Confront the ‘parasite economy’ by raising the minimum wage

Every three months, the ADP Research Institute releases its Workforce Vitality Index, a measure of private sector job and wage growth.  For the past two quarters, Washington state has led the nation in growing jobs and boosting wages, far outpacing the national average and such states as Texas, Florida, and California.

Why does this matter?   Because Washington state has one of the highest minimum wages in the nation at $9.47 an hour. And since April 2015, the city of Seattle has been moving towards a $15 minimum wage, with the current minimum ranging from $10.50 to $13 depending on employer size.  As the Workforce Vitality Index shows, businesses in Seattle and Washington state are thriving and generating more employment. Seattle’s restaurant industry — which fought the wage laws fiercely — is continuing to add jobs.

The simple explanation is laid out by Nick Hanauer, a successful entrepreneur and venture capitalist from Washington state, in an insightful article in The American Prospect magazine titled “Confronting the Parasite Economy.”  Hanauer argues that paying workers decent wages is good for business and good for the economy as a whole. He writes, “When workers have more money, businesses have more customers. And when businesses have more customers, they create more jobs.” To take the restaurant industry as an example, higher wages lead to more disposable income that workers and their families can spend on eating out in restaurants.

[pullquote]“When workers have more money, businesses have more customers. And when businesses have more customers, they create more jobs”[/pullquote]

Some prominent companies, such as Costco, Nordstrom, and QuikTrip, have voluntarily opted to pay their employees higher wages and offer full benefits. They’ve been rewarded by higher employee productivity and reduced turnover while remaining profitable.  Yet in highly competitive sectors with low profit margins, many businesses calculate that they cannot voluntarily pay their workers a living wage.  The result is a race to the bottom to what Hanauer dubs “the parasite economy”, where businesses cut costs by paying poverty-level wages, subsidized by billions in taxpayer-funded public assistance to keep the working poor afloat.  Hanauer confesses that his own family business, Pacific Coast Feather Company,  participates in the parasite economy by filling a good part of its workforce through temporary labor firms which do not pay employees a livable wage. “I desperately want to pay our workers a living wage,” he writes, “but I fear the labor cost differential might be too great and our margins too small for us to survive.”

Escaping this race to the bottom, where competition drives employers to keep wages as low as possible, requires leveling the playing field upwards, so that businesses are not penalized for paying a living wage. Raising the minimum wage to a level where all workers are paid enough to take care of themselves and their families is a cornerstone of shared prosperity. Decent wages, along with basic benefits and greater scheduling certainty, would mean that all jobs are good jobs — jobs that provide security and opportunity for everyone willing to work hard, without reliance on public benefits or private charity.

Today growing campaigns at state and local levels seek to boost the minimum wage and expand access to paid leave, health care, and other measures that ensure broad-based economic security. Thirty states now have minimum wages above the federal minimum of $7.25 an hour, including 12 states where the minimum is $9 or higher. In 2014, initiative petitions to raise the minimum wage passed decisively in four states – Arkansas, Nebraska, Alaska, and South Dakota – that are conservative strongholds. The Fight for $15 campaign has succeeded in adding New York state and California to Seattle as jurisdictions moving gradually to a $15 an hour wage for all workers.

In Oklahoma, unfortunately, the minimum wage is stuck below subsistence levels.  Oklahoma’s $7.25 an hour minimum wage hasn’t been raised in seven years and has lost 30 percent in inflation-adjusted value since 1979. Thirty percent of  jobs in Oklahoma are in occupations where the median pay is below the poverty level for a family of four, stranding too many families among the ranks of the working poor and increasing the strain on state budgets and private charities. Rather than support even a modest increase in the minimum wage, Oklahoma lawmakers instead opted to block cities from even considering adopting a higher minimum wage.

Raising the minimum wage would be a win for the Oklahomans who work hard preparing our food, cleaning our offices, and caring for our loved ones. Just as importantly, by putting more money in the pockets of the customers who shop in our stores, travel our roads, and eat in our restaurants, it would be a win for all of us.