March 23, 2016
Human Services, Human Costs:
Two Views of What the Fight for $15 Could Mean for Low-Wage Caregivers
While fast food workers have commanded most of the attention in the “Fight for $15” both nationally and in New York, proposals to raise the minimum wage affect other major segments of the workforce, too. By some estimates, more than 400,000 workers in the human services in New York State currently earn less than the $15 per hour that Governor Andrew Cuomo has proposed be the new State minimum wage, to be phased in by 2019 in New York City and mid-2021 in the rest of the state.
In January hearings before the New York State Standing Committee on Labor, two economists – E.J. McMahon of the conservative Empire Center for Public Policy and James Parrott of the left-leaning Fiscal Policy Institute – addressed what the effects of the governor’s proposal could mean for such caregivers, and the people they serve. With expected action on that proposal nearing, Urban Matters offers these excerpts from their testimony.
To read their testimony in full, go to:
- http://fiscalpolicy.org/testimony-overall-impact-of-15-state-minimum-wage
‘A Minimum Wage Won’t Generate Higher Incomes Out of Thin Air’
E.J. McMahon
Advocates have suggested a 67 percent boost in the minimum wage will ignite a purely virtuous cycle in which low-wage workers spend all of their higher pay on goods and services, resulting in a net boost to the overall economy. In fact, there are two sides to that coin. A minimum wage won’t generate higher incomes out of thin air. It will redistribute incomes—in many cases, among low-wage workers themselves.
Consider how the $15 scenario is likely to play out in just one important sector that touches many working families across New York State. As of 2014 there were 11,370 child care workers employed in the 11 metropolitan areas of upstate New York, earning hourly median wages ranging from $9.01 in Binghamton to $10.88 in Ithaca. The biggest urban metros in upstate New York all had median child care worker wages below $10 an hour.
Obviously, child care is labor-intensive, and licensed child care centers are subject to strict staffing ratios. Given the figures I just cited, the imposition of a $15 minimum wage inevitably will result in significant increases in child care costs for hundreds of thousands of parents at all income levels. And as salaries rise for child care workers employed in licensed facilities, families with informal child care arrangements also will need to pay more.
The most common assertion we hear in connection with the so-called “Fight for $15” is, as Governor Cuomo has put it, “no one who works full time should live in poverty.” In fact, this is not a new concern in New York. It was a desire to boost low-wage workers out of poverty that inspired Governor Mario Cuomo to successfully propose, 22 years ago, that New York State supplement the federal Earned Income Tax Credit – a program that has enjoyed broad bipartisan support in Washington since the mid-1970s.
Counting the EITC and other state and federal wage supports—including child tax credits and Supplemental Nutritional Assistance, formerly known as Food Stamps—a single parent of two children, employed full time in a job paying New York’s new minimum wage of $9 an hour, can collect total cash income of $34,995 a year, or $16.81 per hour. These figures do not include additional benefits such as housing and child care subsidies, or health insurance subsidized by Medicaid and the federal Affordable Care Act.
For the single parent of two in our example, a $6 raise to $15 an hour will result in a net cash income gain of just $2.72 an hour, due to a phased-in reduction of the EITC and other means-tested cash supports I mentioned….
If poor workers are the real concern here, by far the most efficient way to help them is through improvements to the Earned Income Tax Credit, which encourages poor heads of household to seek work without jeopardizing employment opportunities for anyone.
‘This Is the Best Opportunity to Right a Wrong Permitted to Exist for Far Too Long’
By James Parrott
Statewide, [the human services] sector encompasses nearly 870,000 workers, and nearly half (over 48 percent)—420,000—would benefit from an increase in the minimum wage to $15…. Most of this workforce works directly under government-funded contracts or provides services reimbursed by Medicaid funding. This workforce includes… home health aides, personal care assistants, alcohol and substance abuse counselors, foster care case workers, direct care providers serving people with development disabilities, afterschool program leaders, homeless shelter workers, preschool teachers, and home-based childcare providers.
Eighty-two percent of this workforce is female. Many of these occupations have been traditionally held by women and long-underpaid for that reason. This is despite the fact that services such as those provided by home health care aides, personal care aides or substance abuse counselors allow clients to function better on their own, saving taxpayers millions of dollars each year. This is the best opportunity to right a wrong that has been permitted to exist for far too long….Because wages are so low, and fringe benefits are bare bones, employee turnover is very high in this sector, often such that it compromises the quality of service delivery.
Most of the employers in this sector are non-profit organizations providing services under government contract or that are reimbursed under Medicaid. Non-profits do not sell their services, which are essential public services after all, so they cannot raise prices. Also, local and state governments have mostly under-funded human service contracts in the wake of the recession despite an increase in hardships. State human services contracts and Medicaid reimbursement rates need to be adjusted so that these organizations can pay higher wages….
We estimate that raising the wage floor in the state-funded human services sector would cost $60-$75 million in the first year and approximately $250-$300 million yearly when fully phased in over the next six years. These estimates assume some spill-over wage increases are provided to workers slightly above $15 an hour to avoid an undue compression of an organization’s overall wage scale.
This estimate does not encompass other programs, such as care providers in developmental disabilities or homecare, where funding might need to be adjusted to reflect a phased-in minimum wage increase. Child care workers are among the lowest paid workers all across the state. Those child care workers not on the payroll of an organization paid under State contract also deserve to be included in any across-the-board increase but this will mean that State-funded child care subsidies should be adjusted to reflect the wage increases. In addition, since many moderate-income families are not eligible for child care subsidies and pay for care out of their own pocket, the State should explore how to enhance the State’s Child and Dependent Care Tax Credit to help offset higher private pay child care fees that may result.
This increased governmental cost will be partly offset by a fiscal dividend stemming from the minimum wage increase. More than half of New York workers paid below $15 an hour receives some form of public assistance, or a family member does. The fiscal dividend involves likely State government savings on public assistance costs as workers’ wages rise, and increased state and local income and sales tax collections.
Raising wage levels for human service workers providing essential public services is long overdue. It will help this hard-working, committed and caring workforce better care for their own families, and it will improve the quality and continuity of service delivery. It also makes good budget policy sense.