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Don’t fear 15

With fast-food and retailer workers striking in 58 cities Thursday — a dramatic increase over the seven cities where similar actions took place last month — calling for a $15-an-hour wage, here’s an interesting historical note:

Fifty years ago, when Martin Luther King spoke at the March on Washington, one of the demands was a minimum wage increase from $1.15 to $2 an hour.  That would be just over $15 in today’s dollars.

In case we’re tempted to get carried away with this “dream,” the Chicago Tribune offers us University of Chicago economist Allen Sanderson’s advice: “Don’t fight for 15.”

All in all, it’s a pretty thorough demonstration of how far the dismal science can stray from any connection with reality.

First of all, he warns that if workers become too expensive, they risk being replaced by automation.  In fact, though, it’s really hard to imagine how much more automated McDonald’s could be.   Or to picture computerized checkouts at Macy’s.

He suggests higher wages would mean even higher unemployment rates for minority teens.  That might be a factor if there were a better job market for older people, but there isn’t — especially with an economy that is quickly replacing middle-class jobs with low-wage ones.

More than half of new jobs are in low-wage retail and hospitality sectors, according to the Chicago Political Economy Group.  And the number of college graduates earning minimum wage is steadily growing.

In fact the surge in youth unemployment came before the 2008 crash, while the economy was growing (not very fast), as federal funding for youth jobs was eliminated.  As we noted at the time, it was the first economic recovery in which youth unempoyment increased.  That was without a minimum wage hike, too.

Really poor?

Sanderson then looks into the “claim” that “one can’t live on $8.25 an hour and that someone working full-time would be in poverty.”  Not true at all, he says — a full-time minimum wage worker earns $16,500 a year, a generous $1,000 above the federal poverty level for a two-person household.

Of course, if the full-time worker had two kids rather than one, the family would be at about 20 percent below the poverty level.  Which is not exactly quibbling.

But the reality is that only about one-third of minimum wage workers have full-time jobs.  That’s one of the reasons fast-food workers want a union — so they can negotiate over things like scheduling.

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Will higher wages hurt the economy?

Higher wages for fast food and retail workers could hurt the economy, according to an analysis by the Chicago Tribune.

The analysis includes comments from the Workers Organizing Committee, which led hundreds of workers from national chains, from Wendy’s to Potbelly and from Sears to Victoria’s Secret, in strike actions here last week.  They’re not looking to double wages to $15 an hour overnight; they’re trying to organize a union and address a range of issues.

It also includes a Whole Foods employee who works two additional jobs and still qualifies for food stamps, and a labor economist who is quoted to the effect that high unemployment helps lower wages.

But its major thrust is whether consumers can stand to pay the higher prices that they say higher wages would require.  The economists they ask about this specialize in consumer psychology and marketing behavior.

One crucial piece of information is omitted, curiously:  how big of a price increase are we talking here?

In a column reviewing “the boilerplate argument against higher wages” — which is precisely that it would hurt consumers with “enormous” prices increases — David Sirota fills us in.

Raising the minimum wage to $10.50 would add 5 cents to the price of a Big Mac, according to one analysis.  Another study found that raising McDonalds workers’ hourly rate to $15 would drive the price of a Big Mac up by 22 cents.

Run that by your consumer psychologist.

A recent study by Action Now and Stand Up Chicago found that  raising Chicago retail and restaurant workers’ wages to $15 an hour would cost about $100 million for a sector with $14.2 billion in yearly revenues in the city.  That’s about 2.6 percent of revenue.

“Downtown employers can afford a very significant increase in wages,” they argue.

It’s an important reality check to vague scare talk about higher prices.  That line of arguent works because it involves a “populist insinuation that higher wages would hurt the Average Joe,” according to Sirota.

Here’s another hard economic fact that deserves more attention, courtesy of the Center for Tax and Budget Accountability:  the largest, most profitable retailers in Illinois pay the lowest wages.

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Common sense on pension reform

Lots of gnashing of teeth over the failure of the legislature to “do something” about pension reform.

