Indexing the Minimum Wage– A Policy Memo to President Obama

To: President Barack Obama

From: Kevin McClintock, Chief of Staff to the President of the United States

Re: Indexing the Minimum Wage

Date: November 7^th, 2013

Since its implementation in 1938, the minimum wage has only changed when the United States Congress passes legislation to do so. Even though some are pleased after a rise in the minimum wage, these hikes have negative effects on many sectors of society. Furthermore, because of inflation, the salary of a worker earning the minimum wage ends up falling behind the actual cost of living in the United States as soon as a year after its implementation. Therefore, Mr. President, a long-term solution must be put in place for the federal minimum wage issue. Solving this problem, however, is not in continuing the practice of huge jumps between minimum wages as has been done every time it is raised, but rather in innovating the way it changes. Therefore, you should submit legislation to Congress with the objective of indexing the minimum wage along with the inflation rate, bringing about a change in its value every year.

            There is a problem surrounding the topic of minimum wage in the United States. First of all, just as has happened in many other periods of time, the current minimum wage, set at $7.25 an hour, isn’t enough to provide a decent living to an American individual. With the minimum wage as it is established today, a person working a full time job would still be living below the poverty line established by the Federal Poverty Threshold, which is $15,130.

This problem has been affecting workers because of the fact that the wage goes up only when Congress legislates for it to go up, which usually results in big jumps between wages. Although one might look favorably into a jump such as the one implemented in 2009, where the minimum wage went up a full $2.10 in a period of only two years, this actually has negative repercussions that end up being disruptive to employers. For example, this last boost resulted in a 20% cut in jobs for young workers, according to a research performed by Cornell University. Therefore, the solution to this problem lies in finding a method that appeases both workers’ interest in earning a salary that is in tune with the cost of living, and the employers’ interest in avoiding substantial and sudden hikes in between the previously and newly implemented minimum wage.

The method which best solves this dilemma is that of adjusting the minimum wage in accordance with the Consumer Price Index (CPI), which produces results in the change of the inflation rate every month. Implementing this adjustment, assures that a worker will always earn a salary that is in tandem with the rate of inflation in the United States. This solution has a variety of benefits to society as a whole. For example, assuring that the federal minimum wage goes up in accordance with the CPI will assure that the yearly rise will not trigger massive changes in the inflation rate. Other than this, it will appease the interests low-income workers have in seeing their salaries rise at a reasonable rate every year. Also, it will appease the interest of employers in not being subject to abrupt increases in their operating costs, as the wage will go up very gradually.

Raising the minimum is not only a matter of ensuring a comfortable living style for American workers but also a method for the creation of new jobs in the market. A study done by the Economic Policy Institute (EPI), for example, concluded that an increase in the federal minimum wage would result in the creation of new jobs. They specifically stated that an $115,000 increase in economic activity would result in the creation of one new full-time-equivalent job in our current economy. Hence, since a raise in the minimum wage implemented over a span of 3 years would raise our GDP by roughly $32.6 Billion, this would result in the creation of approximately 140,000 net new jobs.

However, with an issue as broadly debated as the one at hand it is worthy to consider one of the major drawbacks presented by its opponents. According to a study by the CATO Institute, for instance, most economists can agree that businesses will make changes to adapt to the higher labor costs after a minimum wage increase. Furthermore, he substantiated his argument by pointing out flaws in the establishment of minimum wage as a whole. He mentions that, even in the year of its implementation in 1938, a raise in the minimum wage resulted in the loss of 50,000 workers, or about 13% of the workforce at the time.

However, the Obama administration proudly adheres to the Democratic principle of assuring a comfortable standard of living to every working American citizen through the establishment of a fair minimum wage. Therefore, this plan is relatively better to the one we have now as, although the cost to employers will still go up, it will do so in a way that permits them more time and flexibility in adjusting their finances.

