New solutions needed long term

Federal emergency legislation will make important unemployment insurance reforms on a temporary basis. Iowa — like other states — should make secure and equitable changes permanent.

Current estimates of job losses in the COVID-19 recession are hard to fathom. Even with a sizable stimulus, the national economy would shed nearly 14 million jobs by mid-summer; Iowa is projected to lose more than 140,000.

To make matters worse, as Josh Bivens of the Economic Policy Institute underscores, this recession is “laser-targeted at low-wage, low-productivity, and low-hours jobs in service industries.”[1]

Our most vulnerable workers, in other words, will bear much of the burden: They do not have the option of working from home — a luxury enjoyed by two-thirds of workers in the top quarter of the earning distribution and by one-third of white workers, but by fewer than 1 in 10 workers in the bottom quarter of the distribution, 1 in 5 African-American workers and 1 in 6 Latinx workers. These vulnerable workers face both a much greater risk of unemployment as the service economy shuts down and a heightened risk of exposure to the virus if they keep working.

This is a scale of unemployment and social and economic dislocation that our existing programs are ill-equipped to handle. This demands a policy response — state and federal — unprecedented in its scale, and innovative in its efforts to reach those most affected. At the forefront of that policy response is both a dramatic expansion and a fundamental rethinking of unemployment insurance.

The first step here has already been taken by the federal government. The Families First Coronavirus Response Act (passed March 18) pumped $1 billion into the administration of state unemployment insurance (UI) programs, in exchange for new state standards and conditions. In order to draw down these funds, states must improve their methods of notifying workers of their eligibility for benefits, provide multiple (not just online) methods of filing, provide prompt notice of the receipt of a claim, waive waiting periods for benefits, waive the requirement that recipients be actively searching for work, and ensure that employers are held blameless for COVID-19 layoffs. (Conventionally, UI is “experience-rated” so that employers with histories of layoffs are taxed at a higher rates).

As Peter Fisher pointed out in recent days, Iowa has met all these conditions. There is still a lot of work to be done — not just to meet the current crisis, but to ensure that our unemployment insurance system is recast for the 21st century and ready for the next crisis.

The first task is to make unemployment insurance accessible and available to more workers.

In Iowa, just 41 percent of unemployed workers ever see a benefit check. This is better than the national rate (28 percent), but it is still a scandal that well over half of the jobless are left in the cold. We should sustain the “Families First” Act’s commitment to raising the recipiency rate by streamlining the claims process. Federal and state unemployment law should revise our definition of “employee” to better capture the diversity of employment (including the self-employed, gig workers, and the like) in the modern economy. Too often, workers — cleaners, homecare workers, delivery drivers — are misclassified as “independent contractors” and shut out of basic social insurance programs like UI. The Pandemic Unemployment Assistance Program embedded in the latest COVID-19 stimulus bill provides up to 39 weeks of benefits to those (like the self-employed) otherwise ineligible for UI. This is a start — but the real fix would be to recast the law so that such workers are eligible in good times and bad.

By the same token, we should make permanent the more generous standard for a “good cause” separation, allowing workers — not just in pandemic conditions — to qualify for UI when they leave their jobs for compelling personal reasons. Iowa should make better use of its work sharing program, which allows workers partial compensation for reduced hours, while retaining their attachment to the labor force and their access to job-based benefits such as pensions and health insurance. And we should make benefits available to new entrants to the labor force — students graduating into a recession, returning caregivers, the formerly incarcerated — who deserve support even in the absence of a recent work history.

Second, we need to bolster the size and the duration of the basic benefit. Iowa’s current “replacement rate” is less than 50 percent of current wages — higher than the national average (38 percent) but still woefully insufficient to maintain basic expenses.[2] The logic here, of course, is that a low replacement rate will compel the unemployed to look for work. But low replacement rates (and short benefit windows) create enormous economic burdens and, by pressing workers back into the labor force, actually worsen re-employment prospects. As a baseline, UI benefits should be closer to two-thirds wages. And, for the duration of this crisis, they should be 100 percent. After all, places of employment are under order to close down, and those displaced have few options. This is why the pending stimulus bill bumps UI benefits by $600/week through the end of June.