Some sensible sorts point out we’re probably better off without the plan put forward in the House, which would have been challenged in court and almost certainly found unconstitutional, since the vast bulk of its savings came from reducing the benefits of current state workers and retirees.

In Arizona, which has a constitutional provision like Illinois’s barring any diminishment of pension benefits, a recent reform plan was found unconstitutional – and the state was ordered to pay workers back with interest, points out Ralph Martire of the Center for Tax and Budget Accountability.

If there’s one thing we’ve seen this week it’s the wisdom of the 1970 Constitutional Convention in protecting state workers from lying, thieving politicians — and from honest, well-intentioned ones who try to fix their messes without seeing the big picture.

All the plans on the table are focusing on the wrong area of the problem, Martire says.  “We don’t have a benefits crisis, we have a debt crisis.” It’s the predictable result of the 1995 “reform,” which pushed the problem down the road by steeply backloading pension fund payments.

Stabilize the debt

CTBA has proposed amortizing the pension debt over 45 years, which would head off steep pension contribution increases now facing the state — and in fact reduce pension costs over time.

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Black unemployment high in Chicago; wage-sharing could save jobs

While releasing a new report showing Chicago among the top cities in the nation for African American unemployment, the Center for Tax and Budget Accountability is urging the state to avail itself of new federal funding for “wage-sharing” programs that reduce layoffs.

The Chicago area had the third highest African American unemployment rate in the nation last year, according to a new report by the Economic Policy Institute released here by CTBA.  While unemployment among African Americans fell in most metropolitan areas last year, in Chicago it increased by 1.7 percent to 22.6 percent.

In 2010, five other metropolitan areas had higher black unemployment rates than Chicago; last year only Los Angeles and Las Vegas did.

St. Louis, Atlanta, Memphis, New York, Philadelphia, Baltimore, Houston, Dallas/Fort Worth, Washington and Richmond had black unemployment rates that were below the national average of 15.9 percent, according to the report.

Chicago is also near the top in the ratio of black to white unemployment, with African Americans here 2.5 times more likely to be unemployed.

One significant factor could be heavy cuts in public service jobs, which disproportionately impact the black community, said Ron Baiman of CTBA.

Federal funds for wage-sharing

A new initiative could help keep those numbers from rising further. Baiman said the federal government recently issued regulations for a provision in the jobs bill passed in February, under which the federal government will provide 100 percent funding for wage-sharing programs.  (See CTBA’s fact sheet on the program.)

Under such programs, workers receive partial unemployment benefits to cover lost wages when their employers reduce their hours in order to prevent layoffs.  Currently 21 states have wage-sharing programs.

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Illinois leads on sales tax loss

Illinois leads the nation in states tax revenue lost from diversions to retailers to compensate for collection costs, according to a new study by Good Jobs First.

The state loses an estimated $126 million a year to retailer compensation — far more than any other state — and it also leads the nation in sales tax subsidies as part of economic development packages for Wal-Mart.

Nationally, of 45 states which collect sales tax, 19 provide no compensation for collection costs; of 26 that do, 13 of them cap compensation amounts, most of them below $10,000. Good Jobs First estimates that states lose $1 billion a year through sales tax diversions — $70 million of which goes to Wal-Mart.

Vendor compensation allowances, instituted before computerization brought down accounting costs, create “a windfall for giant retailers like Wal-Mart,” according to GJF’s Phil Mattera. GJF urges retail compensation be modernized in light of technological advances.

GJF cites a study that found that sales tax collection costs range from 13.5 percent for small retailers to 2 percent for large retailers.

“It is frustrating that when our state’s huge, ongoing deficits have forced cuts to human service programs used by the most vulnerable members of society, Illinois continues to lose so much revenue to this practice,” commented Ralph Martire of the Center for Tax and Budget Accountability.