Lastly, it is the potentiality of bi-partisan political support that this proposal carries that makes it even more attractive. According to a Gallup Poll held in March 2013, a total of 71% of Americans expressed their interest in increasing the current minimum wage. Other than this, it shows that Democrats (87%) and independents (68%), said they were in favor of increasing it. Even more impressive, the issue of raising the minimum wage resulted as the #1 most essential topic to resolve this year in a poll held by the Pew Research Center in February 2013 with a 70% of the vote. Furthermore, we can assure that even most Republicans are on board with the proposal for two reasons. First of all, in the above-mentioned poll a majority of Republicans (50%) are in favor of increasing the minimum wage. Other than this their candidate for President in 2012, Mitt Romney, believed in indexing the minimum wage. In a speech he gave in January 2012, he said “My view has been to allow the minimum wage to rise with the [Consumer Price Index]… so that it adjusts automatically over time.” This demonstrates how even members of opposing parties would be in tune with this idea.

In a time when the main political parties have rarely been so polarized as they are, it is a challenge to find a big solution to a big problem such as this one, which is not only efficient but also jointly supported by a bi-partisan effort. Therefore, Mr. President, in order to put a permanent end to the dilemma surrounding the minimum wage, the mentioned legislation should be introduced to Congress. 

Sincerely,

References:

1.)   United States Department of Health and Human Services. “2012 Poverty Guideline for the 48 Contiguous States and the District of Columbia.” January 2012. Web. November 5^th 2013. http://aspe.hhs.gov/poverty/12poverty.shtml#thresholds

2.)   Remapping Debate. “Individual minimum wage versus family poverty threshold.” April 11^th 2012. Web. November 5^th 2013. http://www.remappingdebate.org/map-data-tool/individual-minimum-wage-versus-family-poverty-threshold

3.)   Abowd, Kramarz, Lemieux, Margolis. Cornell University Research. “Individual minimum wage versus family poverty threshold.” May 1997. Web. November 5^th 2013. https://courses.cit.cornell.edu/jma7/minimum-wages-youth.pdf

4.)   Gallup Polling.“In U.S., 71% Back Raising Minimum Wage” March 2013. Web. November 5^th 2013. http://www.gallup.com/poll/160913/back-raising-minimum-wage.aspx

5.)   Pew Research. “If No Deal is Struck, Four-in-Ten Say Let the Sequester Happen”. February 2013. Web. November 5^th, 2013. http://www.people-press.org/2013/02/21/if-no-deal-is-struck-four-in-ten-say-let-the-sequester-happen/

6.)   Romney, Mitt. “Gov. Mitt Romney: Raise Minimum Wage to Keep Up with Inflation.” January 2012. Video. November 5^th, 2013. http://www.youtube.com/watch?v=1-oGn6-dypE&feature=player_embedded

7.)   Wilson, Mark. CATO Institute. “The Negative Effects of Minimum Wage Laws.” Web. June, 2012. November 6^th, 2013.  http://object.cato.org/sites/cato.org/files/pubs/pdf/PA701.pdf

8.)   Hall, Cooper. Economic Policy Institute. “How Raising the Federal Minimum Wage Would Help Working Families and Give the Economy a Boost.” August 2012. November 6^th, 2013. http://www.epi.org/publication/ib341-raising-federal-minimum-wage/

Competing With Fiction: The Truth Behind Puerto Rico's Status Issue

Current Political Status

            For the past 115 years Puerto Rico has been a territory of the United States of America governed and subject to the provisions of Article IV, Section 3, Clause 2 of the U.S. Constitution. The territorial clause grants Congress the Power to dispose of and make all needful Rules and Regulations respecting the Territory or other Property belonging to the United States. As an effect, the sovereignty of the people of Puerto Rico lies in the hands of the United States Congress.