Finally, we need to improve the funding of state unemployment insurance programs. The $1 billion boost to administration in the “Families First” legislation does not come close to backfilling cuts in federal aid since the 1980s. During the last recession, 36 state UI trust funds went broke — and most of those entered the current crisis with insufficient reserves. Iowa’s trust fund is in better shape than most, but all state funds will be exhausted once this crisis lifts. Under current law, the state only taxes the first $7,000 in earnings. This should be increased dramatically (Social Security taxes the first $137,700), so that revenues are sufficient to sustain UI administration, and pay extended and disaster benefits when needed.

Federal emergency legislation — some in place, some in the pipeline — will install many of these reforms on a temporary basis. But many of the problems being addressed — the accessibility of benefits for deserving workers, the low percentage of the unemployed who receive benefits, the insufficient level and duration of benefits — are broader problems with the UI system itself. Iowa should, of course, do what it can to qualify its workers for extended and enhanced benefits paid for with federal dollars. But it should also follow the lead of other states in making its UI system more secure and equitable on a permanent basis.

[1] Josh Bivens, Economic Policy Institute, “Coronavirus shock will likely claim 3 million jobs by summer,” March 17, 2020. https://www.epi.org/blog/coronavirus-shock-will-likely-claim-3-million-jobs-by-summer/

[2] The inadequacy of this replacement level is compounded by the fact that the benefits are still taxable, and yet they do not count as earnings for purposes of the Earned Income Tax Credit, creating an additional income loss for low wage workers receiving that tax credit.

Colin Gordon is a University of Iowa professor of history and is senior research consultant for the nonpartisan Iowa Policy Project. He has authored several IPP reports since the organization began in 2001. Among these are the State of Working Iowa series, and the October 2019 report “Race in the Heartland: Equity, Opportunity and Public Policy in the Midwest,” for Economic Analysis and Research Network members IPP, Policy Matters Ohio and COWS.

How to steal $110 million from Iowa workers

No artifice of “regulatory relief” or concern for untipped workers can justify this theft.

In most states, tipped workers are paid a subminimum “tipped wage.” In Iowa the tipped wage is $4.35/hr. The gap between the tipped wage and the minimum wage (in Iowa, $7.25-$4.35 or $2.90) is called the “tip credit.” Tips are first used to satisfy this credit (bringing the hourly wage to the minimum); once the credit is satisfied, tips are an uneven addition.

Our state and national labor laws have long operated under the assumption that tips earned by waitresses or bartenders or manicurists belong to the worker who earned them. In 2011, the federal Department of Labor (DOL) clarified and codified this rule, underscoring that, regardless of the jurisdiction or local wage, “a tip is the sole property of the tipped employee.”

In December of last year, the Trump Administration announced its attention to repeal this rule (after already announcing its intention to cease enforcement of the rule last July). Under the new regime, employers of tipped workers could retain any tips in excess of those needed to satisfy the tip credit. Forcing tipped workers to pool or kick back tips to the house has always been considered a form of wage theft. The new rule would make this wage theft perfectly legal.

The new rule, the brainchild of the National Restaurant Association, rests on the thin logic that employers would share tips with “back of the house” staff. But nothing in the rule requires them to do so, and research on wage theft in various jurisdictions suggests that tip stealing by management is already widespread. Indeed, the DOL punctured its own logic with an internal study finding that the rule would result in huge losses to tipped staff, and then — in defiance of any semblance of good government and transparency — buried the study.

Fortunately, the Economic Policy Institute (whose crack research staff includes the DOL’s former chief economist) has stepped in with its own look at the dismal impact of this rule. Using a combination of W-2 (tax) and industry data, EPI estimates a base of about $36.4 billion annually in tips (a conservative estimate, since a substantial share of tips go unreported as income). Since some of that $36 billion must be used to satisfy the tip credit, the share of that “at risk” is a little lower, about $26 billion.

Grade school economics, in turn, would suggest that almost all of that $26 billion would be pocketed by employers: There is no need or incentive, after all, to share tip revenues with bussers and dishwashers, whose wages (and willingness to work) are already established by local labor markets. Fortunately, many state labor laws offer further protection or regulations of tipped wages that would not be affected or pre-empted by the new federal rule. This brings the take of this heist down to just under $6 billion. In Iowa alone (where no state laws supplement federal rules and standards on tipped work), the annual loss would be about $110 million.

