Wisconsin needs a minimum wage increase

Creating good paying jobs and a “high end" economy is a top priority for Governor Jim Doyle's administration. A key focus of the Governor's Grow Wisconsin economic development plan is investing in people and helping families climb the economic ladder. One of the most important initiatives in the Governor's plan is raising the state minimum wage. Such an increase ensures that Wisconsin's lowest wage workers will share in the benefits of economic growth as Wisconsin's economy moves forward.

This is a critical time for Wisconsin to support low-wage workers by increasing the minimum wage. In 2004, the federal minimum wage will fall to its lowest inflation-adjusted value of all time. The buying power of the minimum wage in 1970 equaled about $8.00 in 2003 dollars. Given the declining value of the minimum wage and the lack of federal action to increase it, 12 other states have already established minimum wages above the federal level.

When wages are so low that workers and their families can't afford their most basic needs, the costs that society, particularly taxpayers, must bear related to poverty are so insidious that anything that helps divert those expenses back to the consumers of the services provided by those low-wage workers is worthwhile. Educational failure, workforce failure, citizenship failure can very often be traced back to families forced to live in poverty. An adequate minimum wage supports workers, helps strengthen families and communities, and promotes the state's overall economic and fiscal health. Family-supporting wages reduce dependence on the state and increase tax revenue from these families, decreasing the burden on Wisconsin's taxpayers.

It is estimated that 200,000 workers will be affected by Wisconsin's minimum wage increase. Many of these workers are adults and a larger than proportionate share are minorities. Putting more money in the hand of these low-wage workers will result in $175 million in consumer expenditures in Wisconsin's economy. Low-wage workers spend nearly their entire income in the local economy on basics. This spending stimulates the local economy and benefits local businesses because spending is concentrated locally on food, clothing, shelter, and transportation. Evidence of a negative effect on employment opportunities available to low-wage workers as a result of a minimum wage increase is inconclusive as both advocates and opponents are able to produce studies supporting their side of the issue.

Minimum wage increases

Chapter 104, Stats., and Chapter DWD 272 provide that Wisconsin's minimum wage should be sufficient to enable the employee receiving it to maintain himself or herself under conditions consistent with his or her reasonable comfort, physical well-being, decency, and moral well-being. Section 104.04, Stats., directs the Department of Workforce Development to determine the state's minimum wage taking into consideration the effect of the wage on the economy of the state, including employment opportunities for low-wage workers and regional economic conditions within the state.

Governor Doyle and the Department of Workforce Development convened a Minimum Wage Advisory Council to assist with determining whether there should be an increase in Wisconsin's minimum wage. The Council included leaders from the business community, labor organizations, the university system, and both houses of the legislature. The Department's Office of Economic Advisors provided the Advisory Council with data from the U.S. Census; Current Population Survey; and the U.S. Department of Labor, Bureau of Labor Statistics, Occupational Employment Statistics. The Council considered this data and made the following recommendations:

•Increases to $5.70/hour effective when rule is effective (currently $5.15/hour)

•Increases to $6.50/hour effective 10/01/05

• Increases to $5.30/hour effective when rule is effective (currently same as adult rate $5.15/hour)

•Increases to $5.90/hour effective 10/01/05

•Increases to $5.30/hour effective when rule is effective (currently $4.25/hour)

•Increases to $5.90/hour effective 10/01/05

Increases to $5.15/hour effective when rule is effective (currently $4.05/hour)

Increases to $4.25/hour effective when rule is effective (currently $3.70/hour)\

•Increases to $285/week effective when rule is effective, and $315/week effective 10/01/05, if no room or board provided (currently $140/week)

•Increases to $217/week effective when rule is effective, and $240/week effective 10/01/05, if board provided (currently $110/week)

•Increases to $171/week effective when rule is effective, and $189/week effective 10/01/05, if room and board provided (currently $91/week)

•Increases to $265/week effective when rule is effective, and $275/week effective 10/01/05, if no room or board provided (currently $123/week)

•Increases to $202/week effective when rule is effective, and $209/week effective 10/01/05, if board provided (currently $92/week)

•Increases to $159/week effective when rule is effective, and $165/week effective 10/01/05, if room and board provided (currently $74/week)

Increases to $10.50 for 18 holes, and $5.90 for 9 holes effective when rule is effective (currently $5.95 for 18 holes and $3.35 for 9 holes)

Effect of minimum wage increases on Wisconsin's economy

The Department of Workforce Development estimates that 200,000 workers will be affected by the minimum wage increases. The average wage increase among the 200,000 affected workers will be about $.60 per hour.

•The $5.15 to $5.70 increase in the general rate that will occur when this rule is effective will directly raise the pay of 40,000 to 45,000 workers.

•The $5.70 to $6.50 increase in the general rate that will occur on October 1, 2005, will directly raise the pay of 50,000 to 60,000 workers.

