We promise: We won’t cook burgers

In the real world, choices for working people in Iowa are often about how to make ends meet when income falls short. The McDonald’s/VISA plan is not realistic for a single person living alone. Add child-related expenses and — whoa! — there’s a fire in the kitchen!

Mike Owen
Mike Owen

So, McDonald’s and VISA have teamed up to tell low-wage workers how to make ends meet.

We have a proposal for McDonald’s and VISA: Leave economic and policy analysis to us, and we won’t compete with you on burgers and debt.

The McDonald’s/VISA plan is ironic on two fronts.

First, McDonald’s is an example of a low-wage employer — the folks who have profited mightily while their employees have not. In fact, the McDonald’s/VISA plan expects the worker to have two jobs, to make ends meet on an unrealistically low budget and have money left over — “spending money,” the plan happily calls it. That “spending money” would have to cover all food, among other things.

As Iowa Policy Project research has shown, the cost-of-living assumptions by McDonald’s are too low. A bare-bones budget for a single person in Iowa with no kids is just over $20,100 (2011 figures), requiring a job that pays about $24,000 before taxes. It assumes absolutely nothing for eating out (even at McDonald’s), let alone saving for school or retirement.

Second, McDonald’s/VISA doesn’t assume any cost of consumer credit for debt incurred, other than a car payment. VISA depends upon low- and middle-income folks taking on debt and seeing it pile up. Sometimes it’s consumer debt, but debt also can come from health-care out-of-pocket costs when your budget is on the edge. This is a very real cost for low- and middle-income families, and it can be made even worse with predatory lending practices that are dealt with feebly by state and federal lawmakers.

McDonald’s/VISA’s tortured compilation of expenses, it should be noted, comes fairly close to the one-person, total basic-needs budget we computed for 2011 — but a single person without kids would not come close to making that total budget by following the McDonald’s/VISA plan. Add child-related expenses, and — whoa! — there’s a fire in the kitchen!

McDonald’s and VISA also include some handy money-saving tips in their brochure to help low-wage workers get by, like riding your bike to work. How about these tips for saving money: Don’t eat out, and tear up your VISA card.

Click here to see how our researchers — Peter Fisher, Lily French and Noga O’Connor — came up with our numbers. Setting money aside for savings? Not possible. Health insurance at $20 a month? Actual insurance and out-of-pocket costs are far greater. The idea of having “spending money” left over? Laughable at best.

From “The Cost of Living in Iowa,” on IPP website
From “The Cost of Living in Iowa,” on IPP website

But none of this is funny. It illustrates that in the real world, choices for working people in Iowa are often about how to make ends meet when income falls short. And that is the situation for about three-fourths of single-parent families and about 23 percent of all families in our state.

Instead of assuring better ways to boost income, including a higher minimum wage, much of the public policy discussion is focused on cutting back supports such as food and energy assistance, not to mention Social Security, and holding down child-care assistance. We don’t seem to recognize the need for a living wage, however that may be computed. In the end, are we even willing to support a low-wage economy?

Posted by Mike Owen, Executive Director

Minimum wage just doesn’t keep up

The State of Working Iowa 2011 offered a good perspective on the arguments we are hearing now against an increase in the minimum wage. We should raise it and index it to inflation.

Noga O'Connor
Noga O'Connor

Once again there is attention in Iowa to the question of raising the minimum wage. This happens every few years after the passage of a new minimum, when it inevitably becomes outdated due to inflation, which hits that part of the working population the hardest.

So, right on schedule, we are beginning to hear many of the same arguments against the minimum wage that are thrown in its path by entrenched business lobbyists who recite talking points that they want to pass off as research.

As the Iowa Policy Project suggested back in 2007, when the General Assembly passed a strong minimum wage that put Iowa among the leaders in the nation on the issue, one important step to avoid these regular arguments is to find a good minimum wage, pass it, and index it to inflation.

IPP’s State of Working Iowa 2011 set the stage for the latest discussions with one of its recommendations last fall:

Reward Work I: Raise and index the minimum wage

Iowa raised its minimum wage to $7.25 in 2007, a rate which was matched by the new federal minimum in 2009. We are now one of 23 states that echo the federal minimum wage (19 states have higher rates). Even with those increases, the real (inflation-adjusted) minimum wage is still near its postwar low (in real dollars, the federal minimum was above $8.00/hr from 1960-1980, peaking at $10.38 in 1968). And since those legislated increases, the Iowa minimum has lost about 10 percent of its value and the federal, coming later, has slipped 5 percent. If, at the time we last raised the minimum wage in 2007, we had simply indexed its value to inflation, the Iowa minimum would be $7.90/hr — an increase that would put another $1,300 in the pocket of a full-time minimum wage worker. [1] Indexing the minimum would protect its future value from the eroding effects of inflation, allow future legislative sessions to focus attention in other areas instead of on these redundant debates, and provide employers with a measure of predictability when forecasting future costs. [2]