Political Title

         There are multiple ways in which one can refer to Puerto Rico. First of all you have the name of “territory”, which is politically correct since the island is under the jurisdiction of the territorial clause of the U.S. Constitution. The term of “territory”, unlike the other titles with which one could refer to the island, directly designates and defines a form of status for Puerto Rico. Other than this we have the “Estado Libre Asociado de Puerto Rico” (Free Associated State of Puerto Rico, in English) which is the official name of the island as designated under the Constitution of Puerto Rico. It is imperative to specify that this “Estado Libre Asociado” does not define any form of status for island but rather is the political name for the territory of Puerto Rico. Lastly, some people refer to the territory as a “commonwealth”. This term is not wrong, Puerto Rico is in fact proclaimed as a commonwealth at the state level. However, the term “commonwealth” does not specify any form of political status for the island. This is proven as Kentucky, Massachusetts, Pennsylvania, and Virginia also bear the title of commonwealth in their respective state names.

Current Political Status for “Commonwealthers”

            In Puerto Rico there are two main political parties, the New Progressive Party (PNP, for its acronym in Spanish) and the Popular Democratic Party (PPD, for its acronym in Spanish). The PNP is the party that believes that statehood is the best option to resolve Puerto Rico’s political status problem while the PPD is the party that believes in maintaining the political status we currently have in the island. For the members of the Popular Democratic Party, Puerto Rico has a status unique from any other as it is neither territorial nor colonial. In the minds of the status-quo supporters, Puerto Rico’s status changed in 1952 with the drafting of the United States constitution and became a new kind of state, with the same powers the states have to organize themselves for purposes of local government. In short, for those who believe in the commonwealth, Puerto Rico has its unique form of government that is neither territorial nor colonial but has the potential to stay the same and become better through amendments. Lastly, they believe that the commonwealth should not be subject to the plenary powers of the United States Congress.

What do “Commonwealthers” want the status to be?

            The Popular Democratic Party, main political entity in support of the status-quo, states that the ideal solution to the status problem is maintaining the Estado Libre Asociado while carrying it to completion. This form of government is often referred by them as the “enhanced commonwealth” and consists of the following ideals:

·      Mutually-binding consent between Puerto Rico and the United States

·      Sovereignty rests with the people of Puerto Rico

·      The transfer of Puerto Rican lands from the U.S. to Puerto Rico

·      Maintain common defense and market, U.S. currency, Nutritional Aid Program, and Educational Pell Grants

·      Have the capacity and authority to enter into trade and tax agreements with other countries and belong to regional and international bodies

·      An annual economic block allotment with corresponding inflationary adjustments from the U.S. to Puerto Rico to cover the costs of:

o   social benefits

o   public works

o   infrastructure

o   incentives for the opening of jobs

o   special incentives programs for investment on the island

Is this view realistic?

            In a word, no, this view of an “enhanced commonwealth” is in no way realistic. The basis for this answer is the fact that every proposal that has ever been introduced has been rejected by both the members of Congress and the executive branch of the United States under democratic and republican administrations alike. An example of this is H.R. 4751, a bill presented into the United States House of Representatives on June 26^th, 2000 by the Hon. Doolittle of California and referred to the Natural Resources Committee. The committee celebrated one hearing on this bill and, in the end, managed to find a total of zero (0) congressional cosponsors.

2012 Plebiscite

            On November 6^th, 2012, on the same day as the general elections, a status plebiscite was held in the territory of Puerto Rico. This plebiscite was composed of two questions in the same ballot: (1) Do you agree that Puerto Rico should continue to have its present form of territorial status? Yes or No. (2) Please mark which of the following non-territorial options would you prefer? Statehood, Independence, or Sovereign Free Association. The official results of the status plebiscite where as follows:

·      Question 1:

o   No- 53.97% (970,910 votes)

o   Yes- 46.03% (828,077 votes)

·      Question 2:

o   Statehood- 61.16% (834,191 votes)

o   Independence- 33.34% (454,768 votes)

o   Free Association- 5.49% (74,895 votes)

Why is it different from all past plebiscites?

