At Dr. Bronner's, the company I run with my family, we believe that we can only prosper in the long run if we contribute to the prosperity of society as a whole. It's why we strive to compensate all our staff fairly, cap executive compensation at five times the lowest paid position, and dedicate profits to support and advance progressive causes.
It's also why we've joined the growing movement to raise the minimum wage. When a person working 40 hours a week can't cover the basic costs of living, there's something deeply wrong with our economic system. Paying workers fairly isn't just the right thing to do, it's what makes our communities and businesses thrive: happy employees mean lower turnover and higher productivity, and results in workers who make more and spend more, which puts money back into the economy, rather than force them to get by on public assistance programs.
While the economy as a whole and the wealth of the richest has grown enormously in the past fifty years, hard-working Americans have been left behind. The federal minimum wage has been stuck at $7.25 an hour⎯just $15,080 a year for full-time work⎯ since 2009. Today's minimum wage has a third less buying power than in 1968. Had it kept up with the rising cost of living since 1968, the federal minimum wage would be nearly $11 an hour now. Approximately 75 percent of Americans, representing all demographics and political parties, support raising the federal minimum wage. On average CEO pay is now 875 times more than the federal minimum wage, and the median real wage has stayed flat for decades while executive compensation has sky-rocketed. (For all sources see: Business for a Fair Minimum Wage.)
Since 2014, twenty-six states and Washington, D.C. have raised or are proposing to raise their minimum wage. Many cities, especially those with high costs of living like Seattle, San Francisco and Los Angeles, have made headlines with their plans to make incremental raises to $15 by 2020. However, even red states with lower costs of living, such as South Dakota and Nebraska, have recently enacted substantial increases (to $8.50 and $9 by 2016 respectively).
2016 promises to bring more minimum wage action with groups in five states already proposing ballot measures for a November vote: California (to $15 by 2020 or 21); DC (to $15 by 2020); Maine (to $12 by 2020); Colorado (to $12 by 2020); and Washington (to $13.50 by 2020). Most recently, Oregon lawmakers passed legislation to be signed into law this month, which enacts a regional tiered approach, increasing the current $9.25 statewide to $14.50 in metro Portland, $13.50 in smaller cities, and $12.50 in rural communities by 2022. Once implemented, the minimum wages in all these states would rise by cost of inflation each year, ensuring that wages keep up with cost of living and not drift out of date.
While the varying proposed minimum wage levels in different cities and states may, at first glance, seem random, when we adjust for inflation over time, and account for substantial regional differences in cost of living and purchasing power, the picture becomes a lot more coherent. Two different economic think tanks have addressed inflation and regionalization separately, and combining their insights should provide comfort for business owners and a clear and fair path forward for policy makers.
The Economic Policy Institute (EPI) recently analyzed what proposed wages in 2020 would be in today's inflation-adjusted dollars. Across the board, when adjusted for inflation, the real dollar value of these raises looks significantly less intimidating. To reach their conclusions, EPI looked at often-used inflation projection numbers from the Congressional Budget Office (CBO), Office of Management and Budget (OMB), and Moody's. EPI determined that a $12 minimum wage in 2020 as proposed in Colorado and Maine, would have a value between roughly $10.75 and $11.00 in 2016 dollars, depending on projections. The minimum wage of $13.50 in 2020 proposed for Washington, equals between $12.07 and $12.39 in 2016 dollars. The two proposals in California would raise the state's minimum wage to $15 an hour, by either 2020 or 2021. A minimum wage of $15 an hour in 2020 is the equivalent of between $13.41 and $13.76 in today's dollars, depending on the forecast. These inflation-adjusted numbers make clear that the increase in the minimum wage, combined with an incremental multi-year phased approach, is not a big deal for businesses large and small--or the economy as a whole--to handle.
