September 18, 2006

KUFM / KGPR

T. M. Power

 

 

The Attack on the Proposed Inflation-Adjusted Montana Minimum Wage

 

            The Montana Chamber of Commerce has attacked the Montana minimum wage initiative that will be on the November ballot.  Rather than focusing its attack on the proposed increase in the Montana minimum wage from $5.15 to $6.15 per hour, the Chamber has attacked the proposed inflation adjustment that would be made in that minimum wage each year.  The Chamber claims that the one dollar minimum wage increase is a “Trojan Horse” that hides the future annual adjustments of the minimum wage that would be tied to the Consumer Price Index, the CPI. Adjusting Montana’s minimum wage in that way, the Chamber asserts, will “cripple” Montana’s small businesses. [1]

            This may be a shrewd political tactic by the Chamber given that polls indicate that 70 to 80 percent of voters approve an increase in the minimum wage. By focusing attention not on the proposed increase but on the technicalities of adjusting the minimum wage for changes in the cost of living, the Chamber hopes to suggest that there is a dangerous hidden agenda embedded in a this popular initiative.

            The Chamber’s criticism of the CPI adjustment in the minimum wage is that the CPI is based on price information gathered from relatively large urban areas and does not reflect the cost of living in Montana. In evaluating this claim it is important to keep in mind that the Montana minimum wage initiative does not propose to set Montana’s minimum wage by using the CPI.  What it would do is adjust Montana’s minimum wage for changes in the cost of living.  What is important is whether the changes in the CPI are an adequate indicator of changes in Montana’s cost of living. We certainly know that the cost of living in Montana has been steadily rising and that a CPI adjustment is far more accurate than the Chamber’s proposal which is to assume that the cost of living in Montana never rises and, therefore, the minimum wage need never be increased.

            Montana’s cost of living moves closely with the national cost of living because Montana is closely integrated into the national economy. For Montanans to gain access to the basic economic building blocks such as electricity, natural gas, gasoline, steel, copper, food, etc., we have to pay at least as much as other American’s do or no one will sell them too us. That is why our energy prices, our construction costs, and our food costs have been rising just like everyone else’s.  It also explains why the cost of medical care and college tuition in Montana, like in the rest of the nation, has been rising much faster than the overall rate of inflation.

Even the cost of housing in Montana has been skyrocketing just like across much of the rest of the nation. Analysis by the Minneapolis Federal Reserve Bank, the US Bureau of the Census, the Federal Deposit Insurance Corporation, and the Federal House Price Index all show that during the 1990s housing costs in Montana rose much faster than housing costs in the nation as a whole and in the 2000s Montana housing costs largely tracked the nation’s although in urban centers such as Missoula, the rise in housing costs was greater than in the nation. [2]

The point is that Montanans, like other Americans, are not protected from rising costs. We in Montana are subject to the same national and international economic forces. In addition, Montanans like most other Americans are urban and suburban residents. If we just look at Montana’s largest cities and their surrounding urban and suburban areas, over 70 percent of us are “urban.” If cities as small as 10,000 are included in the urban category, then close to 80 percent of us are “urban.” [3] That is why using an urban-based cost of living adjustment like the CPI is appropriate.

            The income of thousands of Montanans is already adjusted regularly by the CPI without catastrophic consequences. The CPI is use to adjust Social Security payments, federal and military pension payments, the federal tax brackets that determine our income taxes, food stamp benefits, support for school hot lunch programs and their prices, to name just a few.  A CPI adjustment is not some new insidious plot with which we have had no economic experience in Montana.

            More directly relevant, the poverty line in Montana is also adjusted by the CPI. Given that the minimum wage seeks to reduce the likelihood that the families of full-time workers at the lower end of the pay spectrum will live in poverty, it would be strange to raise the poverty level to reflect changes in the CPI but not raise the minimum wage in the same way.

            The consequences of not adjusting the minimum wage by the CPI are dramatic and devastating to the most vulnerable among us, the poorest tenth of our workers who would be directly affected by the new minimum wage. The Montana minimum wage has not been adjusted for nine years. As a result, the real purchasing power associated with that wage has declined by about a quarter, from $5.15 in 1997 to $4.10 today.  The purchasing power of the minimum wage has not been that low since 1955, a half-century ago. [4]   Average wages in Montana have increased by 33 percent and average incomes by almost 50 percent since 1997 but the minimum wage has not changed at all. As a result, while the minimum wage represented about 50 percent of the average wage in 1997, it represents only a little more than a third of the average wage today. [5] It has become a less and less adequate floor protecting full-time workers from poverty.  A family of two with an adult working full-time at the minimum wage is below the poverty line. A larger family with just one such worker would be drastically below the poverty line. [6]

            From the late 1960s through the early 1980s the purchasing power of Montana’s minimum wage was in the $7 to $8 range. [7] Montana’s economy grew and prospered during that period. Now we are told by the Montana Chamber of Commerce that a minimum wage of about $6, whose purchasing power was kept at that same $6 level, would destroy the Montana economy.  Apparently these business representatives believe that as a matter of public policy we should keep full-time workers and their children in permanent and increasing poverty.  That is both bad economic policy and a shameful ethical position.


[2] Fedgazette, March 2004, Growth in House Prices Moderated in 2003, Rob Grunewald, http://www.minneapolisfed.org/pubs/fedgaz/04-03/house.cfm ; Fedgazette, November 2004, The Price Is Right, Colbey Sullivan, http://www.minneapolisfed.org/pubs/fedgaz/04-11/housing.cfm ; Federal Deposit Insurance Corporation, State Profiles, http://www.fdic.gov/bank/analytical/stateprofile/SanFrancisco/Mt/MT.xml.html ; US Bureau of the Census, Historical Census of Housing Tables, Home Values, http://www.census.gov/hhes/www/housing/census/historic/values.html ;  Office of Federal Housing Enterprise Oversight, September 5, 2006,  http://www.ofheo.gov/media/pdf/2q06hpi.pdf .

[3] Montana Census and Economic Information Center, http://ceic.mt.gov/Demog/estimate/pop/County/CO-EST2005-01-30.htm .

[4] Montana Department of Labor and Industry, Minimum Wage Fact Sheet, http://www.ourfactsyourfuture.org/admin/uploadedPublications/1435_Minimum_Wage_Fact_Sheet.pdf .

[5] Montana Department of Labor and Industry, Average Weekly Wage Data, http://www.ourfactsyourfuture.org/?PAGEID=67&SUBID=229

[6] Montana Department of Labor and Industry, Labor Day Report 2006, page 9, table 7, http://www.ourfactsyourfuture.org/admin/uploadedPublications/1589_Labor_Day_Report_06_Web.pdf

[7] See footnote 4 above.