In a Hot Job Market, the Minimum Wage Becomes an Afterthought

by Pelican Press
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Under New Hampshire law, Janette Desmond can pay the employees who scoop ice cream and cut fudge at her Portsmouth sweet shop as little as $7.25 an hour.

But with the state unemployment rate under 2 percent, the dynamics of supply and demand trump the minimum wage: At Ms. Desmond’s store, teenagers working their first summer jobs earn at least $14 an hour.

“I could take a billboard out on I-95 saying we’re hiring, $7.25 an hour,” Ms. Desmond said. “You know who would apply? Nobody. You couldn’t hire anybody at $7.25 an hour.”

The red-hot labor market of the past two years has led to rapid pay increases, particularly in retail, hospitality and other low-wage industries. It has also rendered the minimum wage increasingly meaningless.

Nationally, only about 68,000 people on average earned the federal minimum wage in the first seven months of 2023, according to a New York Times analysis of government data. That is less than one of every 1,000 hourly workers. Walmart, once noted for its rock-bottom wages, pays workers at least $14 an hour, even where it can legally pay roughly half that.

There are still places where the minimum wage has teeth. Thirty states, along with dozens of cities and other local jurisdictions, have set minimums above the federal mark, in some cases linking them to inflation to help ensure that pay keeps up with the cost of living.

But even there, most workers earn more than the legal minimum.

“The minimum wage is almost irrelevant,” said Robert Branca, who owns nearly three dozen Dunkin’ Donuts stores in Massachusetts, where the minimum is $15. “I have to pay what I have to pay.”

As a result, the minimum wage has faded from the economic policy debate. President Biden, who tried and failed to pass a $15 minimum wage during his first year in office, now rarely mentions it, although he has made the economy the centerpiece of his re-election effort. The Service Employees International Union, which helped found the Fight for $15 movement more than a decade ago, has shifted its focus to other policy levers, though it continues to support higher minimum wages.

Opponents, too, seem to have moved on: When Pennsylvania’s House of Representatives voted this year to raise the state’s $7.25 minimum wage to $15 by 2026, businesses, at least aside from seasonal industries in rural areas, shrugged. (The measure has stalled in the state’s Republican-controlled Senate.)

“Our members are not concerned,” said Ben Fileccia, a senior vice president at the Pennsylvania Restaurant and Lodging Association. “I have not heard about anybody being paid minimum wage in a very long time.”

The question is what will happen when the labor market cools. In inflation-adjusted terms, the federal minimum is worth less than at any time since 1949. That means that workers in states like Pennsylvania and New Hampshire could struggle to hold on to their recent gains if employers regain leverage.

Congress hasn’t voted to raise the minimum wage since George W. Bush was president — in 2007, he signed a law to bring the floor to $7.25 by 2009. It remains there 14 years later, the longest period without an increase since the nationwide minimum was established in 1938.

As the federal minimum flatlined, however, the Fight for $15 campaign was succeeding at the state and local levels. Cities like Seattle and San Francisco adopted a $15 minimum wage, followed by states like New York and Massachusetts. And while Republican legislatures opposed raising minimums, voters often overruled them: Missouri, Florida, Arkansas and other Republican-dominated states have passed increases through ballot measures in the past decade.

Nationwide, the number of people earning the minimum wage fell steadily, from nearly two million when the $7.25 floor took effect to about 400,000 in 2019. (Those figures omit people earning less than the minimum wage, which can in some cases include teenagers, people with certain disabilities or tipped workers.)

Then Covid-19 upended the low-wage labor market. Millions of cooks, waiters, hotel housekeepers and retail workers lost their jobs; those who stayed on as “essential workers” often received hazard pay or bonuses. As businesses began to reopen in 2020 and 2021, demand for goods and services rebounded much faster than the supply of workers to deliver them. That left companies scrambling for employees — and gave workers rare leverage.

The result was a labor market increasingly untethered to the official minimum wage. In New Hampshire, the 10th percentile wage — the level at which 90 percent of workers earn more — was just above $10 in May 2019. By May 2022, that figure had jumped to $13.64, and local business owners say it has continued to rise.

“Today you’re looking at $15 an hour and saying I wish that’s all we had to pay,” said David Bellman, who owns a jewelry store in Manchester, N.H.

