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VOL. 38 | NO. 14 | Friday, April 4, 2014

Many Tennesseans are working for peanuts, but the solution is more complicated than raising the minimum wage

By Jeannie Naujeck

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Tennessee’s economic development efforts have given the state much to brag about.

From recent small wins like a new Flowers Foods bakery in Knox County and a heavy-equipment plant expansion in Obion County, each creating more than 100 jobs, to the four major manufacturing projects that brought in $2.6 billion in investment and nearly 4,000 new jobs last year, the state has garnered national accolades for business recruitment and corporate expansion.

But a recent federal report cast a less flattering light on the state’s labor market: Hourly workers in Tennessee are more likely to make minimum wage than in any other state.

7.4 percent of hourly workers here make $7.25 or less, making Tennessee the No. 1 state for minimum wage workers in 2013, according to the March report from the Bureau of Labor Statistics. The national average was 4.3 percent.

“It’s not an honor any governor wants,” says Doug Hall, director of the Economic Analysis and Research Network at the Washington, D.C. based Economic Policy Institute.

“But you’ve sort of set up a situation where your state is deciding that it’s on a path that it wants low wages.”

The path Hall describes is not one that anyone really wants to be on. Various solutions on bringing high-paying jobs to the state have fallen victim to partisan obstructionism over the years. But the good news is that some of those ideas are coming back around – and may yet see their day.

Minimum wage is only one of four factors that contribute to a state’s wage picture, says Dan Cornfield, a sociology professor at Vanderbilt University who writes about labor and employment issues. The others are rate of workforce unionization, which leads to greater bargaining power, level of educational attainment and occupational skill level required by the employer mix, both of which correlate with salary, benefit and advancement opportunities. Tennessee ranks low in all four areas, Cornfield notes.

“Each is a factor that requires a different policy solution,” he adds,

“There’s an economic development solution that’s relevant; there’s a workforce development solution; there’s a collective bargaining solution; and then there’s minimum wage law. So it would take a four-pronged approach, it would seem, to raise the overall wage level of the whole economy.”

Last month, a bill to raise Tennessee’s hourly minimum wage to $8.25 for workers whose jobs don’t come with health insurance died in a legislative committee.

By contrast, Connecticut Gov. Dannel Malloy signed a law that over three years will raise that state’s minimum wage from $8.70 to $10.10 an hour – the same minimum rate President Obama is proposing at the federal level. The move will place Connecticut above the state of Washington, which currently has the highest minimum wage at $9.32. In all, more than 30 states are considering raising their minimum wage.

“It almost feels like there’s a competition nationwide on who can raise the minimum wage the most,” Hall says.

“For a state like Tennessee that has chosen not to be in that race, the results are somewhat predictable.”

While incremental increases in the minimum wage might provide a political boost, they do little to lift individuals out of poverty. $10.10 an hour isn’t even considered a living wage in Connecticut right now – and it won’t be reached until 2017 through a three-year phase-in.

Currently, an adult in Connecticut needs to make $10.68 an hour to be self-supporting, according to the Poverty In America project’s Living Wage Calculator. In Tennessee, the living wage hourly rate is $8.84, on average (it is $9.51 for a single adult living in Davidson or Williamson counties.)

And the state is unlikely to boost its unionization rate anytime soon. Intervention by the Haslam administration helped kill recent efforts to organize workers at the Volkswagen plant in Chattanooga.

One solution being pioneered in Tennessee and could be a model for other states looking to move out of the low-wage cellar is improving the workforce with higher education and skills training through programs such as Gov. Bill Haslam’s Tennessee Promise and Drive to 55.

Such programs will address both the supply side and demand side of the labor market by creating an educated workforce that attracts higher-paying industries, says Catherine Glover, president of the Tennessee Chamber of Commerce and Industry. The pro-business lobbying group names education and a highly-skilled workforce as its top priority to ensure a globally competitive business climate to the state.

Drive to 55 aims to raise the percentage of Tennessean with college degrees or certifications to 55 percent by 2025. (The state currently ranks 43rd in the nation in working adults with an associate’s degree or higher at more than 32 percent.)

The Tennessee Promise, first suggested by Gov. Phil Bredesen in 2007, supports that initiative by offering a community college or technical college education and mentoring free of charge to all graduating high school seniors, a $34 million annual commitment Haslam proposes to fund it by redistributing scholarship money from lottery proceeds. It aims to reach some 940,000 residents without credentialed skills, Glover says.