            Throughout Puerto Rico’s history, a total of 4 plebiscites have been held: 1967, 1993, 1998, and 2012. The plebiscite held this past November 2012 is different and distinct from all others for various reasons. For example, this query had the highest voter turnout in status plebiscite history with a 79% of voters filling out the ballot. However, the main reason for which the 2012 plebiscite was so transcendental and distinct from any other previously held status consultation was that it gave the people an opportunity to vote on their opinion of the present form of territorial status that Puerto Rico holds with the United States of America. In the 1993 and 1967 status referendums, where the choice of “Estado Libre Asociado” option came out victorious, the definition of such was not that of our current territorial status but rather a variant form of it with a series of enhancements such as:

·      Making the relationship between the U.S. and Puerto Rico a permanent one with inviolable common citizenship

·      Mutually-binding consent between Puerto Rico and the United States

What are the main PPD arguments against this plebiscite?

            Since the days before the rejection of the “Estado Libre Asociado” in the 2012 plebiscite, the Popular Democratic Party already had an argument against various elements regarding the plebiscite. As mentioned, this consultation was the first one in history in which Puerto Rico’s current political status was considered as it should legally be, a territory of the United States. The “commonwealthers” fiercely opposed the mere event of holding a plebiscite, and for various reasons. First of all, in the Resolution of the Governing Board of the PPD rejecting the status query in February 11^th, 2012, it was stated that they would not tolerate the fact that a plebiscite be held on the same day as the general elections as it was “a mechanism to hide their [incumbent PNP administration] ineptitude, abuses, and lack of substantive work. It's a ruse to distract the people on an important issue, knowing that this alleged consultation lacks all legitimacy and thus prevent the people from judging him [incumbent PNP Governor Luis Fortuño] by his government.” Secondly, they created another argument in which they reclaimed, through the same document, that “Neither the current Free Associated State nor the Free Associated State in its development are on the ballot and that the Commonwealth is not and should not be subject to the plenary powers of the United States Congress”. Lastly, they protested against the consultation for the absence of the option of “None of the above” as one of the available in the ballot, which was the one they did campaign for in the 1998 plebiscite, where it came out with 50% of the votes while the “Estado Libre Asociado” got 0.3% of the votes.

What is the foundation/root of their arguments?

            The main argument the Popular Democratic Party uses to oppose the plebiscite is that they do not recognize the inclusion of the apt definition of the Free Associated State or the Free Associated State in its development. The root of this argument comes from the establishment of the “Estado Libre Asociado”. Since that very day in July 25^th, 1952 the PPD has failed to recognize a common definition for the ELA or a path to follow in the future for its “development”. Also since that day, the PPD has proclaimed that the island’s status was no longer a territorial one and that it shouldn’t be subject to the plenary powers of Congress, specifically the “territorial clause”.

Is this argument valid? Why or why not?

           

            The argument presented above specifies that Puerto Rico as an “Estado Libre Asociado” is a change from the territorial status we were proclaimed as before 1952 to a new kind of state that is neither colonial nor territorial and, consequently, should not legally be referred to as a territory. Oddly enough, this asseveration is not validated with any statement, fact or legal resolution released by anyone other than the very members and supporters of the Popular Democratic Party. In the Law 600 permitting the creation of the Puerto Rico Constitution it is clearly stated that “Puerto Rico will remain a territorial possession of the United States, as expressed in sections of the Jones Act.” Also, Antonio Fernós Isern, the Resident Commissioner and leader of the PPD at the time Public Law 600 was approved in Congress, stated in a hearing on the S. 3336 (eventual Law 600) that “S.3336 would not change the status of the island of Puerto Rico relative to the United States. It would not commit the United States for or against any specific future form of political formula for the people of Puerto Rico. It would not alter the powers of sovereignty acquired by the United States over Puerto Rico under the terms of the Treaty of Paris.” This argument, without a doubt, is not validated in any way.