Two bills introduced this month in the state legislature call for substantial changes to wage minimums. One bill would hike the state minimum wage from $9.00 to $10.10, while another would gradually increase the subminimum wage for tipped workers to equal the regular minimum wage by 2020.
If passed, the first bill — introduced Feb. 5 by Rep. David Bennett, D-Warwick — would cause the fourth increase in the baseline pay rate in four years. The minimum wage climbed from $7.40 to $7.75 in 2013, rose to $8 in 2014 and jumped to $9 just last month.
Between 5 and 8 percent of the state’s labor force, or about 30,000 to 45,000 workers, would be affected by the bill, according to estimates by the Rhode Island Department of Labor and Training and the Economic Policy Institute, a Washington-based think tank.
The average minimum wage in New England stands at about $8.70, though Connecticut, Massachusetts and Vermont all plan to hike their minimum wages by $1 or $2 over the next two years. The federal minimum wage rests at $7.25.
The second bill — introduced Feb. 12 by Rep. Aaron Regunberg, D-Providence and Sen. Gayle Goldin, D-Providence — would cause the subminimum wage for tipped workers to jump from its current level at $2.89 to equal the regular minimum wage by 2020. This would mark the rate’s first increase in the last 20 years.
The legislation calls for incremental increases of $1.50 per year, starting next year, Regunberg said.
Inflating expectations
Though legislation that hiked Rhode Island’s minimum wage from $8 to $9 last month originally called for the rate to increase to $10 in 2016 — accounting for subsequent indexing to inflation — those additional provisions were removed from the bill.
This year’s bill does not include inflation indexing, which would increase opposition to the bill, Bennet said, citing problems that could arise from indexing in instances of an economic downturn. Eleven states currently index their minimum wages to inflation, the Washington Post reported.
The bill was presented to the House Committee on Labor Feb. 5 and was held for further study, Bennet said.
Governor Gina Raimondo has said she would approve the bill were it to pass in both houses, Regunberg said.
A national debate
As the widespread debate about income inequality takes center stage in the U.S., many Americans look to the minimum wage as a means to narrow a widening fissure.
The majority of Americans are in favor of a minimum wage increase, according to polls by several major news outlets and research institutions, including CBS News, the New York Times and the Pew Research Center.
In his recent State of the Union address, President Obama once again urged Congress to raise the national minimum wage to $10.10. But his call for federal involvement in the setting of a base rate has been futile — minimum wage legislation has only been introduced at the state level since the last federal hike in 2009.
While the majority of Americans are in consensus, economists seem divided on the issue, with 47 percent of economists with PhDs supporting the elimination of the minimum wage, 14 percent in favor of maintaining it at its current level and 38 percent in favor of increasing it, according to a 2006 survey by Robert Whaples, professor of economics at Wake Forest University.
While a number of empirical studies, including the work of renowned labor economists David Card and Alan Krueger, have demonstrated that modest increases in the minimum wage may not adversely affect employment, others confirm the classical theoretical economic framework that says minimum wage hikes lead to unemployment.
Nathaniel Baum-Snow and David Weil, professors of economics, agreed that disparities in minimum wages across state borders raise a number of issues.
A minimum wage hike causes the cost of labor of firms selling tradable goods to increase, and therefore may incentivize firms to move to where labor costs are cheaper. In addition, firms selling non-tradable goods, such as restaurants or barber shops, may be driven to increase prices, Baum-Snow said.
The minimum wage also targets a unique demographic of workers. Approximately 25 percent of those paid minimum wage are teenagers and 50 percent are under 25 years old, according to the Bureau of Labor Statistics. The majority of minimum wage workers are also unmarried, according to the bureau.
Studies have shown that when the minimum wage rises, some high school students choose to drop out and immediately enter the labor force. Several countries, such as England, have instated a minimum wage restricted to individuals 21 and older.
Alternative ideas
Weil highlighted alternative programs to the minimum wage that would target growing inequality in the U.S. One such alternative is the Earned Income Tax Credit — a government program that supplements the incomes of low-wage workers. A worker’s EITC grows with each additional dollar of income until reaching the maximum value, creating an incentive for workers to leave welfare and for low-wage workers in particular to increase their work hours.
Weil also mentioned progressive taxation and government spending on education as alternatives that reduce inequality.
“If I were a dictator, I would use the EITC rather than the minimum wage as a means of reducing income inequality,” Weil said, citing that while all consumers pay for the minimum wage through higher prices, progressive taxation could finance the EITC. “I would also focus on providing education and skills, rather than providing handouts,” he added.
But given today’s challenging political climate, Weil said he supports modest increases in the minimum wage as a means of reducing income inequality.
Subminimum adjustments
While the bill introduced by Regunberg and Goldin stipulates that the hourly wage of tipped workers increase, subminimum wage workers would still be able to receive tips, as is the case in seven states in which the subminimum wage is equal to the minimum wage.
“We have the lowest subminimum wage in New England,” Regunberg said, adding that tipped workers are twice as likely to live in poverty as non-tipped workers in the Ocean State.
“There is a misconception that tipped workers are younger people, but the reality is that a strong majority of tipped workers in Rhode Island are adults,” he said, adding that the median wage for tipped workers is 28, and a quarter of these workers are older than 45.
Approximately 70 percent of subminimum wage workers are women. Reducing the subminimum wage could help close the gender wage gap and reduce poverty, he said, noting that states without a subminimum wage have a lower gender wage gap and lower poverty rates. Research has also shown that in states that have phased out the minimum wage, menu prices have remained relatively constant and restaurant profits have remained stable, he added.
The bill has garnered the support of the majority of members of Congress and state representatives, with 32 cosponsors in the House and 23 in the Senate, Regunberg said.
“When they banned indoor smoking in restaurants 10 years ago, people said restaurants would pick up and move,” Regunberg said. “People and businesses adjusted.”
