should be looking at earned income tax credit if you really want to help the poor. The money that they will earn from the tax credit far exceeds any profits they’d make from the increase in minimum wage.”