Maryland’s Minimum Wage Needs to Play Catch-Up

By Branden A. McLeod

Fact

“The earnings of minimum wage workers are crucial to their families' well-being.”

Likewise, we know that 454,000 Marylanders have incomes under the federal poverty level (e.g. under $21,027 for a family of four with two children). There are a variety of ways to lift Maryland’s families out of poverty.  One way to do so is by increasing the state minimum wage. 

The Baltimore-Washington metropolitan area has a high cost of living. The cost of rental property, alone justifies the the need for a fair living wage.  The most recent U.S. Census Bureau data on housing tells us that the lowest contract rent quartile was $621 per month in 2007 (that is, ¾ of renters pay at least this amount). Minimum wage at that time would bring in approximately $1065 per month.  Under this circumstance, housing would consist of approximately of 60 percent of that household’s monthly expenses, leaving them with a bit more than $400 to figure out how to pay for food, transportation to work and school, child care, among other necessities.  This is troubling considering that households should typically spend no more than 30 percent of their income on housing costs.

Does Maryland Measure Up?

Twenty three states lead Maryland in their state minimum wage efforts, despite Maryland’s relatively high median household income ($68,080).   While Maryland meets the current federal minimum wage rate of $6.55 per hour, these 23 states whose median income trails Maryland have managed to proactively set higher rates. The national average is $7.35 per hour.  The highest rate is $8.07 per hour, in Washington state. Washington states’ median household income is approximately $12,500 less than Maryland’s.  

Keeping up with the cost of living

How is it that the nation’s “wealthiest” state’s minimum wage only reflects the federal government’s low standard?  Just over a year ago, Maryland’s minimum wage was $1 over the federal rate (at $6.15 versus $5.15).  Maryland must continue its tradition of exceeding the low federal standard in order to reduce the gap in wage disparity. Surely, Maryland being the nation’s richest state can stand for a state minimum wage increase.

2007 State Median Income vs. State Minimum Wage

Source: CBPP compilation of U.S Census Bureau ACS data 2007. EPI 2007 effective minimum wage rates (2007) compiled from U.S. Department of Labor. 

Maryland was ahead of the curve just one year ago, when the state wage was $1 over the federal and the Maryland General Assembly should’ve passed the minimum wage increase in the 2007 legislative session after the federal government’s effort passed in early 2007. Maryland’s minimum wage is not pegged to the national minimum or to the cost of living, so it does not adjust automatically.   To get back up to speed the General Assembly should consider increasing the minimum wage by $.75 effective July 2009.  By doing so, the state minimum wage would be $8.15 (12 cents lower than Washington State).  Increasing the minimum wage is a very modest step.  As it currently stands, a single-parent with two children earning $6.55 per hour would gross approximately $14,000 annually (Poverty Level for a family of two).  Based on a 2007 Self-Sufficiency Study for Maryland, this family would not be able to pay for basic needs (i.e. child care, taxes, food, transportation, health care, housing, etc.).

Compared to the Self-Sufficiency standard, a family of three would be

• $27,285 short to pay for basic needs, if they lived in Baltimore City
• $31,627 short to pay for basic needs, if they lived in Prince George’s County
• $39,231 short to pay for basic needs, if they lived in Baltimore County
• $51,217 short to pay for basic needs, if they lived in Montgomery County

In 2008, this family would likely pay more for basic needs

Increasing Minimum Wage Does Not Hurt Small Business

A 2006 study by the Fiscal Policy Institute examined the impact of higher state minimum wages on small businesses. Their analysis focused on various outcomes for businesses with less than 50 workers, comparing outcomes in states with minimum wages higher than the federal level to those with minimums at the federal level.

They found that:

• Between 1998 and 2003, small businesses in the higher minimum wage states as a group had faster job growth (6.7%) than for the other 40 states combined (5.3%).
• The number of small businesses grew by 0.6% in higher minimum wage states (compared to a 0.3% decline for all other states).
• Total payrolls and average pay per worker both grow more in the higher minimum wage states

Recent increases in state and federal minimum wages are not factors in the current economic slowdown.  Experience shows us that adequate minimum wages do not cause adverse economic outcomes.

Recommendation: Maryland must once again take the lead

The federal government’s effort to raise the minimum wage ought to be applauded.  However, when the federal government raises the minimum wage to $7.25 effective July 24, 2009, Maryland should consider surpassing the federal standard by passing a minimum wage increase in the 2009 legislative session.  The reality is many single-parents work for this wage and the current rate does not go far enough for working families. $7.25 per hour will simply keep a family of three 15 percent below poverty level.  In the end, both families and small businesses will benefit from an increase in the minimum wage. It is crucial for Maryland’s faltering economy.

MB&TPI