This is a revised chapter on raising the minimum wage, From Do What Works and Call it Capitalism By Dan Riker
“A man must always live by
his work, and his wages must at least be sufficient to maintain him. They must
even upon most occasions be somewhat more; otherwise it would be impossible for
him to bring up a family.”
- Adam Smith, The Wealth
of Nations, 1776[i]
“We stand for
a living wage. Wages are subnormal if they fail to provide a living for those
who devote their time and energy to industrial occupations. The monetary
equivalent of a living wage varies according to local conditions, but must
include enough to secure the elements of a normal standard of living--a standard
high enough to make morality possible, to provide for education and recreation,
to care for immature members of the family, to maintain the family during
periods of sickness, and to permit of reasonable saving for old age.”
- Theodore
Roosevelt, National Progressive Party Convention, 1912
“When
someone works for less pay than she can live on – when, for example, she goes
hungry so that you can eat more cheaply and conveniently – then she has made a
great sacrifice for you, she has made you a gift of some part of her abilities,
her health, and her life. The 'working poor,' as they are approvingly termed,
are in fact the major philanthropists of our society. They neglect their own
children so that the children of others will be cared for; they live in substandard housing so that other homes will be shiny
and perfect; they endure privation so that inflation will be low and stock
prices high. To be a member of the working poor is to be an anonymous donor, a
nameless benefactor, to everyone else.”
- Barbara
Ehrenreich, Nickel and Dimed, 2001[ii]
Congress could do one single thing that would
have a greater positive impact on our economy, than any other. It raise the
hourly minimum wage to $15 and link it to the cost of living. The result would
be an economic boom unlike anything we have seen since the 1950s.
Today in the United States more than 3.8
million people are being paid the minimum wage of $7.25 an hour, or less,[iii]an
annual gross of about $15,000, or less. However, fully 25 per cent of all
hourly workers are classified as “low wage” workers, which means they are
making less than two-thirds of the median hourly wage, which was a little less
than $17.00 in 2013. The average hourly wage for these “low wage” workers is
less than $12.00 an hour,[iv]or
approximately $23,000 a year. For 2013 the poverty levels in the United States
were set at $11,490 for a single person, $15,510 for a two-person family,
$19,530 for a three person family and $23,550 for a four person family, The
minimum wage and the “low wage” are not living wages, but millions of
impoverished Americans are trying to live on them, and the number is increasing
every year.
This problem would not be nearly as severe if
the minimum wage had been indexed to inflation all along. If the minimum wage
in 1968 has been indexed to inflation, the minimum wage today would be around
$11.00. That still isn't enough, and even then, it would not have kept pace
with the growth of productivity. If it had kept pace with the improvement in
productivity it would be more than $18.00. In inflation-adjusted dollars, employers of minimum wage and
low-wage workers are paying less than half of what they were in 1968.
No American who works full-time should live in
poverty. There is no full-time
job in existence that has so little value that adults who do it should not be
able to live decently. In fact, I think it honestly can be argued that some of
our lowest-paying jobs are among our most important – the jobs of taking care
of the elderly – our parents and grandparents - in nursing homes; the jobs of tending
to our hospital rooms to ensure they are sanitary; the jobs of cleaning our
hotel rooms of the soil of others; the jobs of cleaning, peeling and preparing
for cooking, or eating, much of the food we buy in restaurants, coffee shops,
and fast food places, as well as in supermarkets and institutional cafeterias;
all the jobs of people who – often invisibly – do the tough, dirty, unhealthy,
and often, dangerous, tasks in society that make for a livable civilization.
Whatever the costs to the rest of us, all of these people deserve to earn
livings that permit them and their families to enjoy decent lives and a
reasonable share of that civilization they have helped create.
Far too many Americans work for the minimum wage, or for wages very close to it.[v]
For example, the annual gross of the average sales associate at Walmart, is
only about $16,000, before the subtraction of Social Security and Medicare
withholding of about 10 per cent. What is left is not a living wage.[vi]The
wage levels of most national retailers and fast food restaurants are
similar. Today, at the rates paid by
these companies, a husband and wife both have to
work to earn in inflation-adjusted dollars what one Ford worker made in 1914.