Looking at this on a smaller scale drives home the avarice and the injustice. Consider Francesca, a waitress at a mid-price, full service restaurant. Her base wage is $4.35. On a typical four-hour dinner shift, she serves eight tables. The average bill for those tables is $25.00, and the average tip is 15 percent or $3.75 — making her take home pay $47.40 ($17.40 in base wages and $30 in tips), or just under $12/hour. Under the new rule, Francesca would keep only enough of that $30 in tips to bring her wage — the base wage plus the tip credit — to the federal and Iowa minimum wage of $7.25. She takes home $29. If we follow EPI’s assumption, about half of the remaining tips would go to other employees, and about half would go in the employer’s pocket.

No artifice of “regulatory relief” or concern for untipped workers can justify this theft. The new rule, as Christine Owens of the National Employment Law Project notes, is “nothing more than robber barons masquerading as Robin Hood.”

Colin Gordon, professor of history at the University of Iowa, is senior research consultant at the nonpartisan Iowa Policy Project. He has authored or co-authored many IPP reports on jobs, wages and wage theft issues including The State of Working Iowa. cgordonipp@gmail.com

More from IPP on wage theft:
Wage Theft in Iowa by Colin Gordon, Matthew Glasson, Jennifer Sherer and Robin Clark-Bennett, August 2012
Stolen Chances: Low-Wage Work and Wage Theft in Iowa by Colin Gordon, September 2015

Minimum wage sinking — not ‘stuck’

New analysis from the Economic Policy Institute illustrates just how much we underestimate the impact of inaction on the minimum wage when we talk of it being “stuck,” “frozen,” or “held down,” at $7.25.

In reality, as EPI’s David Cooper shows, the wage actually declines year by year, because its buying power doesn’t keep pace with inflation. The $7.25 national minimum wage that took effect in 2009 would be $8.29 in today’s dollars. Put another way, the value of the minimum wage has declined 12.5 percent since Congress last raised it.

For Iowa, the situation is even worse, because the Iowa Legislature passed and Governor Chet Culver signed a $7.25 minimum wage that took effect a year and a half before the national increase. When the Legislature returns in January, it will have been 10 years since the last minimum-wage increase, while costs to families have kept rising.

EPI also points out that at its high point in 1968, the federal minimum wage was equal to $9.90 in today’s dollars. Tie it to increases in average wages, and the figure is $11.62. Tie it to productivity, and the figure is $19.33.

Click the link below for an interactive version of the above graphic:
http://www.epi.org?p=132305&view=embed&embed_template=charts_v2013_08_21&embed_date=20170802&onp=132309&utm_source=epi_press&utm_medium=chart_embed&utm_campaign=charts_v2

It seems settled in the current political environment that our minimum wage is stuck — there’s that word — at $7.25. There is no movement in either Des Moines or Washington to raise it, even though 29 states currently are above that level, including all but Wisconsin among our neighbors.

In fact, the state of Iowa forced repeal of local minimum wages where counties and cities demonstrated leadership that our legislative leaders could not, as those state leaders pandered to ideological myths and political talking points from an entrenched and bullying business lobby.

A $7.25 minimum wage is indefensible. Businesses paying at or near that wage benefit from the economy that taxpayers support through public services, not the least of which are law enforcement, fire protection and streets, let alone an educated work force. Yet they insist that we ask nothing in return, while their workers toil at wages so low they need other public supports — in food, health care, housing and energy assistance, all threatened by the current administration in Washington — just to keep their families going.

Think you’re done hearing about the minimum wage? Not if we can help it.

Mike Owen, executive director of the nonpartisan Iowa Policy Project

mikeowen@iowapolicyproject.org

Virtual House graphic: Closer look at who gains with local raises

Well over half of those benefiting from local minimum-wage increases are women, workers over age 20, and full-time workers.

Basic RGBAs we have shown, about 85,000 Iowa workers stand to gain from local minimum-wage increases in Linn, Johnson and Polk counties when they are fully phased in as scheduled in 2019. As we show above, the beneficiaries are not who minimum-wage proponents typically attempt to portray in dismissing the importance of the wage.

Well over half are women, workers over age 20, and full-time workers. These are jobs that are essential in meeting household budgets.

Iowa’s minimum wage is $7.25, where it has stood for over nine years. Johnson, Linn, Polk and Wapello counties have passed increases scheduled to reach between $10.10 and $10.75 by 2019.

