Senate Hearing on Minimum Wage Follows Last Week’s Report on Income Disparity

Hank Kalet | November 19, 2012 | More Issues
Today's committee meeting takes up bill boosting minimum wage, favoring cost-of-living adjustments

Income inequality in New Jersey is above the national average, and the gap between the top fifth and bottom fifth is the third-largest in the country, according to a report released Thursday by two Washington policy organizations. Advocates said the report offered fresh evidence of the need for a minimum wage hike just as the state Senate Budget and Appropriations Committee is set to hold a hearing today on such a measure.

The bill (S-3) calls for an increase in the minimum wage to $8.50, as well as annual cost-of-living adjustments. It passed the Assembly by a largely party-line 46-33 vote earlier this year and is expected to go to the full Senate November 29.

Critics of the bill say it will cost jobs. Gov. Chris Christie has said repeatedly that he will veto a wage hike.

The report, called “Pulling Apart,” was researched and written by the liberal Center on Budget and Policy Priorities and the Economic Policy Institute. It broke households down by income into five quintiles and compared the top earning quintile (top 20 percent of earners) to the bottom (lowest 20 percent). It found that the disparity ranged from a ratio of 5.6 in Iowa (meaning that the highest income quintile earned 5.6 times what the lowest quintile earned) to 9.9 in New Mexico. In New Jersey, the top 20 percent of households earned 8.2 times what the bottom 20 percent earned, between 2009 and 2010.

“The story of this report is not surprising,” Gordon MacInnes, president of New Jersey Policy Perspective, said in a press release. “It confirms in irrefutable detail the steady erosion in middle-class prosperity and the increased desperation of low-income workers. New Jersey is not spared, despite its standing as the second-wealthiest state — hard-working New Jerseyans are falling further behind what they need to raise a family.”

Reviewing the Report

The report called for an increase in the national and state minimum wages, the expansion or creation of an earned income tax credit, a change to more progressive state taxes, and the enhancement of unemployment insurance programs.

It blamed the growing disparity on wage stagnation at the lower end of the income scale, which grew nationally by just 20 percent over the last 30 years. During the same period, wages for the top 20 percent more than doubled. Part of the reason for this, the report said, was “increasingly long periods of high unemployment, more intense competition from foreign firms, a shift in the mix of jobs from manufacturing to services, and advances in technology that have changed jobs.” It said that the decline in union membership and the growth in households headed by women — who tend to have lower salaries — also were factors.

At the upper end of the income scale, the growth in investment income boosted the earnings of the top fifth, supplementing growing wages and further exacerbating the wage gap, the report said.

According to the report:

  • The average income between 2008 and 2010 for the bottom 20 percent of households was $24,268 — ,$176,756 less than the $201,024 earned by the top 20 percent of households. Only Connecticut and Virginia had larger dollar gaps.
  • The average income of the top 20 percent was 8.3 times the salary of the bottom 20 percent, the 11th highest ratio in the country; the figure for the nation as a whole is 8.0 percent.
  • While the bottom 20 percent saw the fifth-highest growth in average incomes between the late-1970s and the three-year period ending in 2007 at 26.7 percent, the top fifth saw its income grow by 101.9 percent, the third-highest rate in the country.
  • “There appears to be no end in sight in growing inequality in New Jersey — unless state policies are established to address this trend,” NJPP senior policy analyst Raymond Castro said in a release. “Reducing inequality is the right thing to do, and it makes economic sense.”

    The most significant way to reduce the disparity, according to NJPP, is to increase the minimum wage and index it to inflation, NJPP says. The bill that is the subject of today’s Senate committee hearing would do both.

    Senate President Stephen Sweeney (D-Gloucester) said that the bill would not only increase the wages of those working at minimum wage, but also those working slightly above it because employers would need to raise those wages to maintain the existing wage distribution.

    “Everyone is getting a raise under this bill,” said Sweeney “When you raise someone from, let’s say $8.25 to $8.50, you’re also raising the person who is making $9.25 to $9.50. You are raising wages from the bottom up.”

    “And look, I’ve met and spoken to business owners — to use one of the opponents’ arguments — who employ a lot of people,” Sweeney added. “They said that a wage hike doesn’t impact them because” low-wage workers take the increase and spend it, which boosts the entire economy.”

    “When you give people at the lower end the money, they can’t just run to the bank and deposit it. They have to go out and spend it on things that they need, he said.”

    A Non-Negotiable Demand

    The cost-of-living adjustment is a non-negotiable component of the bill, said Sweeney.

    “This way we don’t have to come back to it,” he said. “I was the prime sponsor of the wage hike in 2005, and I was convinced to take it out. People didn’t see the value of it then. But I’m now the senate president and I’m not giving it up. This isn’t political grandstanding. This is standing up for people who need a voice.”

    “These are not high school kids,” he added. “These are actual families working at the minimum wage. The difference is they are doing two-and-a-half jobs at the minimum wage to survive.”

    Once the wage-hike passes, and Sweeney is certain it will, the governor will have to make a decision, he said. If the governor vetoes it or conditionally vetoes it, the Legislature will move to place a constitutional amendment on the 2013 ballot — the year that the governor is up for reelection. To do that, a supermajority would need to approve the proposed amendment or the Legislature would need to approve it in successive calendar years.

    Sen. Tom Kean Jr., (R-Union), the senate minority leader, called the constitutional approach “reckless” in an op-ed he wrote in October for The Star-Ledger. He said he is not opposed to minimum wage hikes, but is concerned that built-in cost-of-living increases and a constitutionally mandated wage would leave the state without flexibility.

    He said in a statement Thursday that the “Legislative route is certainly preferable to setting the minimum wage on autopilot in the state Constitution,” and added that there is a need for compromise. The senate president, he said, should not dictate policy.

    “Compromise means everyone works together toward a positive outcome — not that everyone rolls over and does what the senate president and Assembly Speaker tell them to,” he said. “I am hopeful that we can reach a measured, rational increase that is helpful to the working poor while not placing undue burden on New Jersey’s job creators.”

    He added in a phone interview that the legislative route also would allow for “greater predictability” both for businesses and for workers, rather than forcing them to wonder about the ups and downs of the Consumer Price Index.

    Sweeney disagrees. He said four states — Colorado, Florida, Nevada, and Ohio — have the minimum wage cost-of-living adjustment in their constitution and 10 states index the wage to the cost of living.

    “Some people will argue that this does not belong in the constitution, but I argue that this absolutely belongs in the constitution, because it absolutely raises the standard and quality of life for residents of the state and that’s what the constitution is about,” he said.

    Voters in 10 states have approved minimum wage hikes, he said, and he fully expects that New Jersey voters would do the same given the opportunity.

    In Favor of Wage Hikes

    A poll released in October by the Philadelphia Inquirer of 604 likely voters showed that New Jerseyans overwhelmingly favor increasing the minimum wage. According to the poll, 76 percent backed increasing it to $8.25, and indexing the wage to inflation by tying it to the consumer price index. The poll also found that the wage hike was supported by 87 percent of Democrats, 62 percent of Republicans, and 75 percent of unaffiliated voters.

    “But I didn’t need a poll to tell me that,” he said.

    The minimum wage is only one of several ways the state can try and narrow the wage disparity, according to NJPP. The organization is also calling for a restoration of the earned income tax credit from the current 20 percent to 25 percent, which would increase the amount of money that low-income workers get to keep in their paychecks; creation of the state health insurance exchanges and expansion of Medicaid called for under the federal Affordable Care Act; and the creation of a legislative commission to investigate poverty and the growing income disparity.