By Stephen Herzenberg, Third and State

The Australian minimum wage this year is $15.96 per hour. I know this mostly because my daughter lives in Melbourne these days (not forever, I hope). When she arrived there 18 months ago, she got a job at a minimum-wage restaurant. She earned enough to cover her rent and other expenses.

What brought the idea of a much higher minimum wage to mind is a blog post from Dean Baker of the Center for Economic Policy Research. Dean estimates that the U.S. minimum wage today would be $16.54 per hour if it had kept pace with U.S. productivity growth since 1947.

For those with knowledge of economic history (both of us), a minimum wage that increases its buying power every year does not seem far fetched, even in the good old United States. The U.S. minimum wage DID increase with productivity growth from 1948 to 1968. This linkage (see Dean’s chart below) resulted from the combined impact of two mechanisms: manufacturing wages kept pace with productivity growth thanks to collective bargaining in mass manufacturing (starting with the famous auto industry “Treaty of Detroit” in 1948); and Congress periodically increased the minimum wage to bring it back up to 50% of the average manufacturing wage.

Click on the chart above for a larger view

If you think about it for a second, a minimum wage that keeps pace with inflation is a fairly pathetic aspiration. It means that our lowest-wage workers get to have their living standards stay the same forever, even as the economic pie keeps growing with increases in productivity.

Wages — and minimum wages — that keep pace with productivity growth express a different and completely practical aspiration: the idea that workers at all levels should share in the expanding economic pie. Fair reward for hard work. Even sounds like a fundamental American value. Let’s get back to it. If we did, Charlotte might even come home.

By Mark Price, Third and State

The Pennsylvania Department of Labor and Industry released new data for March on Pennsylvania’s employment situation. According to the household survey, the unemployment rate edged down slightly to 7.5%, and the survey of employers showed healthy growth in nonfarm payrolls of 7,800 jobs.

As always, caution should be exercised in interpreting a month change in employment statistics.

In terms of levels, there were big gains in Leisure and Hospitality (7,000), Trade Transportation and Utilities (4,000) and Manufacturing (2,100). We will not have full information until the fall whether the job losses in the public sector will put a drag on employment growth in 2012, but the March data shows we are off to an uncomfortable start, with 2,500 jobs lost.

Over the last several months, Pennsylvania nonfarm payroll counts have been particularly volatile, showing big one-month gains and losses thanks to a combination of unusually warm weather and some technical issues. On average over the last six months, Pennsylvania has added just under 6,000 jobs a month. We need about 10,000 jobs a month to move back to full employment by March 2015 (three years from now).

While unemployment remains high today and for the foreseeable future, the distance between CEO pay and the pay of the typical worker reached an all time high in 2011.

• Ann Belser, Pittsburgh Post-Gazette – Report: Pay gap at record high between U.S. CEOs, workers:

Corporate CEOs are now making 380 times the salary of the average American worker, a record high and the biggest pay gap in the whole world, according to the 2011 AFL-CIO’s Executive Paywatch.

(photo by spike55151 via flickr)

By Mark Price, Third and State

The New York Times reports this morning that a labor organizer and advocate for a higher minimum wage in Bangladesh has been brutally murdered.

• Julfikar Ali Manik and Vikas Bajaj, The New York Times — Killing of Bangladeshi Labor Organizer Signals an Escalation in Violence:

The killing of the activist, Aminul Islam, marks a morbid turn in the often tense relations between labor groups, on one side, and Bangladesh’s extensive garment industry, which makes clothes for Western companies like Walmart, Tommy Hilfiger and H&M. In 2010, Mr. Islam, a former textile factory worker, was arrested and, he and other labor activists said, was tortured by the police and intelligence services.

Also in The New York Times this morning, Steven Greenhouse profiles the campaign to raise the minimum wage in the United States.

• Steven Greenhouse, The New York Times — Raising the Floor on Pay:

As the nation’s economy slowly recovers and income inequality emerges as a crucial issue in the presidential campaign, lawmakers are facing growing pressure to raise the minimum wage, which was last increased at the federal level to $7.25 an hour in July 2009.

State legislators in New York, New Jersey, Connecticut, Illinois and elsewhere are pushing to raise the minimum wage above the federal level in their own states, arguing that $7.25 an hour is too meager for anyone to live on.

It’s time to get serious about raising the minimum wage here in Pennsylvania.

By Stephen Herzenberg, Third and State

I’ve got an idea: let’s employ low-wage, low-skill, and sometime out-of-state workers on small and medium-sized state-funded construction projects, with no benefit to taxpayers and negative impacts on local economies.