For more about the minimum wage in Iowa, both statewide and locally, visit this page on the IPP website.

Editor’s Note: The Iowa House of Representatives now denies the ability of lawmakers to use visual aids in debate on the floor. To help Iowans visualize what kinds of graphics might be useful in these debates to illustrate facts, on several days this session we are offering examples. In today’s graphic, we illustrate the impacts of local minimum wages that have been approved in Iowa. We focus on three of the four counties where wages higher than the statewide $7.25 has been approved. In the fourth county, Wapello, the impact has been blunted by the refusal of the city of Ottumwa to go along with it.

Is it time for Woodbury County to join the party?

This week, two more counties in Iowa — Linn and Wapello — joined Johnson County in setting a countywide minimum wage. In Linn County, the wage will rise to $10.25 by January 2019, while Wapello County followed Johnson County’s lead in raising the wage to $10.10 in three installments. Polk County is expected to take up a proposal soon to raise the wage there to $10.75 by 2019. Lee County supervisors, meanwhile, have appointed a study group to consider a minimum wage.

Unlike these counties, Woodbury is part of a three-state metropolitan area that includes counties in Nebraska and South Dakota where the state minimum wage has already been raised above the federal. The minimum wage is currently $8.55 in South Dakota and $9.00 in Nebraska. Sioux City employers are already competing in a labor market with wages above the Iowa minimum of $7.25.

Using data from the U.S. Census Bureau’s American Community Survey, economists at the Economic Policy Institute estimate that about 10,000 workers in Woodbury County would see an increase in their hourly wage if the county set a minimum equal to Nebraska’s $9.00 by January 2018. Those 10,000 workers on average would see their annual income rise by about $1,500.

If the Woodbury County wage were raised further, to $10.25 by January 2019, putting it on a par with Linn County, the number of workers benefiting would grow to about 12,600. The average gain in income would about double, to $3,000.[i]

The Census data dispel the usual myths about low-wage workers. In Woodbury County, over 80 percent of those benefiting from the $9.00 or $10.10 minimum would be age 20 or over, with about a third over age 40. Well over half of them work full time. About 26 percent are parents, and 3,400 to 4,700 children live in a family that would see a rise in income.

Raising the minimum wage puts more disposable income in the pockets of the work force. Much of that income would be returned to the local economy as workers spend more at grocery stores, car dealerships, clothing stores, restaurants, theaters — in fact, throughout the local retail and service sectors. Increased sales in turn would create a need for more workers.

It is this increase in local spending that is a major reason that studies of local minimum wage laws have found no effect on employment. The higher labor costs to employers are offset in part by increased demand for their goods and services, and in part by lower employee turnover and greater productivity.

The Iowa Policy Project’s 2016 Cost of Living in Iowa shows what it takes for families to get by, just covering basic expenses for food, rent, transportation, child care and health care. In Woodbury County, a married couple who both work and who have two children needing child care would each need to earn at least $13.00 an hour to get by, even with health insurance provided by an employer. Without health insurance, they would need to make over $16 an hour. Even a single person living alone would need a wage of $12.46 to get by without public assistance, or nearly $11.00 an hour in a job with health benefits.

While $9.00 or $10.10 does not represent a living wage in Woodbury County, it gets workers closer to that goal and helps thousands of families, many struggling below the poverty line. And it provides a significant boost to the local economy through increased spending.

 

[i] These estimates include those affected directly and indirectly. About three-fourths of the workers gaining a higher wage represent those earning less than the new minimum. But the other fourth represent those a little higher up the wage scale who would benefit as employers adjust pay levels to remain competitive or to restore parity within a business.

2010-PFw5464Posted by Peter Fisher, Research Director of the Iowa Policy Project

pfisher@iowapolicyproject.org

Enriching the minimum wage discussion

History shows the minimum wage was meant to be a meaningful policy tool to help working families, not limited to “entry level” work or teens. In fact, efforts to establish the wage came as policy makers were trying to remove young teenagers from the workforce.

The spin against any minimum wage increase — or even having a minimum wage — has become predictable. This should surprise no one. Policy makers since President Franklin D. Roosevelt have battled the same stuff.

A little relevant history might be just what is needed as Iowans consider the arguments for a national, state or even local increase, which passed in Johnson County.