In 1914, Henry Ford decided to pay the
workers on his assembly line $5.00 a day. That was considered radical. It was,
by far, the most money ever paid to industrial workers up to that time. In today's money it amounts to
$114.00 per day, or about $30,000 annually. Nearly 100 years ago Ford was paying almost twice
in real dollars than America's largest employer, and one of the most profitable
companies in the history of the world, is paying its workers today.
Henry Ford was very clever. He said
he wanted his employees to be able to buy
his cars, so he paid them enough
so they could buy his cars, and they did. By the
early 1920s Ford was the world's largest carmaker and extremely
profitable. After World War I other companies
followed Ford's example. They began to
pay more workers a living wage. They began to add fringe benefits. Productivity and profitability
increased significantly. The 1920s economy boomed, and a real middle class emerged, driving cars, and buying homes in the new suburbs.
Our
major employers today seem to be ignorant of
the lesson of Henry Ford, or they just don't care.
Their wages are so low that to
support a family any worker has to have two jobs, and probably has to have a
spouse who also works, also maybe two jobs. Millions of Americans are
struggling to survive. They have no money to spend on anything other than the
bare necessities. They are not “bootstrapping” their way out of poverty. Most
are locked into it. And most of these low wage jobs have little or no vacation,
or sick time. Until the Affordable Care Act, most had no health care, and some
still do not. Low-wage workers in the United States have the fewest benefits of
any low-wage workers in the industrialized world.[vii]
Not only is this a national scandal for which we should be ashamed, it also is
a national economic emergency. We will not see sustained and substantial
economic growth while so many of our citizens are so underpaid.
Most of the jobs created in the past 30 years
have been in the low paying service industries. Many people who lost their jobs
that paid $20-30 per hour now are working for wages less than half of that.
The Federal Reserve Bank of San Francisco early in 2013 reported that since
2007 60 per cent of the job losses were mid-wage jobs, but only 22 per cent of
jobs created were mid wage. While 21 per cent of the job losses were low wage
jobs, 58 per cent of jobs created were low wage. [viii]
The report said the effect of this was that
“for many of the largest occupational categories in the country median wages
are significantly below the levels needed to cover essential household costs.” Combine this with the impact of the dramatic decline in housing values – but increases
in rents - and it should be obvious why the economy for millions of Americans
is stalled. They have very little money to spend on anything other than
necessities, if they even have enough for those. This is a huge drag on the
economy. The lack of demand is why companies are not expanding, not creating
more jobs.
While this has been happening, most of the
major corporations in the nation have operating profits, and some have record
profits. The number of billionaires has increased dramatically. The disparity
between the rich and everyone else has reached record highs. Why do we permit
enormous wealth to be earned by the owners and executives of corporations when
the products and services of those corporations – what they sell to make
enormous profits – are the result of virtual slave labor, the payment of wages
that do not permit the workers to have decent lives, that require many to work
two jobs, and many to seek public assistance?
In fact, the American taxpayer is subsidizing
these enormously profitable corporations through the food stamp, Earned Income
Tax Credits (EITC), and other aid programs these employees qualify for because
they are being paid so little. In 2004, a study published by the University of
California-Berkeley Labor Center found that Walmart employees in California
were receiving $86 million in public assistance.[ix]
A documentary also was made, based on the study. Walmart attempted to refute the study by arguing that the
reliance on public assistance by their workers was not substantially different
from that of the employees of their competitors.
As of April, 2014, according to studies[x]
conducted by Americans for Tax Fairness and Democratic Staff of the U.S. House
Committee on Education and the Workforce, Walmart employees were receiving more
than $6 billion in federal aid and their stores were capturing 18% ($13.5
billion) of all food stamp sales. And this is a company 50% owned by the
richest family in America. Collectively the Waltons are worth $148 billion.[xi] Of course, their market dominance almost
certainly has had a deflationary effect on wages throughout their industry as
many competitors are forced to keep
prices and wages low.