Sound like a stupid idea? That’s because it is.

Here’s the backdrop: Pennsylvania’s prevailing wage law requires that workers on state-funded construction projects be paid a wage in line with what most other workers in their trade are paid within a certain geographical area.

Research in peer-refereed academic publications shows that the law could be called the quality construction law because it helps ensure the use of skilled workers on state projects. Where prevailing wage laws exist, training investment, worker experience, wages, benefits, and safety levels are all higher than where these laws do not exist.

Overall construction costs are the same with or without prevailing wage laws. The prevailing wage law, however, makes it impossible for contractors that employ low-wage, out-of-state workers to win bids on state projects: it ensures that jobs go to local workers, who spend their money at local businesses.

More middle-class jobs, stronger local economies, higher quality construction, no cost to taxpayers: what’s not to like?

Unfortunately, some members of the Pennsylvania Legislature seem unwilling to leave well enough alone. Through House Bill 1329, these lawmakers want to make the prevailing wage law to apply to less state-funded construction work. How so? By exempting projects of less than $185,000 from prevailing wage standards. Currently, the law applies to all state-funded projects of $25,000 or higher.

Why one wants a threshold at all is not clear; eight states don’t have one. They have, instead, a clear policy of supporting a high-wage, high-skill approach to all state-funded construction.

Of the 32 states that have a prevailing wage law, only three have a threshold as high as that proposed in House Bill 1329.

Raising the threshold may not be as stupid a policy as eliminating the prevailing wage law altogether, or carving big parts of public construction (e.g., school projects) out of the law. But it’s still dumb.

For a complete list of our research and commentary on Prevailing Wage see our Prevailing Wage Issue page.

The Final Part of a Three-part Series on Prevailing Wage by Mark Price and originally published at Third and State. Read Part 1. Read Part 2.

In the first two posts of this series, I explained why the numbers being tossed around by advocates of repealing prevailing wage don’t add up. I explained that the claims of cost-savings are not based on any actual experience and that they represent the result of laughable hypothetical, or “what if,” calculations. 

This leads to the most important point that the Pennsylvania School Boards Association, the Pennsylvania State Association of Boroughs, the Harrisburg Patriot-News Editorial Board and others keep missing: we can do much better than a hypothetical when assessing the impact of prevailing wage laws.

There is a body of research that examines construction costs (and other construction outcomes, like safety, training investment, wages, benefits, etc.) in states with and without prevailing wage laws as well as in states that eliminated prevailing wage laws. We don’t have to conjecture what “might” happen: we can look at what did happen. The preponderance of the evidence shows that prevailing wage laws do not raise construction costs.

Back in the late 1990s, Pennsylvania actually ran this real-world experiment itself — we lowered our prevailing wage levels, particularly in rural areas. That means we can look at what happened to construction costs. What happened is the same thing that has happened in other places — lower prevailing wages did not translate into lower construction costs. 

Specifically, the Keystone Research Center’s 1999 study of this late 1990s Pennsylvania policy experiment examined changes in public school construction bids when Pennsylvania’s prevailing wages were lowered substantially in rural areas. Keystone found no association between the number of occupations in which the prevailing wage was lowered and the price per square foot of school construction bids. If anything, construction bids appeared to go up more in areas where prevailing wages were lowered more.

Advocates of repeal often point to sympathetic construction managers in the public sector who testify, based on their expertise, that prevailing wage laws raise costs. Not only did the Keystone study find no statistical evidence of a cost difference during the period wages were lowered, but the study highlighted two revealing instances of construction managers making wild predictions that just didn’t come true:

The recent experience of two Pennsylvania school districts show that even increases in legally mandated prevailing wage and benefits rates do not necessarily increase public construction costs. In March 1999, after two months of legal uncertainty about required prevailing wage levels, [the Pennsylvania Department of Labor and Industry] began issuing prevailing wage rates that were higher than the 1999 rates. The Blue Mountain School District, in Schuylkill County, was planning to renovate its high school.  In April 1999, the school district’s construction manager estimated that construction costs would increase by about $670,000 as a result of the higher prevailing wage and benefit rates. But when bids for the project were opened on May 6, the low bids, which were expected to be about $15.1 million, came in at only about $13.8 million, almost 9 percent below the anticipated level. And in April, bids for a middle school construction project in Tamaqua, which used the same prevailing wage and benefit rates as the Blue Mountain bids, also came in under budget estimates.