•The $5.15 to $5.30 increase in the minor rate that will occur when this rule is effective will directly raise the pay of 15,000 to 20,000 workers.

•The $5.30 to $5.90 increase in the minor rate that will occur on October 1, 2005, will directly raise the pay of 20,000 to 30,000 workers.

•It is expected that approximately 110,000 workers making slightly above the new minimum wages will be indirectly affected by the minimum wage increases and will also receive pay increases.

It is estimated that nearly 80% of these low-wage workers are over 18 years of age, 65% are female, and over one-third are heads of their household. These workers are African-American, Hispanic, and Asian in numbers larger than their proportion in the population. Over two-thirds of these low-wage workers work more than half-time:

30% work 1-19 hours per week

35% work 20-34 hours per week

35% work 35+ hours per week

They work as food service workers, retail clerks, cleaning and housekeeping laborers, personal care attendants, child care workers, telemarketers, laundry and dry cleaning workers, veterinary assistants, home health care aides, office workers, gaming change and booth cashiers, building and grounds maintenance laborers, and many other occupations in virtually all industries in the state.

The industry with the largest number of workers affected by a minimum wage increase is the leisure and hospitality industry—75% of affected employees work in this industry. Leisure and hospitality includes accommodations and foods as well as arts, entertainment, and recreation. Pay is low in the leisure and hospitality industry overall but particularly low in the accommodations and foods sector. In hotels and motels, 40% of workers earn less than $6.50, and in restaurants 20% of workers earn less than $6.50. The pay of Wisconsin workers in the accommodations and foods industry is almost the lowest in the country ranking 49th nationally.

The effect of the wage increase on business will be $175 million in increased payroll costs. Low-wage workers will circulate this money back into the economy immediately, representing a 0.1 percent increase in the gross state product. The increased spending by affected workers may be a revenue growth for some businesses. The effects may be slightly greater in northern, rural regions of the state where minimum wage jobs make up a greater percentage of the workforce. Higher wages also have a positive impact on both workers and their employers by reducing turnover, increasing work experience, and saving on training and recruitment costs for both workers and employers. Any increase in the cost of doing business will likely be passed on to consumers as part of the price of the product or service being purchased.

Section 227.114, Stats., requires that the Department consider the effect of the rule on small business, which is defined as fewer than 25 employees or $2.5 million in gross annual sales, and consider exemptions or less stringent deadlines for compliance if there is an effect on small business. The Department estimates that a very high percentage of workers affected by this minimum wage increase work for employers with less than 25 employees or $2.5 million in gross annual sales. If the rule exempted these employers from minimum wage coverage, it would render the minimum wage nearly meaningless.

Fiscal effect on state and local government

It is estimated that 35% of the additional $175 million in consumer expenditures will be on items subject to the sales tax. This translates to increased revenue of approximately $3 million for the state and some increased revenue for counties with a local sales tax.

There may be increased state revenue from the income tax on higher incomes for approximately 200,000 workers. A request is being submitted to the Department of Revenue for an estimate of the increase and any possible offset due to decreased corporate tax revenue based on increased payroll costs. An amended fiscal estimate will be included when the proposed rule is submitted for legislative review.

It is estimated that 100-200 local governmental employees across the state who work as seasonal summer helpers may be affected by the increase. The increased cost is estimated at approximately $20,000 across all local governments in the state. The minimum wage increase is not expected to affect state employees.

Federal law and adjacent states

Section 227.14 (2)3. and 4., Stats., requires the Department to compare the proposed rule to any existing or proposed federal regulation and rules in adjacent states.

General rate:

Federal   $5.15

Iowa   $5.15

Michigan   $5.15

Minnesota   $5.15 for employers covered by Federal Labor Standards Act

$4.90 for employers not covered by Federal Labor Standards Act

Illinois   $5.50, increasing to $6.50 on January 1, 2005

Minor rate:

Federal   None

Iowa   None

Michigan   None

Minnesota   None

Illinois   $5.00, increasing to $6.00 on January 1, 2005

Opportunity rate:

Federal   $4.25 for employees under 20 years old for first 90 days of employment

Iowa   $4.25 for all employees for first 90 days of employment

Michigan   $4.25 for 16- to 19-year-olds for first 90 days of employment

Minnesota   $4.25 for employees under 20 years old for first 90 days of employment

Illinois   No opportunity wage of general application. Employers may apply for license from Illinois Department of Labor to pay adult learners 70% of minimum wage rate for initial six months of employment.

Agricultural rate:

Federal   None

Iowa   None

Michigan   None

Minnesota   None

Illinois   None

Camp counselor rate:

Federal   None

Iowa   None

Michigan   None

Minnesota   None

Illinois   $220 per week, increasing to $260 per week on January 1, 2005

Golf caddy rate:

Federal:     None

Iowa:     None

Michigan:   None

Minnesota   None

Illinois:   Exempt from minimum wage