WAGES

Our economy is radically unfair. In Rhode Island, as well as the rest of the country, inflation vastly outpaces wage growth for all but the very richest Americans. This trend has endured for decades. In fact, after adjusting for inflation, most Americans have seen no significant wage increase since the early 1970s. This problem is especially acute for those in the lowest income bracket. If the minimum wage had merely kept pace with inflation over the last fifty years, it would be approximately $19 per hour. Our state falls far short of this. The minimum wage in Rhode Island is only $10.50 per hour. And tipped employees are treated even more unfairly. Rhode Island’s “tip credit” system allows employers to deduct the money that their employees receive in tips from their paychecks, effectively confiscating much of the money that tipped employees like waiters and waitresses have rightfully earned.

This causes immense suffering to tens of thousands of our state’s residents. Fully 12.9% of Rhode Island’s population live below the poverty line, in large part because a minimum wage job in our state is simply not enough to escape poverty. People working minimum wage jobs are unable to afford basic necessities like food. Approximately 11% of Rhode Island households suffer from chronic food insecurity. Housing is also out of reach for minimum wage earners. A Rhode Island resident earning minimum wage has to work sixty-six hours per week to afford the fair market value of a modest, one-bedroom apartment, and they have to work seventy-nine hours per week to afford a two-bedroom apartment.

Research consistently indicates that increasing the minimum wage benefits the economy. Most significantly, raising the minimum wage can help reduce what economists refer to as the “deficient aggregate demand problem,” a technical term that refers to the fact that our economy routinely produces more goods and services than people can afford to buy. Raising the minimum wage helps to address this problem by increasing the purchasing power of low-income workers. Because they lack substantial savings to draw on, these individuals quickly use the additional money that they receive from a minimum wage increase, prompting consumer spending growth, and increasing sales and profits for local businesses. Conversely, because the super-rich can already afford everything they want to buy, they are unlikely to actually spend the money that they receive from a pay raise. Instead, they are more likely to simply transfer the additional funds to out-of-state bank accounts, where it contributes virtually nothing to Rhode Island’s economy, worsening the aggregate demand problem. In effect, raising the minimum wage redistributes money towards the working class, the people who most reliably spend their earnings on in-state goods and services, stimulating our local economy.

The super-rich regularly insist that raising the minimum wage will harm small businesses, and may even force them to fire some of their employees. The empirical evidence does not support this claim. A close look at the effects of state-level minimum wage increases since 1979 reveals no overall change in the level of employment for those states. This finding has been replicated again and again and again, including at the federal and municipal levels. In fact, researchers often find that raising the minimum wage tends to increase employment, especially in low-wage industries that are most substantially affected.

Economists typically cite two main reasons why increasing the minimum wage does not reduce employment. First, demand for labor is relatively inelastic, which means that it is fairly unresponsive to changes in price. This is not surprising because the typical employee produces far more profit for their employer than the cost of complying with the wage hike. Demand for labor is especially inelastic right now, because the minimum wage remains so low that many firms can systematically underpay their workers, even if their businesses are extremely profitable. Essentially, this means that employers would make more money by retaining their employees after a minimum wage increase than they would by firing those employees and reducing their sales.

Second, economists have found that increasing the minimum wage tends to reduce the costs associated with employment turnover. Filling job vacancies is an expensive, time-consuming, and labor-intensive task which is particularly burdensome for small businesses. Minimum wage jobs have unusually high turnover rates. This increases what economists refer to as “friction” within the low-income labor market, a technical term that describes the time, money, and effort that prospective employers and prospective employees must invest to locate one another. A high-friction job market is costly and inefficient, harming both workers and employers. Raising the minimum wage reduces turnover rates in the low-wage labor market by encouraging employees to stay at their current jobs, reducing the level of friction. This allows workers to enjoy greater job stability and allows businesses to pocket the money that they would otherwise spend on continuously filling new vacancies.

The median level of wealth for white families is $171,000. For black families, it is $17,600. For Hispanic or Latinx families, it is $20,700. The racial wealth gap is exacerbated by systemic disparities in income. Decisions regarding whom to hire, train, and promote reflect enduring patterns of racial discrimination, creating a system which forces nonwhite individuals into minimum wage jobs far more often than their white counterparts. Approximately 42% of all workers earn less than $15 per hour, but this number is over 50% among African American workers and nearly 60% among Hispanic or Latinx workers. Because nonwhite individuals disproportionately hold minimum wage jobs, raising the minimum wage would reduce the racial disparity in income which would in turn reduce the racial disparity in wealth. Increasing the minimum wage is a critical component of any serious project to build a fair and racially-inclusive state.

Tiara supports the implementation of the ABC Test. The ABC Test, passed by California last year, provides a stricter definition of an independent contractor. To be an independent contractor, the company must prove that the worker is free from the company’s control, performs work outside the company's primary business, and is regularly engaged in the trade the worker is hired for, independent of work for the company. In reality, what this means is that many gig economy workers (Lyft, Uber, etc…) who were previously classified as independent contractors can now be considered employees. This is a win for labor advocates in California, as companies now must pay them minimum wage and give them overtime protection. These companies have been exploiting their workers for too long under the guise of flexibility. Members of the gig economy deserve to be considered employees, and Tiara will fight to make this a reality in Rhode Island.