Read the rest of this entry →

Commonly available statistic calculator, alas unused (photo: andresrueda/flickr)

Part Two of a Three-part Series on Prevailing Wage by Mark Price, originally published at Third and State. Read Part 1.

The overwhelming weight of evidence based on the actual cost of public construction projects shows that prevailing wage laws do not raise costs. Therefore, advocates of repealing the law in Pennsylvania ignore this evidence. Instead of “evidence-based policy,” we have “lack-of-evidence-based policy.” Go figure.

Repeal advocates use a hypothetical calculation that makes assumptions about cost, rather than empirically examining the relationship between higher wages and total construction costs. (As discussed here, even these hypothetical cost estimates don’t make sense once you apply real world data to how much labor costs represent of total construction cost.)

Another key ingredient in the hypothetical calculations used by proponents of repeal is the claim made most recently by the Pennsylvania State Association of Boroughs (PSAB) that “the prevailing wage is 30 percent to 60 percent higher than the average wage for the same occupation.”

This claim is based on an update of a flawed calculation by the Commonwealth Foundation. It compares the prevailing wage levels by trade as set by the Pennsylvania Department of Labor & Industry with the average wages for construction occupations reported in Occupational Employment Statistics (OES). The prevailing wages are 30% to 60% higher than the OES averages.

The problem is, the Commonwealth Foundation/PSAB calculation is the proverbial apples-to-oranges comparison: it measures different portions of the construction industry.

OES data include wages paid to workers employed in the residential construction sector — smaller, less-complex projects than prisons, bridges, schools and other state-financed construction. Residential construction relies on workers less skilled and experienced than those needed for larger state projects.

Indicative of this skill gap in Pennsylvania is the fact that construction workers employed in nonresidential construction — most of which is private sector, not public — earn 52% more than construction workers in the residential construction sector. In other words, the gap between the occupational prevailing wages set by the Pennsylvania Department of Labor & Industry and average construction wages reported by OES reflects the wage gap between residential and nonresidential construction.[1] (See Table 1 below.) Read the rest of this entry →

(photo: martinsphotoart, flickr)

Part One of a Three-part Series on Prevailing Wage by Mark Price and originally published at Third and State.

Prevailing wage laws have long operated nationally and in states as a check against the tendency of the construction industry to degenerate into destructive wage and price competition. Such competition can drive skilled and experienced workers from the industry, reduce productivity and quality, and lead to poverty-level jobs, all without saving construction customers any money.

In an exhaustive review of the research on the impact of prevailing wages on contracting costs, Nooshin Mahalia concluded:

At this point in the evolution of the literature on the effect of prevailing wage regulations on government contract costs, the weight of the evidence is strongly on the side that there is no adverse impact. Almost all of the studies that have found otherwise use hypothetical models that fail to empirically address the question at hand. Moreover, the studies that have incorporated the full benefits of higher wages in public construction suggest that there are, in fact, substantial, calculable, positive benefits of prevailing wage laws.

Although the weight of evidence suggests prevailing wage laws do not raise costs, advocates for repealing the law in Pennsylvania continue to repeat some version of the following:

Prevailing Wage law also harms taxpayers, as it forces them to pay higher labor costs on public construction projects. Construction companies forced to pay union-inflated wages and benefits will pay upward of 30 percent more in labor costs for identical work on private sector projects. This adds a little more than 20 percent to the cost of every taxpayer-funded construction project — resulting in an estimated $1 billion cost for state and local taxpayers each year.

- Matthew J. Brouillette
President & CEO of the Commonwealth Foundation
March 22, 2011

What is the source of this 20% saving claim? One source is Nathan Benefield, the research director of the Commonwealth Foundation, in this 2009 blog post. Read the rest of this entry →

A blog post by Mark Price, originally published at Third and State.

The Reading Eagle reports meals on wheels for low-income and disabled adults is short of cash thanks to rising demand and falling state support.

• Bruce Posten, Reading Eagle — Funding gap looms for Meals on Wheels program: State budget cuts may cause group to suspend some deliveries

Because of state budget cuts, a Berks County Meals on Wheels program is running out of money and won’t be able to operate between March and July unless new funds are found.

The special program is $7,000 short…The program has almost doubled in the number of meals served in the past two years…

“Last month, we served 370 meals (at a cost of $5.84 per person), but we are trying to keep a cap on participation in the program.” Kropf said. “We are turning people away because we don’t have enough money.”

The U.S. Labor Department has fined the Hershey Co. Contractor that inspired a crack down on J-1 Visa violations.