The unemployment rate in New Hampshire was low before the pandemic; at 1.7 percent in July, it is now among the lowest rates ever recorded anywhere in the country. Competition for workers is fierce: The Wendy’s on Mr. Bellman’s drive home from work advertises wages of $18 an hour. At his own store, he is paying $17 to $20 an hour and recently hired someone away from the local bagel shop — his son had noticed that she seemed like a hard worker.

“Basically the only way to hire anybody is to take them away from somebody else,” Mr. Bellman said.

New Hampshire is surrounded by states where the minimum wage is above $13, so if Granite State employers tried to offer substantially less, many workers could cross the border for a bigger paycheck. But even in states like Alabama and Mississippi, where the cost of living is lower and where few neighboring states have minimum wages above the federal standard, most employers are finding they have to pay well above $7.25.

Paige Roberts, president and chief executive of the Jackson County Chamber of Commerce in Mississippi, said she was “nearly laughed out of a job” when she started asking members about paying the minimum wage. Entry-level jobs there pay about $12 an hour, according to the local unemployment office.

In states with higher minimums, the picture is more nuanced. Faster hikes in the wage floor in the late 2010s forced up long-stagnant wages in fields like restaurants and retail. And some businesses, such as summer camps, say they are still paying the minimum wage for entry-level workers or those in training. But for the most part, the minimums no longer exert the strong upward pressure on pay that they did when they were adopted.

When New Jersey passed a minimum-wage law in 2019, many businesses complained that the increases were too aggressive: The floor would rise by at least a dollar an hour every year until it hit $15 in 2024. But recently, the hot job market has levitated the wage scale even more.

“Covid kind of shifted things around a bit, as did inflation,” said Jeanne Cretella, whose business, Landmark Hospitality, operates 14 venues in New Jersey and Pennsylvania.

Before the pandemic, dishwashers and other entry-level employees at Landmark typically made the minimum wage. These days, Ms. Cretella starts workers in New Jersey at $15 an hour, though the state’s minimum won’t hit that mark until next year.

When the Fight for $15 movement began, many economists warned that raising the minimum wage too high or too quickly could lead to job losses. Some studies did find modest negative effects on employment, particularly for teenagers and others on the margins of the labor market. But for the most part, researchers found that pay went up without widespread layoffs or business failures.

Some economists still wondered what would happen as $15 minimum wages spread beyond high-cost coastal cities. But that was before the pandemic reshaped the low-wage labor market.

“We’re kind of in different territory now,” said Jacob Vigdor, an economist at the University of Washington who has studied the issue.

Washington has the highest statewide minimum wage, at $15.74. Yet when Mr. Vigdor recently visited Aberdeen, a small town near the Pacific coast, all business owners wanted to talk about was how to retain workers.

“I did not really hear a lot of concern about those minimum wages,” he said. “There the concern is that they’re losing people.”

Still, economists say the minimum wage could become relevant again when the labor market eventually cools and workers lose bargaining power.

David Neumark, a professor at the University of California, Irvine, said states with high minimum wages could be at a disadvantage in a recession, because employers would have to keep pay high as demand softened, potentially leading to layoffs.

Other economists have the opposite concern: that workers in states where the minimum wage remains $7.25 could see their recent gains evaporate when they no longer have the leverage to demand more.

“It’s as tenuous as it gets,” said Kathryn Anne Edwards, a labor economist and policy consultant. “The labor market has gained ground, but policy has not cemented that territory.”

Despite the strong labor market, many workers say they barely get by.

KaSondra Wood has spent much of her adult life working for the minimum wage, from the army depot where she held her first job, earning $5.15 an hour, to the Little Caesars where she made $7.25 as recently as last year.

But not anymore: This summer, she started a job cleaning rooms at a local hotel, earning $12 an hour. Even in Oneonta, Ala., a rural area with few job opportunities, employers know better than to try hiring at the minimum wage.

“They wouldn’t advertise for it, knowing they wouldn’t get anyone in there,” she said.

But Ms. Wood, 38, hardly feels that she is getting ahead. The hotel is a 45-minute drive from her home, so gas eats up much of her paycheck, even though she car-pools with her mother. Groceries keep getting more expensive.

“A couple years ago, $12 an hour would’ve been killer money,” she said. But now, it isn’t enough to pay her bills.

“I don’t ever get caught up,” she said. “I’m broke by the time I get paid.”

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