2019 has been an outstanding year for advocates of a higher minimum wage. New Jersey, Maryland, and Illinois all enacted increases that will make their minimum $15 an hour by 2024 or 2025; New Mexico enacted a bill that would get to $12 by 2023. Ten other states, including California and New York, saw previously enacted wage hikes take effect this year. These increases will likely provide an economic boost to workers on the lower reaches of the income distribution over the next few years.
Workers at the very bottom aren’t the only ones struggling; the average worker has also had it tough in recent decades. According to the merry band of Franco-American inequality researchers Emmanuel Saez, Thomas Piketty, and Gabriel Zucman, incomes for the bottom 50 percent of working-age Americans have not grown at all since 1980. Income gains have been exclusively concentrated among seniors (mostly in the form of costlier Medicare benefits) and the rich, especially the top 1 percent, top 0.1 percent, and beyond.
The depth of this stagnation for folks in the bottom half of the distribution is hard for minimum wage increases, higher taxes, and redistribution alone to reverse. But there’s a tool that at least three major states — California, Colorado, and New Jersey — could use to help reverse the stagnation, a tool that doesn’t require any unpopular tax increases.
The tool is a wage board, and it’s the law of the land in those three states. They’ve been employed in the past to raise wages not just at the bottom but all across the distribution, yet they remain obscure and underused. That could change if governors like Gavin Newsom, Phil Murphy, and Jared Polis decide to use them — and they don’t need their legislatures to go along with it.
If those governors do use wage boards, they could secure massive raises for workers whose pay has stagnated for decades.
How wage boards work
Wage boards work by bringing together businesses and workers (often represented by unions) with the state’s executive branch, and engaging in bargaining to determine a wage scale for a whole industry.
While these laws have been on the books for decades — in some cases going back to the Progressive Era or the Great Depression — the recent surge in interest in them is attributable to a group of labor lawyers and activists, including the University of Michigan’s Kate Andrias and the Center for American Progress’s David Madland, who have suggested them as an alternative to the decaying American labor model, which is based on workplace or “enterprise”-level bargaining.
Enterprise-level bargaining depends on workers to organize one company at a time, reaching deals that don’t directly bind other companies in the industry.
That model has faced a number of potent challenges, including right-to-work laws that enable workers to benefit from union collective bargaining without paying dues that can keep unions afloat, and the fact that they pit unionized workplaces against non-union ones. Non-union shops, with their lower wages, tend to add workers more quickly, which over time leads the unionized section of the labor force to shrink.
Wage boards would represent a shift toward “sectoral” bargaining, of the kind that’s common in continental Europe and in Australia. In that model, associations of employers and unions reach deals on compensation across an entire industry. Instead of Vox reaching a deal with a Vox union, for instance, the entire Writers and News guilds would reach a deal with an organization representing Vox, BuzzFeed, the New York Times, the Wall Street Journal, etc., and the terms of the deal would apply to everyone working in journalism.
Beyond just setting a minimum wage for journalism (which could be higher than the minimum wage for all workers), these bargaining sessions could set different minimums based on age and experience, to ensure that workers get regular raises instead of just setting a floor.
If enshrined in law, that kind of bargaining would eliminate any disadvantage to unionized workplaces relative to non-unionized ones, as all companies would have to play by the same rules and pay the same minimum wages.
Wage boards in American practice
A concrete example of this played out in New York state recently, as a result of the Fight for $15 movement. Facing opposition from his Republican-controlled state Senate at the time, Gov. Andrew Cuomo resurrected New York’s old wage board system in 2015, invoking laws first enacted in 1933. Andrias, in a Yale Law Journal article, outlined how this worked in technical terms:
On May 6, 2015, after growing protests and strikes in New York organized by the Fight for $15, Governor Andrew Cuomo announced that he would take executive action to raise wages. … The next day, New York’s Acting Commissioner for Labor issued a memorandum providing data to show that “a substantial number of fast-food workers in the hospitality industry are receiving wages insufficient to provide adequate maintenance and to protect their health” and began the wage board process.
