To Raise or Not to Raise

Is it time for Louisiana to raise the minimum wage?
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If you’ve driven past any fast food restaurants or big box stores since COVID-19 restrictions have eased in the past year or so, you’ve probably noticed the signs seeking cashiers, cooks, or drivers offering starting wages at $10 or even $15 an hour– well above the federal and state minimum wage of $7.25.

In what is still very much a job seeker’s market, you could look at those for-hire signs and conclude that the market is fixing itself in a textbook example of supply and demand.

There currently aren’t enough willing workers for jobs requiring in-person attendance, especially at the lower end of the pay scale. This has forced companies to increase pay.

“The Great Resignation” had the strongest effect on transportation, accommodation and food sectors, with retail not far behind, according to the U.S. Chamber of Commerce. This left demand for workers in a tourist economy like New Orleans especially high. 

In such a market, do we need a mandated increase to the minimum wage? Bill 149, sponsored by Sen. Gary Carter (D-New Orleans) in May, would have established a state minimum wage of $10 per hour beginning in 2024, but it was shot down in a Republican-majority Legislature where the prevailing opinion was that the government should not mandate a wage increase.

“I believe the market is very much taking care of this,” State Rep. Amedee (R) said. “It may be partly due to COVID, but I think it started before that. There were already businesses that had to raise their wages, even if they weren’t paying minimum wage before, just to find steady employees, and COVID made the problem much worse.”

Kevin Pedeaux, owner of local CR Coffee Shop, agrees.

“In New Orleans, I’ve never paid new people — even starting baristas with no experience — minimum wage since I opened in 2014,” he said. “And these are tipped employees I’m talking about. The free market has already pushed up wages to where we’ve had to pay much more than minimum wage just to keep great people around.”

If the government did mandate across-the-board wage increases, some question what would be accomplished. 

“The legal minimum wage doesn’t have a lot of effect on many people in the case when employers are offering more than minimum,” said Professor Walter Lane, chair of the University of New Orleans’ Department of Economics and Finance. “A minimum wage increase would only have an effect if it’s higher than the actual market wage.”

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But the New Orleans City Council seemed to think differently in 2021 when it ratified an employee pay plan ensuring all city workers will make at least $15 per hour instead of the federal minimum of $7.25.

When you’re stopped in traffic in front of one of those “for hire, starting pay $10” signs, wasting gas with the A/C on high and a small fortune in groceries heating up in the trunk, you might also ponder how much prices have gone up in the past couple of years. And then consider that the federal minimum wage has not changed from its current $7.25 an hour since 2009. That also happens to be Louisiana’s minimum wage by default, along with four other states who also have no mandated state minimum.

In July 2009, when the federal minimum wage was last increased, the inflation rate was -2.097%. Yes, that’s a negative. In March 2020, when COVID-19 hit, the inflation rate was a relatively low 1.5%, not too far off the Federal Reserve’s 2% to 3% goal. However, as shutdowns and labor shortages snowballed, inflation reached its COVID peak in June 2022 at 9.06% — a rate not seen since 1981. It has since been slowly creeping back down. As of June 2023, the rate of inflation sat at 3% — a two-year low.

Prices, however, remain high. According to the Economic Policy Institute, in 2022 the value of the minimum wage was at its lowest since 1956. 

“If you just compare the minimum wage now to what it was when I first started in the workforce at $2.50 in the 1970s and adjust the rate to inflation,” Lane said, “it would be around $10 or $11 today just to keep up with inflation.”

This is why 12 states and the District of Columbia, have opted to tie their minimum wage to inflation — but not one of those states is in the South.  Still, some Southern states are thriving — even some with the same federal $7.25 minimum wage as Louisiana. So, just how much is a higher minimum wage linked to economic success?

“A minimum wage increase is only one part of growth,” said State Rep. Phelps (D). “We don’t have a skilled workforce. We don’t have companies coming. With all the natural resources we have in our state, all the scenery, all the things Louisiana represents from our culture and cuisine — how could we have done better with all that we have? We talk about lowering insurance and about people not wanting to come to Louisiana,” Phelps continued. “It all goes together — tort reform, auto insurance, roads, education. We have no control over our weather, but we do have control over trying to get larger companies to come here.”

Erika Zucker, director of policy and advocacy and the Workplace Justice Project at Loyola Law Clinic, has a different take on things.

“If we look at states where people are coming in instead of leaving, where there’s academic achievement, business achievement, where people are thriving, we see that wages have gone up and safety nets have been provided,” she said. “But we rejected a minimum wage increase, paid family leave, expanding benefits and compensation in favor of corporate tax cuts or subsidies to companies to come here. We’re shrinking our tax base because our workers don’t make enough to pay income tax. There’s story after story about college and high school grads leaving the state. People aren’t staying here because they don’t see a future for themselves, and that’s a bleak future for the state.”

According to the most recent U.S. News and World Report’s state rankings, Louisiana is dead last in economy, crime and overall ranking. The state also ranks in the bottom 10 for education, health care and infrastructure. Historically, people have tended to dismiss the entire South as a bloc, but the only other Southern states in the bottom 10 with us are Kentucky, West Virginia and Mississippi.

Florida and Texas were in the top 10 for economic opportunity, and Georgia, Tennessee, North Carolina and Virginia were in the top 20 in that category.

