The State of Working Pennsylvania 2005
This year’s State of Working Pennsylvania is released at a time of growing uncertainty about the national economy. Rising energy costs, indications that the housing market bubble may burst, and quickening inflation and interest rates have led some economic observers to anticipate a slowdown over the next few months.
In Pennsylvania, vulnerability to a slowdown, if it occurs, will be heightened by the fact that three years of economic recovery have brought only wage stagnation or decline for most workers.
This stagnation coupled with rising gas prices help explain the intensity of public reaction to the 16-34 percent pay increases enacted for members of the General Assembly in July. This reaction, in turn, has left the legislature searching for ways to demonstrate its concern for the average Pennsylvanian.
One of the actions under consideration is an increase in the state’s minimum wage from the current $5.15 per hour to $7.15 per hour.
Based on a review of the latest Pennsylvania labor market data and of research on the impact of raising the minimum wage, this report concludes that a state minimum wage increase should be implemented.
It also concludes that future erosions in the value of the Pennsylvania minimum wage should be protected against with an automatic annual cost-of-living increase.
A minimum wage increase would be consistent with the Pennsylvania value, expressed by many members of the General Assembly this year when they voted to raise their own pay (and also expressed in the mid-1990s when they established for themselves an automatic cost-of-living adjustment), that hard work be fairly rewarded.
The best available economic research, which evaluates the real-world effects of minimum wage increases, suggests that raising Pennsylvania’s minimum wage would not lead to significant job losses.
Third, an increase in the minimum wage would strengthen the Commonwealth’s economy by encouraging companies to compete based on ingenuity and effective management rather than low wages.
In sum, an increase would help create a more moral economy: an economy more consistent with Pennsylvania values and one that works well on economic terms.
Uncertainty about the national economy means that the recent job market may be as good as it gets for Pennsylvania workers for quite some time (see Box 1). It is from this perspective that the data on the labor market in the State of Working Pennsylvania 2005 must be viewed. What these data show is that Pennsylvania workers have gained little or nothing from the economic recovery that began toward the end of 2001. This is especially true of workers at the low end of the job market.
• The inflation-adjusted hourly earnings of typical low-wage Pennsylvania workers fell 10 cents per hour between 2003 and 2004 and 15 cents per hour since 2001, to $7.16 per hour. Their current wage level amounts to about $15,000 per year if these workers are employed full-time, full-year.
• Low-wage Pennsylvania workers earn less in inflation-adjusted terms than they did in 1979 as well as in 2001 and 2003.
• Low-wage male workers also earned less in 2004 adjusted for inflation than in 2003 or in 2001 and 63 cents per hour less in 2004 than in 1979 -- $7.84 versus $8.47 per hour.
• Low-wage female workers have also lost ground; they earned $6.71 per hour in 2004 compared to $6.90 a year earlier and $6.77 in 1979.
• As a result of slow wage and job growth (the latter was the focus of The State of Working Pennsylvania 2004), the share of Pennsylvanians in poverty rose to 12.6 percent in 2003-04 compared to 10.9 percent in 1999-2000.
Low wage workers have not been alone in feeling wage pressure. Indeed, wages throughout the Pennsylvania wage distribution fell from 2003 to 2004, except for those in the very middle of the earnings curve and at the very top (i.e., chief executive officers). While median-wage earners enjoyed an inflation adjusted increase of 13 cents per hour from 2003 to 2004, moreover, this rise was less than 1 percent. Middle-wage workers earned $14.08 per hour in 2004, up only 9 cents from the 2001 level of $13.99.
For workers and their families, a critical step toward improving the economic situation would be to raise the state’s minimum wage and protect it against future erosion by inflation through an automatic annual cost-of-living adjustment. (The Pennsylvania legislature and Governor committed to consider a minimum wage increase when they established a Minimum Wage Advisory Commission this July.)
• A hike to $7.15 per hour from the current $5.15 would benefit an estimated 860,000 Pennsylvania workers and their families, helping them avoid difficult choices this winter between heating the house and keeping food on the table.
• A large body of research (summarized below) shows that raising the minimum wage does not lead to job losses.
• A higher minimum wage can benefit the economy by encouraging companies to compete based on skill and productivity not low wages and also by helping maintain workers’ purchasing power.
• In the immediate context, Pennsylvania businesses as well as workers could benefit from a minimum wage hike that stabilizes the confidence of low-income consumers before rising energy costs and inflation trigger a vicious circle of declining demand and layoffs.
The benefits of increasing a state minimum wage explain why 17 states with a combined population of 131 million (nearly half the U.S. population excluding the state of Pennsylvania) have already increased their minimum wage above the federal level.
The rest of this State of Working Pennsylvania reviews recent trends in Pennsylvania wages, contrasting them in some cases with other variable such as productivity growth, corporate profits, and CEO salaries. The latter part of this essay looks in more detail at the minimum wage and the timeliness of raising it in Pennsylvania. Throughout this report, unless otherwise noted, dollar values are adjusted for inflation and expressed in 2004 dollars (i.e., the buying power of wages at 2004 prices). For inflation adjustments, unless otherwise stated, we use the CPI-U-RS, a consumer price index published by the Bureau of Labor Statistics (BLS).
Unlike some previous State of Working Pennsylvania reports, this one does not contain comprehensive data on the full range of economic variables (such as unemployment, income, job growth, and health and pension benefits). Additional data and charts on a broader range of variables will be featured throughout the next year at www.stateofworkingpa.com and www.keystoneresearch.org.