Illinois leads on Wal-Mart breaks

Looking at diversion of sales tax revenues to economic development projects, GJF found that Illinois by far leads the states in sales tax rebates for new Wal-Marts, with $41 million going to eleven Wal-Mart developments over the past decade. In addition, a Wal-Mart in Collinsville received $9.5 million in sales tax increment financing in 2004.

The total for Illinois is more than a third of the $130 million in development-related sales tax subsidies that GFJ estimates Wal-Mart has received nationally over the past decade.

Last year Good Jobs First reported that Illinois leads other states by a wide margin in public subsidies to Wal-Marts — including subsidies for new stores in Orland Hills, Belleville and Collinsville that replaced existing Wal-Marts (see June 2007 Newstip).

The group calls for reasonable limits on retailer compensation and for restricting economic development subsidies to bringing basic necessities to underserved areas.

Support for progressive income tax

With Illinois facing a $1.4 billion budget gap — and with voters saying no to a constitutional convention which might have fixed a constitutional provision requiring a flat rate for the state’s income tax — Public News Service reports on a new survey by the Paul Simon Public Policy Institute with 66 percent of respondents supporting a progressive income tax for the state.

People “just sort of generally understand the fairness behind it,” comments Ralph Martire of the Center for Tax and Budget Accountability.  The state’s antiquated tax structure is at the root of its revenue problems, he says.

“If your revenues don’t grow with the modern economy, you can’t continue to support public services because service costs go up with inflation every year,” Martire tells PNS. “You can’t have the fifth-biggest [state] economy ranked 45th in revenues and expect to meet the needs of your population – and we don’t. And that’s why we underfund schools, we underfund transit, we underfund health care; we underfund everything.”

Illinois is one of seven states with a flat income tax rate.

Missing from budget debate

Personalty conflict is a big part of the state’s budget impasse — but for the major media it’s the only story, and that’s part of the problem.

Take funding for the state’s desperately needed capital budget.  It’s presented largely as a problem between the governor and the mayor over how much the city will pay for a casino franchise.

There’s a lot more to the story, according to Ralph Martire of the Center for Tax and Budget Accountability — a reality that is largely separate from the rhetoric, which is all that seems to get covered.

The vast majority of gaming is in-state, Martire said, and it’s a substitute expenditure — money spent in casinos is not spent at dry cleaners or shoe stores.  But because the majority of casino owners are out-of-state, the profits don’t go back into the local economy, the way money spent at the dry cleaners does.

Compared to public expenditures, which have a large multiplier effect on the local economy — teachers salaries are spent in ways that produce more jobs here — spending on gaming has a significant negative multiplier effect, he said.

Compared to a direct tax — where a dollar for the state costs a taxpayer a dollar — every dollar in gaming revenues for the state costs an Illinois resident five dollars in gambling losses.  And the people providing the revenues are not the wealthiest by far  — they’re low and middle income.

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Outdated tax system hurts Illinois economy

A new national study offers support for local reformers’ arguments that Illinois’ “antiquated” tax system could be a drag on the state’s economy.

The failure of state tax systems to keep up with fundamental shifts in the economy — including the shift away from manufacturing —   is fueling revenue and public investment shortfalls that undermine economic growth, according to an analysis released in early January by the Pew Center on the States, a program of the Pew Charitable Trusts.

“Antiquated tax structures result in lost revenue, an environment that is inefficient and inhospitable to business, and inequitable taxes on some segments of the economy at the expense of others,” said director Susan Urahn in a statement on the report from the Pew Center.

Mary Jo Waits of the Pew Center will be among national experts joining the Center for Tax and Budget Accountability‘s annual fiscal symposium Tuesday, as the CTBA shifts its focus beyond Illinois to consider what other states are doing to address slowing revenues and rising demands for services, said Ralph Martire.  Illinois comptroller Dan Hynes and treasurer Alexi Giannoulias will also participate.

Martire and CTBA have longed criticized the Illinois tax system for instability and unfairness, with “structural mismatches” guaranteeing growing deficits because state revenue sources don’t capture economic growth.

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