• David Wenner, Patriot-News — Foreign student labor protests at Hershey Co. center lead to citations for Exel, SHS Staffing

The U.S. Labor Department’s Occupational Safety and Health Administration cited Exel Inc. for nine workplace safety and health violations and proposed fines of $291,000 against the company.

Ohio-based Exel, which runs the distribution center for The Hershey Co., said it will appeal.

The citations stem from an investigation initiated after about 200 foreign exchange students walked off the job and demonstrated in August. Read the rest of this entry →

Third and State celebrated its one-year anniversary this week. We launched on February 1, 2011, and 350 posts later we’re still going strong.

We couldn’t do it without our readers, so we thought it would be fun to take a look back at what posts you liked the most. And so we bring you a countdown of the top 10 most viewed blog posts at Third and State.

10. Governor Corbett Unveils 2011-12 Budget Proposal, March 9, 2011:

By taking direct aim at schools and higher education, the Governor’s plan disregards a fundamental principle of economic growth — businesses locate and expand in states with an educated workforce and academic centers of innovation.

There is a better choice. Lawmakers can choose to take a more balanced approach that makes targeted cuts, improves accountability and raises revenue.

9. 2011-12 State Budget Highlights, June 28, 2011:

State legislative leaders and Governor Tom Corbett agreed on a 2011-12 state budget deal this week, and on Tuesday, the state Senate approved it on a 30-20 party-line vote. The bill heads to the House of Representatives next. …

The biggest cuts, in both dollars and percentages, are in education programs, including PreK-12 and higher education.

8. Marcellus Shale, Unemployment and Industrial Diversity, August 3, 2011:

There is always a danger that Marcellus Shale extraction may crowd out rather than seed new industries. Policymakers in Harrisburg and elected officials in these regions should make efforts to ensure that some of the good economic fortune represented by Marcellus Shale gas is reinvested in the seed corn necessary to increase the economic diversity of these communities. A drilling tax is the most sensible way to generate the funds needed to pay for these investments.

7. What is Pat Toomey Doing? Inequality and America’s Future, November 16, 2011:

On a day when a national newspaper is using Philadelphia to illustrate the erosion of the middle class, why is Senator Toomey championing ideas that threaten the most cherished American values (opportunity, democracy) and the country’s future living standards? You’d have to ask him.

6. CEO Pay Soars While Workers’ Pay Stalls, April 6, 2011:

Since there’s been a lot of discussion about public-sector pay recently, it’s interesting to compare these CEO salaries with that of the top-earning public workers in Pennsylvania. According to a Pittsburgh Post-Gazette story in 2009, the top 100 highest-paid state employees in Pennsylvania earned $19.4 million as a group. In other words, the two highest-paid CEOs in Pennsylvania earn a lot more than the top 100 public-sector workers.

5. Fruit Salad, Anyone?, March 14, 2011:

The Governor’s speechwriter appears to love apples to pears comparisons, or maybe bananas to oranges. But nothing so plain as apples to apples. …

In sum, when you do apples-to-apples comparisons, public-sector workers do not earn more than comparable private-sector ones. In addition, Pennsylvania public-sector wages have not risen faster than in the private sector over the last half decade.

4. A $56 million ‘Oops’: PA Revenue Department Updates Marcellus Shale Tax Estimates, November 23, 2011:

Back in May, the Department estimated that taxable Marcellus Shale royalties generated $102.7 million in PIT collections in 2010. Now the Department says that figure is a tad lower — $46.2 million, a decrease of $56.5 million or over 55% from what was reported six months ago. To quote Britney Spears, “Oops!” …

The gas industry has been very effective in arguing that it is contributing a “game-changing” number of new jobs and tax revenue, and uses these claims to beat back efforts to enact a meaningful drilling tax. We have made the case for some time that these claims are well overstated. The Department of Revenue data, particularly the paltry PIT numbers for 2010, seem to back up our case.

3. Déjà vu All Over Again: Mid-year Cuts and a Budget Shortfall on Tap for 2012, December 20, 2011:

Secretary Zogby rightly identified areas of built-in growth that will contribute to a structural budget deficit moving forward.

His analysis failed to mention how much tax cuts, both enacted and planned, will contribute to the short- and long-term problem. For example, the administration has likely under-estimated the cost of the 100% bonus depreciation policy enacted in January, contributing to the lower-than-expected corporate tax collections. (This policy allowed corporate taxpayers in 2011 to deduct 100% of a capital expense up front, instead of stretching it out over a period of years.)