History shows the minimum wage was meant to be a meaningful policy tool to help working families, not limited to “entry level” work or teen wages. In fact, efforts to establish the wage came at the same time policy makers were trying to remove young teenagers from the workforce.

The U.S. Department of Labor website has an interesting paper published almost 40 years ago by a DOL historian, Jonathan Grossman: Fair Labor Standards Act of 1938: Maximum Struggle for a Minimum Wage In it, Grossman relates a story about a young girl’s note to Roosevelt, telling of pay being cut from $11 a week to between $4 and $6 a week. 

To a reporter’s question, the President replied, “Something has to be done about the elimination of child labor and long hours and starvation wages.”

“Starvation wages” are your concern if you expect the wage to be meaningful to a household budget.

Interestingly, Iowa Policy Project research shows what is needed for a household budget. In Linn County, where a very low $8.25 has been suggested by a split task force, a single parent needs to make between $21 and $25 an hour to support a household on a bare-bones, basic-needs budget without public supports. In Polk County, it takes between $22 and $27 for a parent in similar circumstances.

IPP and Economic Policy Institute analysis also show this issue is scarcely about teens. Statewide, more than 4 out of 5 workers affected by an increase to $12 are 20 years old or older. A quarter of them have children. Over half of them work full time. On average, they account for over half of their family’s total income.

County supervisors in Johnson County have taken the baton across generations from FDR, to assure families have a chance. They acted last year to raise the local wage in three steps to $10.10 by next January 1, and they have already taken two steps, to $9.15.

Discussions are moving ahead in Polk County, Linn County and Lee County. Passing a local wage is a significant signal to state leaders that they are through waiting for action. Any county must consider whether the content of its action is significant as well — however bold it may seem to pass local law on this issue, the amount does matter.

And for those who say, “Let the market handle it,” just wake up. Clearly, it does not. As FDR stated in 1937:

The truth of the matter, of course, is that the exponents of the theory of private initiative as the cure for deep-seated national ills want in most cases to improve the lot of mankind. But, well intentioned as they may be, they fail…. (T)hey have no power to bind the inevitable minority of chiselers within their own ranks.

Though we may go far in admitting the innate decency of this small minority, the whole story of our Nation proves that social progress has too often been fought by them. In actual practice it has been effectively advanced only by the passage of laws by state legislatures or the National Congress. [1]

Do we value history? Do we value work? Do we value families? Do we value practical solutions through public policy? We are about to see.

[1] Franklin D. Roosevelt: “Message to Congress on Establishing Minimum Wages and Maximum Hours.,” May 24, 1937. Online by Gerhard Peters and John T. Woolley, The American Presidency Project. http://www.presidency.ucsb.edu/ws/?pid=15405.

owen-2013-57By Mike Owen, Executive Director of the Iowa Policy Project.

Contact: mikeowen@iowapolicyproject.org

About those jobs …

That we don’t have a chance of reaching Governor Branstad’s ambitious jobs goal is not surprising, because our long-term pace of growth is far too slow.

To read the headlines, you might not know we actually lost jobs the last two months. In fact, we’ve lost jobs in three of the last six months.

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Our monthly Iowa JobWatch report offers context you don’t get from official news releases.

Overall, we continue to have stubbornly and staggeringly slow job growth in Iowa. We are only about halfway to the ambitious job goal set by Governor Branstad when he sought Terrace Hill in 2010 — 200,000 jobs in five years. Through 56 of those 60 months, Iowa’s economy has added only 97,400 jobs.

That we don’t have a chance of reaching his goal is not surprising, as the long-term trend of 2,000 or fewer jobs added per month, which has held through his term, is far too slow a pace for the job growth that the Governor promised.

This has been going on for many years, and we have not fully recovered from a recession that ended six years ago. We have a 37,800-job deficit from the number of jobs we need — accounting for population growth — to be where we were at the start of the recession in 2007. (See graph below)

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For the state to be trumpeting a sixth-lowest unemployment rate really misses the job picture in Iowa — which is neither one of sweetness and light nor of gloom and doom, but one that demands a little more critical thinking about the challenges that face us.

How do we encourage more, and better, jobs in Iowa with sensible public policies that do not squander our state revenues on subsidies for companies to do what they would do anyway?

Owen-2013-57Posted by Mike Owen, Executive Director, Iowa Policy Project