What grows an economy? Consumer spending. That’s why consumer spending is 70 percent of the Gross Domestic Product – the indicator for national economic growth. When there is plenty of spending, the economy grows, providing more people with more money to spend on the efforts of more people. This is how the economy, in reality, trickles up.
A recent paper from the Economic Policy Institute, “Inequality is Slowing US Economic Growth,” explains what many economists are describing as an age of “Secular Stagnation.” Nationally, we are experiencing low economic growth because 90 percent of us do not have the income to buy the things we need to live comfortable lives. From 1979 to 2016, wages for the lower 90 percent of earners have grown by 0.5 percent per year. Inflation over the same period has increased by 3.4 percent a year. At the end of 37 years, we have a 243 percent average gap between what we need to live and our incomes. Financially, life was easier 40 years ago!
Those at the very bottom of the pay scale working for minimum wage are struggling the most. The Fair Labor Standards act of 1938 established the minimum wage, abolished child labor, established the maximum 40-hour work week and established overtime pay. In the Legislative History of the Fair Labor Standards Act, John Forsythe explains that the act’s purpose was “to prevent the depression of general wage levels below those consistent with the maintenance of a minimum standard of living necessary for health and efficiency.”
In May 2017, according to the Bureau of Labor Statistics, more than 17 percent of Flagstaff employees worked for less than $11/hour. Parsing the BLS data, you would find that the typical minimum wage worker is a white, 35-year-old woman, a single parent, high school degreed with some college education and working over 35 hours a week in a restaurant. The EPI Family Budget calculator shows this single mom of two children will endure $84,422 in living expenses. This is not luxury living, this is for necessities. Living here as a single parent of two children requires a job that pays over $40 an hour at 40 hours a week!
The citizens of Flagstaff recently voted to help our lowest-paid workers with the minimum wage ordinance that went into effect July 1, 2017. By raising the hourly minimum wage from $8.05 to $10 on Jan. 1 and up again to $10.50 on July 1, approximately 14,000 workers experienced a 25 percent wage increase.
The City of Flagstaff reports show economic growth in 2017 after the new wages went into effect. Compared to 2016, sales tax revenue from sectors that primarily employ minimum wage workers has increased by 6.5 percent in restaurants and bars, 4 percent in retail, and 13.4 percent in hotels and motels. Additionally, the number of new business licenses with a Flagstaff address increased by 5 percent in 2017.
Lorena Zeilman opened True Shine cleaning services in January of 2017. A single mother of two, an immigrant from Peru with a bachelor’s of science degree in biology, Zeilman was working more than full time at Northern Arizona University as a lab manager and associate instructor. She started her business as an experiment. “If I could start from zero and pay $15/hour, then established businesses should be able to pay that as well. It is working out amazingly well. Employees are happy with their pay, they work hard and take pride in their work.” Her service may cost more than some, but she sees the differentiator in that her employees feel more appreciated and go the extra mile for the client. “My investment in the employees shows up in the commitment to their work.” Her business limitation is not clients, but employees. “I am having to turn away business because I cannot find the employees.”
Does this increase of wages make living in Flagstaff more expensive? Not according to the research. A 2016 study by the Institute for Research on Labor and Employment looked at similar 25 percent minimum wage increases and found that prices increased by an average of 1.45 percent. When it comes to the key driver of the cost of living in Flagstaff, a recent ECoNA study states that the housing supply has not kept up with population growth and is the real culprit of increasing housing costs.
So, you have to ask, with all the positive data about economic growth and people at the lowest end of the pay scale getting a hand up at minimal cost to consumers, who benefits from a repeal of the minimum wage ordinance? Vote no on the ”Sustainable Wages Act,” which will eliminate Flagstaff’s minimum wage laws, put more people into poverty and stress our local economy. FBN
By Eric Souders
Eric Souders is an Accredited Wealth Management Advisor at Ascendant Financial Solutions. Securities offered through Geneos Wealth Management, Inc. Member FINRA/SIPC Advisory Services offered through Geneos Wealth Management, Inc. and Ascendant Financial Solutions.
The opinions are those of the author and are provided for general purposes and are subject to change without notice. The opinions may not be shared with Ascendant Financial Solutions, Inc. or Geneos Wealth Management, Inc.