Proposals to raise the minimum wage often provoke worries about job loss. Recent research has not only punctured this myth, but underscored the substantial and sustained economic benefits of a higher wage floor. Recent studies of cities adopting higher minimum wage rates, and of job performance in contiguous counties with differing minimum wage rates, have found that higher minimum wages do not reduce employment.[3] A higher minimum wage, like all policies that put more money in the pockets of
working families, is also widely recognized as an effective form of economic stimulus. [4] Indeed, many employers have come to appreciate that a higher minimum wage offers them a net benefit, “by increasing consumer purchasing power, reducing costly employee turnover, raising productivity, and improving product quality, customer satisfaction and company reputation.”[5] (emphasis added)

[1] Authors’ calculations using Bureau of Labor Statistics inflation calculator
[2] Raising Minimum Wage Helps Iowa’s Poor Families. Iowa Policy Project, January 2007.
[3] Dube, A., Lester, T. W., and Reich, M. (2010). Minimum Wage Effects across State Borders: Estimates Using Contiguous Counties. The Review of Economics and Statistics, 92(4): 945–964. ; Schmitt, J. and Rosnick, D. (2011). The Wage and Employment Impact of Minimum-Wage Laws in Three Cities. Center for Economic and Policy Research.
[4] Aaronson, D., Agarwal, S., and French, E. (2011). The Spending and Debt Responses to Minimum Wage Increases. Federal Reserve Bank of Chicago, WP 2007-23. Falling Wages Curb Consumer Spending, Economic Recovery. National Employment Law Project news release, July 2011.
[5] Business Owners and Executives for a Higher Minimum Wage: Raise Minimum Wage From $5.15 to $7.25. An online petition of Business for a Fair Minimum Wage. 

Posted by Noga O’Connor, Research Associate

Coming this weekend: The State of Working Iowa 2011

State of Working Iowa 2011 coverIt’s almost Labor Day, and that means it’s time for another edition of The State of Working Iowa.

Be watching this weekend in Iowa media and on the Iowa Policy Project website for The State of Working Iowa 2011. Authored this year by Noga O’Connor, Colin Gordon and Peter Fisher, the report takes a look at how Iowa is doing in recovery from the 2007 recession, the challenges ahead and potential policy options to deal with them.

Find previous reports in the series here.

Getting a handle on ‘unemployment’

Underemployed workers are not merely individuals who are not earning as much as they would have liked to; rather, they are individuals who are unable to find employment in jobs that match their skills and availability, and as a result are forced to survive on reduced earnings.

Noga O'Connor
Noga O'Connor

One effective way to gauge the effect of the recession on the state’s economy is tracking the state’s unemployment rate. But how accurate is the unemployment rate? The official rate for 2009 was 6.3 percent — does this mean that 93.7 percent of the labor force in Iowa was gainfully employed?

Not exactly.

The official rate only accounts for those actively searching for work. The Bureau of Labor Statistics offers annual averages for several broader measures. If we include, for example, those who want to work but stopped looking for work, the 2009 figure rises to 7.1 percent.

And what about underemployed workers, such as part-time employees who would have like to work full time, but whose hours were cut back or who are unable to find full-time jobs? If we add those who are involuntarily part-time, the 2009 unemployment rate rises to 11.7 percent.

To complicate things further, even the figure of 11.7 percent can be viewed as conservative. The Bureau of Labor Statistics has no measure of the number of Iowans that are working in jobs that are below their education, skill or experience levels — another form of underemployment.

These examples — involuntary part-time workers and workers who are employed below their skills — are of non-unemployment labor market behaviors that should not be overlooked when estimating the impact of the recession on the state’s economy.

Underemployed workers are not merely individuals who are not earning as much as they would have liked to; rather, they are individuals who are unable to find employment in jobs that match their skills and availability, and as a result are forced to survive on reduced earnings. In the case of over-educated workers, they are also not seeing the earning premiums that are needed to offset the financial investment in higher education.

Underemployed workers have a distinct effect on the labor market. Over-educated workers are taking jobs from those with less education, as there are still not enough jobs for everybody. As employers gravitate toward the more-educated workers, over-education at the top is accompanied by unemployment at the bottom.

Posted by Noga O’Connor, Research Associate