Nevada’s Job Trap and the Minimum Wage

The Nevada employment report was encouraging last round. [DETR] Remember when the press release read:

“Total employment in Nevada’s economy is projected to grow by about 61,000 jobs through 2015 to reach an average of 1,218,700; this represents a 5.3 percent increase. Specifically, growth rates of 2.5 percent for 2014 and 2.7 percent for 2015 are expected. Some of the fastest projected growth will occur in accommodation and food services, construction, and retail trade.  Together these three industries are expected to account for over 55 percent nearly 34,000 of all new jobs during this period, Anderson noted.”

This almost mirrors the latest commentary from the Bureau of Labor Statistics on the jobs report.

Total nonfarm payroll employment rose by 288,000, and the unemployment rate fell by 0.4 percentage point to 6.3 percent in April, the U.S. Bureau of Labor  Statistics reported today. Employment gains were widespread, led by job growth in professional and business services, retail trade, food services and drinking places, and construction.

If we are projected to see jobs increase in (1) accommodation and food service, (2) construction, and (3) retail trade, then what does the current debate about raising the federal minimum wage tell us about the capacity for economic growth in Nevada.

Specifically, the median annual income for a person working in a retail clothing store in Nevada is $21,660.  An employee in a grocery store can expect $23,560 median annual earnings.   A worker in a sporting goods store?  He or she can expect median annual earnings of $21,420. [DETR]    The  median annual earnings number for wait staff in the accommodation/food service category is $19,310. [DETR]  The median hourly wages for construction workers? About $16.40 per hour.

Not to put too fine a point to it — BUT when 55% of the employment growth in the state is projected to occur in jobs which don’t often pay a living wage, then the state is asking for trouble.  Either the wages have to improve, or the state has to pick up more of the slack to insure people aren’t falling into unsustainable poverty conditions in which they can’t afford housing, adequate food, and basic utilities.

One of the sputtering arguments against raising the minimum wage is the Inflation Argument.  Gee, if we raise wages then things will just cost more and if they do then the increase won’t be meaningful and “won’t solve the problem.”   What problem?

The Inflation Argument is the essential position of the banking sector.  No inflation is good inflation.   The old saw said debtors liked inflation, while bankers (creditors) preferred stability or deflation.  If our “problem” is that we don’t have enough economic growth (read: more aggregated demand for goods and services) then there are some ideas which need more examination, beyond the recitation of old truisms.

What happens, for example, when the level of deflation is such that it actually increases the burden of the debt and reduces the cash flow necessary to service that debt?  The obvious answer is that the debt becomes uncollectable.  People declare bankruptcy. People down-size their living arrangements; people avoid major expenditures in housing, goods, and services.  That’s not a way to grow an economy — at the state or federal level.

Another notion which hasn’t been explored very often is that during periods of stagnation it makes some sense for enterprises to sit on their cash.   If, however, an industrial or commercial business believes that there is some likelihood of moderate inflation, then the decision to spend money now as opposed to waiting until “things” get more expensive kicks in.

Would we come closer to solving our “employment problem” if commercial and industrial businesses expected that a moderate level of inflation would mean they could get more for their expansion or upgrading money now, as opposed to waiting?

The second sputter often sounds something like — but, but, but do we want the government determining the value of a worker’s labor? Shouldn’t the “market” do that?  This is lovely at the ideological and theoretical level, but doesn’t exactly provide a road map for Nevada business enterprises.

If our sporting goods store employee can expect $21,420 annually, but there is no ‘floor’ under that median, then if there is no minimum standard how do we prevent a race to the bottom, a race in which the big box stores reduce wages to the lowest possible common level?  If there is competition based on who can reduce prices by reducing wages, then where does this stop?  A related question is: At what point does the sustenance provided by the state for the protection of general living conditions become a subsidy for the corporate employers?  Barry Ritholtz’s article for Bloomberg News, “How McDonalds and Wal-Mart Became Welfare Queens,” illuminates this issue.

If there is a state in this union which could benefit from an increase in the minimum wage it’s Nevada, with its projection of most employment rising in retail, accommodation/food service, and construction.  Further, if the inflation argument is demonstrated to be informed by economic feedback from inflationary pressures, and in the real world there are benefits to be gained from moderate inflationary pressures, and if we do not want to create a situation in which major employers are subsidized by taxpayers, then it’s time to support setting the minimum wage to at least $9.80/hour, or $10.10 — or what about $15.00?

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