Critically, New York law did not simply permit the executive to establish a wage board; it required that the board be comprised of equal numbers of representatives from labor, management, and the public. For its board, New York chose one representative from each group: Byron Brown, Mayor of Buffalo, representing the public; Kevin Ryan, Chairman and Founder of the online retailer Gilt, representing businesses; and Mike Fishman, Secretary-Treasurer of SEIU, representing labor. The Board Members held hearings across the state over the next forty-five days. Workers, organized by the Fight for $15, participated in great numbers at these hearings. … On July 21, the Board announced its decision: $15 for fast-food restaurants that are part of chains with at least thirty outlets, to be phased in over the course of six years, with a faster phase-in for New York City.
This was a partial victory; in 2016, the New York state legislature agreed to set a $15 minimum across industries, but in doing so, it stripped the labor commissioner of the power to use wage boards to raise minimums for specific occupations in the future.
But New Jersey, Colorado, and California still have laws like this on the books; Arizona does too, but only for minors. California’s works through an entity called the Industrial Welfare Commission, which still has wage orders setting industry-specific minimums on the books.
The IWC has been defunded since 2004 and does not convene currently, but there’s nothing stopping California’s progressive majority in the legislature from refunding it and spurring it to adopt more modern wage minimums than the ones left in effect 15 years ago. New Jersey’s law actually requires a wage board to be empaneled if at least 50 workers in a given occupation petition for one. In all three states, wage board recommendations that are approved by state authorities and go through public review have the force of law. (For more, read a recent law review article by Andrias laying out the specific laws in each state.)
How much wage boards could raise wages
It’s hard to know just how much these boards could raise wages in the US, given how timidly and rarely they’ve been used in recent years. But Arindrajit Dube, an economist at UMass Amherst and one of America’s leading economists studying minimum wages, did a simulation exercise recently that provides some rough magnitudes of what national wage boards in the US could be capable of.
Dube assumes for the sake of simplicity that in each of the nine divisions the census divides the country into, each of 102 different occupations sets a new occupation/region-specific minimum wage, pegged to either 30 or 35 percent of the median wage in that occupation/region. In reality, wage boards would likely set minimums more granularly, for instance offering more to more experienced workers, but this works as a quick-and-dirty estimate:
In the “low” raise estimate, with minimum pegged to 30 percent of the median wage, “the 20th, 40th and 60th percentile wage rises by 13, 9 and 4 percent, respectively,” Dube writes. Those are quite substantial raises, not just for the bottom but for the middle that has also been left out of wage gains in recent decades. The numbers are greater for the “high” wage option: 19, 15, and 12 percent raises, respectively.
“It is useful to contrast these distributional impact of wage boards with those from typical minimum wage increases in the U.S, which mostly fade out by the 20th percentile of the wage distribution,” Dube writes. “In other words, wage boards are much better positioned to deliver gains to middle-wage jobs than a single minimum pay standard.”
Again, this is a back-of-the-envelope estimate of a hypothetical wage board proposal. It doesn’t incorporate potential downsides from setting higher sector-wide wages. Perhaps the biggest single concern skeptics of the idea will have is that sector-specific minimums will cause unemployment, the same way critiques of the minimum wage argue that it makes it too costly to hire and forces companies to shed staff.
But as Dube notes, Australia, which otherwise has a similar employment culture to the US but uses national wage boards, does not appear to have massively higher unemployment as a consequence.
States experimenting with wage boards would also want to be cognizant of how they might interact with state budgets. Personal care aides and registered nurses are two of the most common jobs in California, for example, and you would want to raise their wages in concert with a boost to Medicaid funding, so the money is actually there to finance their higher salaries.
But a good first step might be for Gov. Gavin Newsom to take an incredibly common profession in California — like retail workers, or cashiers, or restaurant servers — without such massive budget implications and ask the Industrial Welfare Commission to set up tripartite negotiations with workers in those sectors and with business groups to set new, higher wage scales. Those are also among the most common jobs in Colorado and New Jersey, so Govs. Polis and Murphy could try convening wage boards for them as well.
The beauty of these state laws is that they allow the process to start small and build up, and for governments to learn what methods work best for incorporating worker feedback, for reflecting worker experience, for avoiding layoffs, and so on. Employers in those states probably won’t be happy, just as New York state employers were furious about the 2015 wage board (and demanded the laws change). But workers — workers who vote — would get raises, and the state governor would able to claim full credit.
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