In 2009, the maximum eligible family income under the EITC program was raised to $50,000 and $60 billion in tax credits was paid to 27 million families that year.[xiv] Today, billions of dollars in government aid are going to impoverished workers of many the nation's largest and most profitable corporations, including one of the most profitable corporations in the world, because they are not paying their workers a living wage. Instead, these huge corporations are taxing the American to support their workers and to maintain their high profits. This is both shameful and insane.[xv]
In 2009, the maximum eligible family income under the EITC program was raised to $50,000 and $60 billion in tax credits was paid to 27 million families that year.[xiv] Today, billions of dollars in government aid are going to impoverished workers of many the nation's largest and most profitable corporations, including one of the most profitable corporations in the world, because they are not paying their workers a living wage. Instead, these huge corporations are taxing the American to support their workers and to maintain their high profits. This is both shameful and insane.[xv]
That these low wages have no business
justification is demonstrated by the fact that while Walmart, (along with many
other major retailers), pays an average of less than $9.00 per hour to its
hourly sales personnel – not a living wage – CostCo has become a hugely
successful, multi-billion dollar corporation, offering many of the same
products and services, while paying its workers an average hourly wage almost
exactly twice as much. Trader Joe's is another very successful chain that pays
decent wages.
Walmart has successfully prevented
unionization, and despite enormous publicity over quite a few years about their
meager wages, the corporation has done nothing to improve its workers lives.
Meanwhile, the heirs of Sam Walton collectively are worth nearly $100 billion,
as much as 30 per cent of all Americans.
There are four obvious conclusions from this.
First, no matter how much bad publicity companies like
Walmart receive, they will not voluntarily raise wages to living levels, although Walmart said late in 2014 that they were not going be paying any workers the minimum wage. Second, There are no third parties, such as unions, in these businesses and industries, positioned to force the corporations to improve their wages. Third, state and federal governments could save tens of billions of dollars if it were not for the huge, and growing number of low-wage workers receiving public assistance and EITC payments in the U.S. The amount of money such workers are receiving is close to the amount dictated to be cut from the federal budget in 2013 by the “sequester.”
Walmart receive, they will not voluntarily raise wages to living levels, although Walmart said late in 2014 that they were not going be paying any workers the minimum wage. Second, There are no third parties, such as unions, in these businesses and industries, positioned to force the corporations to improve their wages. Third, state and federal governments could save tens of billions of dollars if it were not for the huge, and growing number of low-wage workers receiving public assistance and EITC payments in the U.S. The amount of money such workers are receiving is close to the amount dictated to be cut from the federal budget in 2013 by the “sequester.”
And, fourth, only the government can solve the
problem by raising the minimum wage substantially.
The current minimum wage dates to 2009, but in
real terms it has been declining in value for many years because it has not
been indexed to inflation. Nine developed countries have minimum wages higher
than the U.S.: Canada, the United Kingdom, New Zealand, Belgium, Australia,
France, the Netherlands, Ireland and Luxembourg.
While it seemed unlikely that the
Republican-controlled House of Representatives would even vote on President
Obama's request to raise the minimum wage, what he originally asked for, $9.00
an hour was inadequate. A minimum wage of $9.00 per hour would yield an annual
gross of about $18,000. That still is not a living wage. The President
subsequently endorsed a bill in the Senate that would raise the minimum wage to
$10.10 over three years, still not a living wage.
It is time to do something dramatic to change
the lives of millions of Americans and end our economic emergency. And it would
take just one act. Congress should raise the minimum wage through
a series of increases over a three-year period, and index it for inflation.
This would propel millions of people out of poverty and generate enormous
economic activity that would spur the economy into dramatic growth. A limited
exemption, or time extension, may be necessary for very small companies, say,
under 10 employees. Care also would
have to be used to insure that companies did not try to evade the increase by
significantly increasing the number of part-time employees. The minimum wage
should apply to permanent part-time, as well as, full-time employment.
Imagine
what would happen throughout the economy if every major employer had to pay at
least $15 per hour, more twice the current minimum wage in the states that have
not increased their minimum wages above the federal minimum wage. There would
be no one left in the current classification of “low wage.” Workers would spend that money to improve the lives
of themselves and their families. The economy would boom. Their employers would
experience greater growth, and probably recoup the additional expense in a
relatively short time. And tens of billions of dollars in public assistance and
EITC payments would be saved.