In a separate analysis, Third Way recently proposed that the federal minimum wage should take a regionally tiered approach, reflecting different costs of living and purchasing power between states, cities and rural areas. Third Way points out that compared to the national average, high-cost of living cities like San Francisco, New York and Washington, D.C. can be up to 20 percent or more expensive, while more remote rural areas can be 20 percent or more below average. They propose setting the national average minimum wage as of November 2015 at $10.60 or one-half of the median private sector non-supervisor wage ($21.19). They then suggest adjusting for the different costs of living and purchasing power of different regions (Regional Price Parity or RPP), and propose five tiers of the minimum wage so that the purchasing power is roughly the same regionally across the country: tier 1 corresponds to rural regions with the lowest cost of living and highest purchasing power, and tier 5 to highest-cost urban areas with the lowest purchasing power. The results of this effort are shown in their Table 3, where the proposed minimum wages for different tiers, when regionally-adjusted in terms of Purchasing Power (PP), are supposed to all be pretty much at the target of $10.60 (see right hand column of Table 3).
Indeed, the proposed minimum wages for Tiers 2 ($9.80), 3 ($10.60) and 4 ($11.40) all result in regionally adjusted Purchasing Power of close to $10.60. However, Third Way fails to adequately follow through on their logic for their proposed minimum wages for the bottom and top (1 and 5) tiers. Their proposed minimum wages for these tiers are $9.30 and $11.90 respectively. These do not result in a regionally-adjusted purchasing power close to $10.60; rather as the right hand column of Table 3 shows they are more like $11.74 and $9.73 respectively. In order to reach the correct purchasing power close to $10.60, the correct proposed minimum wage for the top tier 5 should be more like $13.00.
Interestingly, when we correct for Third Way's logic at the top, Tier 5, for noted high cost of living cities, and apply the CBO's inflation projections through 2020, $13.00 today would be $14.47 in 2020, pretty close to the proposed $15 by 2020 in various cities. Similarly, the proposed national average Tier 3 minimum wage of $10.60 today, when inflation-adjusted for 2020 by CBO's numbers, is $11.79, pretty close to the proposed $12 in states like Colorado and Maine that largely fall in the middle Tier 3 of Third Way's analysis, as far as cost of living is concerned (Denver excepted). Note that Third Way proposes that the regional minimum wages they suggest be automatically adjusted every three years by the increase in the median wage, not by inflation, which may not keep up with cost of living. They also suggest that local higher minimum wages should continue to supersede the federal minimum wage floor as they do now. This detail is crucial, as is the need for local governments at both the city and county level to maintain control of the ability to set wages.
The state of Oregon, as mentioned above, just recently enacted regionally tiered minimum wages that will be phased in and fully effective by 2022: $14.50 in Portland, $13.50 in smaller cities and $12.50 in rural areas. Labor groups were in the lead on behalf of impoverished Oregonians, placing measures on the ballot for $15 and $13.50 minimum wages statewide by 2020. That provided the crucial leverage that galvanized the legislature and governor's office to act. Stan Amy, co-founder and board member of the Oregon-based natural products retail chain, New Seasons, and founder of North Star Civic Foundation, deserves credit for helping mobilize progressive business stakeholders to get onboard with the more ambitious and more quickly implemented tiered approach than what was ultimately passed. While conventional business interests opposed to any raise in the minimum wage successfully lobbied to lower and prolong implementation of the regional wages, this legislative victory is still a monumental achievement. A very similar dynamic may well play out this spring in California with the statewide ballot measure for $15 providing necessary impetus to overcome the usual legislative inertia.
Dr. Bronner's is on the Steering Committee of the D.C. for $15 campaign this cycle, and has pledged $500,000 to minimum wage battles around the country, including the D.C. effort. We believe a multi-tiered regional approach based on local costs of living and purchasing power, phased in over time and benchmarked to inflation once fully implemented, is the fairest policy with the best chance of passing at the federal level. We encourage progressive businesses in the natural products industry and beyond to engage and spread the word. Let's be the "unusual allies" advocating an incremental, regional yet ambitious wage increase for hard-working Americans everywhere. Dr. Bronner's is excited to closely partner with The Fairness Project, which is bolstering state-based minimum wage ballot campaigns and driving a national narrative to elevate issues of economic fairness, and Business for a Fair Minimum Wage, which has called for a federal increase in the minimum wage to at least $12 by 2020. We encourage all citizens and businesses to donate and join. It's past time to pay the workers who make our collective wealth possible their fair share. Raise the minimum wage now!