The Maryland state legislature took an important step Monday toward restoring the value of an honest day’s work, by raising the state minimum wage to $10.10 per hour. I’ve estimated that this increase will lift wages for nearly half a million Maryland workers, and spur an additional $456 million in otherwise unrealized output for the Maryland economy. Maryland is now the second state to raise its minimum to $10.10 per hour, matching the level set by Connecticut last month. Maryland joins 23 other states, plus the District of Columbia, that will have minimum wages higher than the federal minimum wage of $7.25 by next year. It will also join 7 other states, plus the District of Columbia, that will have minimum wages higher than $9 per hour by 2017.
While the Maryland bill is unquestionably a step in the right direction—and a praiseworthy accomplishment for all those that worked toward its passage—the final version of the bill does have a number of shortcomings that should not be overlooked.
Inflation is always eating away at the purchasing power of the dollar, so any time the minimum wage is raised in stages over several years, the purchasing power of the eventual wage is less (in real terms) than the proposed nominal dollar value. In the Maryland minimum wage proposal’s original conception, the bill would have raised the state minimum wage to $10.10 by July of 2016. Taking account for projected inflation over the next three years, this would have been equal to a minimum wage of about $9.67 in today’s dollars. Unfortunately, legislators chose to stretch out the increases over a longer period of time, thereby reducing the real value of the eventual increase. The bill that was passed will reach $10.10 by July 2018—a projected real value of $9.25 in today’s dollars. This may not seem like a big difference, but for a full-time minimum wage worker, it’s a loss of about $875 in real annual income.
Furthermore, legislators chose to strip the bill of the automatic inflation indexing that it originally contained. This provision would have mandated that the minimum be adjusted each year after reaching $10.10, to account for the preceding year’s inflation. This simple step, which 10 other states already take, would have ensured that the purchasing power of a minimum wage income would never fall back into poverty levels—not to mention eliminating the need for policymakers to revisit the minimum wage every few years. As the dark blue line in the figure above shows, without indexing, Maryland’s minimum wage will be on a trajectory right back to where it is today, unless the legislature (or Congress) steps in before then.
It’s also frustrating to see the exemptions added to the law in the final days: notably, an exemption for seasonal amusement parks at the request of Six Flags, and the creation of a “training wage” for workers under the age of 20, who can now be paid 15 percent less than older workers for the first 6 months of their employment. The message this sends to businesses? Fire your older staff and replace them with teens, and then be sure to fire those teens and hire new ones every 6 months.
Finally, the most disappointing aspect of the final bill was that it froze the base wage for tipped workers at $3.63 per hour. As I’ve noted before, tipped workers are effectively treated as second-class citizens when it comes to labor protections. Although employers are supposed to ensure that a tipped worker’s tips plus their base wage is equal to at least the full minimum wage, this system is notoriously hard to enforce and it leads to starkly worse outcomes for tipped workers. On average, tipped workers have poverty rates more than double that of all other workers, except in the 7 states where the base wage for tipped workers is the same as the regular minimum wage. (Tipped workers are paid the regular full minimum wage in Alaska, California, Minnesota, Montana, Nevada, Oregon, and Washington.)
Rather than closing this gap between tipped and non-tipped workers, Maryland’s legislators chose to make things worse. Previously, the state’s tipped minimum wage was set at 50 percent of the full minimum wage—so with a regular minimum wage of $7.25, the tipped minimum wage was $3.63. Under the new minimum wage law, as the full minimum wage is increased, the tipped minimum wage will remain frozen at $3.63. As the light blue line in the figure above shows, this means that by the time the Maryland full minimum wage reaches $10.10 (or $9.25 in today’s dollars), employers of tipped workers will be paying the equivalent of $3.32 per hour in today’s dollars to their tipped staff. For tipped workers at high-end restaurants, where tips on large checks can afford them a decent income, this may not be a problem. But for the servers and bussers at small diners and cafes, the nail salon attendants, the car wash attendants, the massage therapists, the hair stylists, and the barbers who may not be seeing large tips, locking in a base wage of only $3.63 per hour only magnifies the potential for exploitation of these workers—leaving them more exposed to wage theft, and creating greater instability in their weekly earnings.
Let’s hope Maryland’s lawmakers can correct their mistakes in future sessions so that all the state’s low-wage workers—regardless of their age or whether they receive tips—can fully celebrate this increase.