“If we can get those folks to the next level, we become a much more viable economic development and business attraction destination because we’ll have that skilled workforce, especially in advanced manufacturing, technical trades, IT and so on,” Glover says.

“We think it’s a big step in the right direction. We don’t want to be known as the low-wage state – absolutely not.”

Oregon is considering a similar proposal to offer free community college educations to its residents. A recent effort to do so in Mississippi failed.

Hall applauds the Tennessee effort, which was first proposed by Democratic Governor Phil Bredesen in 2007 but failed in the Republican-controlled state Legislature.

“Investing in human capital through educating and training your workforce is certainly one of the things you can do to have a real impact,” he says.

“It doesn’t have significant short-term returns so, politically, it’s not a path that many folks are really committed to. So I tip my hat to a governor that’s willing to commit to investing dollars today to improving the workforce and the economy of tomorrow.”

Cornfield says education and training are a step in the right direction.

“That would solve some of the so-called labor supply problems, meaning the qualification of workers for higher-paying jobs.

“But that’s not the total solution because you have to look at the demand side of the equation, which is what kind of jobs are being offered – jobs that afford workers bargaining power as well as a pathway to advancement, to the American dream.”

Glover says such opportunity lies in the gap between professional services careers – requiring bachelors and graduate degrees – and manual labor or “blue collar” jobs that pay little more than minimum wage. In between is advanced manufacturing careers that require engineering, technical, communication and analytical skills to design, build and market products through cutting-edge materials and emerging technologies.

Her group is partnering with the University of Tennessee Institute for Public Service, Center for Industrial Services, and ASSA ABLOY Door Group to develop and implement Dream It.

Do It Tennessee, an initiative of the National Manufacturing Institute that aims to recruit and credential youths for careers in manufacturing by recasting their – and their parents’ – idea of what it entails and the opportunities it provides.

The average annual salary in the sector is $63,200, according to NMI. Further, career ladders of opportunity in manufacturing are more easily navigable than in industries such as health care, where the education and earnings gap between health aides and physicians is less easy to surmount, Glover says.

“Manufacturing used to be thought of as dirty, tough, debilitating and a last-resort job, as opposed to a career,” she explains. “Now, manufacturing is advanced and it’s technology. It’s a very viable and potentially lucrative career path.”

Tennessee has big opportunities in advanced manufacturing, she says, especially in the automotive sector. A Brookings Institution study (“Drive! Moving Tennessee’s Automotive Sector Up the Value Chain,” October 2013) named Tennessee the top supply chain state in the South, but said the state needs to develop the technology capabilities of its workforce pipeline to remain competitive.

“With fundamental changes in the global auto industry ratcheting up competitive pressures, Tennessee will need to find new ways to compete in the years ahead,” the report says.

“Most notably, the state, like other locations, will need to complement its traditional cost advantages with a new focus on workforce quality and technology development.”

To that end, the Chamber is also pushing for full implementation of the Common Core State Standards Initiative in public schools, which Glover says gives students the resources to “think bigger.”

“We are fully supportive. It is an important part of getting beyond living on minimum wage. You need to have the skills, the training and the thought process and mindset to be able to succeed in today’s economy and that’s what Common Core helps to prepare our students for,” she explains. “And it’s preparing our state to be globally competitive for industries that see that we have the educated workforce we need for their industry.”

While the new education initiatives may not provide short-term poverty relief they will, over time, help lure higher-paying industry to the state – a sort of virtuous cycle that can help create longer-term prosperity, she adds.

A glimmer of that promise was seen in November, when state officials celebrated Tennessee’s achievement as the fastest-improving state in the 2013 National Assessment of Educational Progress at a middle school in Mt. Juliet.

NAEP measures educational outcomes by assessing fourth and eighth grade students’ performance in reading and math.

The group included Bredesen, whose administration initiated Common Core in Tennessee in 2009 and proposed free community college education in 2007.

Bredesen has also been active in the Haslam administration’s economic development efforts – the demand side.

It’s a display of bipartisanship that perhaps holds more promise for the state’s future than any one policy initiative or big corporate recruitment win.

“The number of jobs is not the metric you should be looking at. It’s the quality of jobs that determines the quality of life your residents are going to have,” the EPI’s Hall says.

“Low wage jobs that don’t have benefits – those aren’t the types of jobs that are going to foster broad-based wage growth.

“It’s important that state policies be set that everyone can share in whatever prosperity is being generated by your economy.”

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