The Governor’s budget guidance issued earlier this year called for $400 million more in tax cuts, which could contribute to more than half of the expected gap for 2012-13.

2. What’s Good for the U.S. Chamber of Commerce Isn’t So Good For You, March 3, 2011:

All else equal, the Chamber seems to prefer that any given level of job growth go along with lower wages and less human development. This leads you to conclude that the Chamber values lower wages and less human development as simply good things in and of themselves. Kind of like apple pie. Go figure.

And the number 1 top viewed blog post of the year:

Teacher Salaries and the Medieval Bloodletting of the Public Schools, May 23, 2011:

The Teacher Salary Project seeks to educate Americans that this country has relatively low teacher pay compared to the most successful educational systems in the world. That’s one reason it’s difficult for American schools to retain their most talented teachers, especially in distressed communities. …

Yet policymakers in Pennsylvania are running hard in the opposite direction. Cuts in public school funding will mean stagnant or lower pay, especially in our poorest districts. More education delivered in charter schools and private schools will mean greater inequality in pay in two senses: a bigger gap, on average, between the charter and private schools serving affluent students and those serving lower-income children; and a bigger gap, again on average, between the pay of school CEOs and principals and the pay of front-line teachers.

When public school performance predictably suffers, any chance this will be used to push privatization of education further? Heh, when the first round of medieval bloodletting doesn’t work, let’s bleed the patient a bit more.

A blog post by Mark Price, originally published at Third and State.

This morning, the Reading Eagle does a nice job summarizing Berks County and Pennsylvania data on the gender pay gap. One important note, a certain amount of differences in earnings can be explained by variation in what economists call productivity-related characteristics — things such as education and experience. When you make adjustments for this, the gender pay gap is somewhat smaller but still present and meaningful. The bottom line, the unadjusted gender pay gap data from the U.S. Census Bureau, which the Reading Eagle presents, remains a reasonable guide to the state of gender pay equity.

• Dan Kelly, Reading Eagle — The narrowing pay gap: Women’s wages are still behind men’s, particularly in Pennsylvania and Berks. But their pay is inching closer.

Nationally women are paid 78 cents to every $1 paid to men…

The gender pay equity gap has slowly narrowed since passage of the federal Equal Pay Act of 1963. The rate women earn compared to men has increased on average about a half-cent per year.

Today the average salary for an American woman is $36,551 while the average man’s salary is $46,500, according to the latest census figures.

In Pennsylvania, the average woman makes $26,410 while a man averages $39,758.

In Berks, the average woman is paid $25,802, and men average $39,926.

Although compensation for all workers rises based on the level of education, a high school diploma, college degree or even graduate degree does little to close the gender pay gap, census figures show.

Nationally, a man who has finished high school earns an annual average of $31,376 while a woman who has graduated from high school makes $21,427. That’s 68 cents for the woman to the man’s $1. The average man with a bachelor’s degree earns $57,815 while a woman earns $40,393, or almost 70 cents to every $1 earned by a man.

Because statistics don’t make for easy morning reading, you need filler, typically commentary from local experts on what the data mean. This story relied heavily on commentary from an investment banker from Wells Fargo:

[Angel L.] Helm, an investment banker and director at the Reading branch of Wells Fargo Bank, said women may get paid less in janitorial work or on a loading dock, where they physically can’t do work a man can, but in finance it’s all about performance. “I can only speak about the finance world, but performance and experience, and not gender, are what matter,” said Helm, who has 28 years in the business.

“I started with American Bank and have survived six mergers,” she said. “In my experience if you produce you get paid.”

Helm said she recently researched the issue for a talk she gave to the Greater Reading Chamber of Commerce & Industry and concluded that women who get a college or advanced degree such as an MBA are more likely to meet or exceed men in business.

The leading source of data and analysis in this area is the Institute for Women’s Policy Research (IWPR). In April of last year, IWPR released a fact sheet on the gender wage gap by occupation. If you read the fact sheet, you will note that typically it is in the highest-paying occupations that the gender wage gap is the greatest. Also, as a contrast to Helm’s claim about financial services being a sector where pay equates to performance, I thought the following from the IWPR fact sheet was interesting:

The four occupations with the largest gender wage gap are (female/male earnings ratio and full-time median weekly female earnings in brackets): ‘Personal financial advisors’ (58.4 percent; $962); ‘securities, commodities, and financial services sales agents’ (62.7 percent, $892); ‘retail sales person’ (64.7 percent; $421); ‘property, real estate, and community association managers’ (65.35 percent, $726).