Twenty-one states raised their minimum wage in 2021, with Virginia as the only Southern state to do so. Virginia raised it again in 2023, along with Florida. It’s tempting to say that this willingness to increase the minimum wage is helping to put those two Southern states high on the list for economy, but what about the states that, like Louisiana, still have a minimum wage of $7.25 an hour yet are faring much better in economic success measures? Specifically, what about North Carolina, Georgia, Texas and Tennessee? Those states are high on the report’s list for growth and migration into the state, while Louisiana is at the bottom for both.  

Yet all have a minimum wage of $7.25.

“Why is Louisiana last in everything?” Lane asked. “When the rest of the South is growing, we’re not.”

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For one thing, the poverty rate in Louisiana is the second worst in the nation. In Louisiana, almost 20% of the population lives in poverty, compared to 12.8% in the United States overall, according to welfareinfo.org. But if you also factor in those who fall between the cracks, as does the United Way of Louisiana’s ALICE report, “Fifty-one percent of Louisiana households had income below the ALICE Threshold of Financial Survival in 2021.” This includes both families who fall below the federal government’s definition of poverty ($26,500 for a family of four) and those who are “asset-limited, income-constrained, and employed,” or “ALICE,” as defined by United Way, with an income of $66,288 for a family of four. 

“These families don’t earn enough to cover a basic survival budget, but they make too much to qualify for any form of public assistance as defined by the federal government’s programs,” said United Way of Southeast Louisiana CEO Michael Williamson. “They’re working and earning a living — often with more than one job — but still not earning enough to meet their basic needs. The average household in Louisiana doesn’t have $400 in their bank account to weather a crisis such as a major storm event or the loss of a job.”

“We’re below the Southern average,” Phelps said. “There are other Southern states that have raised the minimum wage on their own, like Arkansas, but we’re a state that follows the federal guidelines. I think with the next presidential election, it should be a good time to put forth a new bill in the state. I just hope we get a Legislature at some point that puts the people of Louisiana before businesses and looks at the big picture.”

Looking at the big picture includes taking an honest, hard look at the perhaps unintended consequences of raising the minimum wage by mandate. 

“It’s just pure economics. If you are doubling the pay of your bottom earner, then you likely would be doubling the pay of your top earner. Clearly, that type of arbitrary impact to labor costs cannot be absorbed by the business, so they will have to pass the cost of that along to customers in the form of higher prices. What makes that incredibly difficult right now is inflation and the fact that so many small business owners have already had to raise the price of goods and services to keep up with that, along with the higher wages they are already paying to recruit and retain workers.”

— National Federation of Independent Businesses (NFIB) Senior State Director Dawn McVea

“Labor is our biggest expense,” Pedeaux said of CR Coffee. “If they increase the minimum wage, does that mean I need to pay even more above that minimum wage to attract people? The coffee association says independent coffee shops like mine work on a 6.8% margin. Larger companies work on an 18% profit margin, so economies of scale work in their favor. But for me as a small, independent business, when my highest cost, labor, goes up, my prices go up. I’m just moving the numbers accordingly.”

“You can’t just look at a minimum wage increase as being a full gain for the minimum wage earners,” Lane said. “Instead of five workers, a small business might go down to four. Or instead of having a worker take your order at McDonald’s, they’d replace the worker with a kiosk and prices would also increase.”

“I believe if we did mandate a raise in the minimum wage businesses would simply expand the number of self-checkouts they have and lower the number of cashiers,” said Amedee. “They’re not just going to eat their increase in labor costs.  Sometimes it means laying off staff. Sometimes it means charging more for their products and services. When that happens, we may have lower-skilled employees who wind up unemployed, and we’ve also virtually increased the cost of everything they need to pay for on a regular basis.”

“Ninety-two percent of Louisiana small business owners surveyed say they oppose increasing the minimum wage,” an NFIB survey reported from a survey of its 4,000 members across industry sectors in Louisiana earlier this year. “If the wage increased,” McVea said, “67% of our members said they would leave unfilled positions vacant, 60% said they would reduce employee hours, and 58% said they would reduce their number of employees. Most of those would come from businesses with fewer than 500 employees.”

“Additionally, labor statistics indicate that only between 2% and 4.5% of the labor force is impacted by minimum wage,” McVea added, “which further illustrates why this continued debate is really just a moot point. Raising the minimum wage is not a cure-all to improving our state. It is really only a political talking point.”

“The real problem is that we have a lot of people in the state who are not qualified for higher-skilled, better-paying jobs,” Amedee said.  “In the 1980s, there still were offerings of trade school credit where you might leave high school at lunch and go to a community college or trade school for pay and a grade. You’d learn a trade like welding, cabinet making, plumbing, becoming an electrician. And then we came into the new millennium, and that virtually disappeared. The big push was to make everybody college ready, but not everybody needs to go to college to pursue their goals, and not everybody will make it in college. Many people are gifted with their hands. I’m very glad to see the pendulum has begun to swing back to the middle a little bit with this. Those not destined for college who’d rather go into a trade have more options now. There’s a renewed focus on community colleges and technical schools, and we’ve even made TOPS money available to tech schools now.”

Jefferson Parish resident Maria Longoria agreed, saying, “Not everyone is cut out for a four-year degree program, but they would shine and would make a great living by going to a trade.” Longoria has worked for decades in warehousing, and she often struggles to find workers with the skills the work demands.

“I was raised in poverty,” Longoria added. “I used to be in Louisiana DECA (a program that prepares high school and college students for careers in marketing, finance, hospitality and management), which allowed me to go to school in the morning then work in the afternoon to help my family and myself with pocket money. It gave me great experience into what the workforce looks like and what the expectations are. That should be just as important a goal as college within the school system.”