It will
be argued, as it has in the past, that increasing the minimum wage – especially
an increase of this magnitude – would cost jobs and increase unemployment
because many employers would cut back to save money.
Companies
do not routinely hire people they don't need. The bigger the company the more
adept they are at calculating exactly what they need, and hiring no more than
that. For most of these large corporations, wages are not their major expense.
Most of the studies that have been done of this issue have concluded that
increases in the minimum wage have had little or no effect on employment. In
June, 2014, more than 600 economists signed a letter to the Congressional
leadership supporting an increase in the minimum wage to $10.10 and stating:
"In recent years there have been important developments in the academic
literature on the effect of increases in the minimum wage on employment, with
the weight of evidence now showing that increases in the minimum wage have had
little or no negative effect on the employment of minimum-wage workers, even
during times of weakness in the labor market."[xvi]
It is
possible that some jobs would be lost with an increase of this magnitude.
However, the economic boom that will occur will create many more jobs, and
better-paying jobs.
It also
will be argued that such an increase will be inflationary, that it will
cause prices to rise. This probably is
true to some extent, especially if the minimum wage is doubled. But using
Walmart as an example, actual price increases should be minimal.
Walmart’s annual revenues in
2014 were $473 billion, of which $279 billion was generated by stores in the
United States. Operating income was $26.8 billion, of which 83% was gained from
U.S. operations.[xvii] There are
a number of reports of what Walmart pays its employees, from company statements
that the average is above $12.00 to industry estimates that it is under $9.00.
The problem, as explained in a Wall Street Journal story is that cashiers and
floor clerks at Walmart make less than comparable positions at other chains,
but management personnel, especially store and regional managers are paid much
more than are the same types of personnel at some other chains.[xviii]
The
impact on Walmart of raising the minimum wage to $15.00 probably would probably
cause an increase in wage expense of $15 to $18 billion.[xix]
Let's assume that with Social Security and Medicare withholding it is $20
billion. The company's domestic U.S. revenues were $279 billion in 2014. That
$20 billion is about 7% of its U.S. revenues. If the minimum wage increase were
spread over three years, Walmart could cover the expense by increasing prices
about 2.3% per year. That seems like a very reasonable price to pay for a
living wage for its employees - and for saving $6 billion annually in federal
subsidies.
The
overall impact of the influx of cash into the economy would more than offset
price increases. By spreading the
doubling over a three year period, employers would have time to adjust, as
would the economy overall.
There
also are those who advocate expanding the Earned Income Tax Credit (EITC)
program as a substitute for increasing the minimum wage. They argue that it
would be less disruptive to business, employment and inflation. However, the
EITC program, which almost entirely benefits families with children, is very
complicated. It also is a publicly-funded program that simply subsidizes major
corporations indirectly. However, it has been one of the few successful federal
programs assisting the poor that has been supported by both political parties.
Consequently, until the minimum wage is raised to a decent level, such as
$15.00 per hour, the EITC will continue to be a valuable and necessary program.[xx]
Corporations
should have to bear the real costs of their businesses, and their employees
should receive living wages. If that happened, the EITC could be significantly
reduced and the tens of billions of government dollars currently going to
public aid and EITC payments could be used far more effectively to provide free
college education as many other countries now are doing.
There is
another substantial national economic benefit of increasing the minimum wage to
$15.00: substantially greater payments into Social Security and Medicare. The elimination of nearly all “low wage”
jobs and a higher percentage of EITC payments could go a long ways towards
easing the pressure on Social Security and Medicare.
It is in
the national economic interest for all working Americans to have decent incomes
and be able to support families. It also is in our moral interest. Employers
should not be able to exploit the desperation of people to have some kind of
income and force them to accept wages that will not provide for a decent life.
That is what existed for millions when Upton Sinclair's The Jungle was
published in 1906. In many parts of the country, and in many businesses, we
have returned to conditions not significantly different from what he described.
How can anyone defend this?
As a
people, as a nation, we should insist that businesses recognize that their
employees are essential contributors to their profits, and deserve to earn
living wages. It is not right to argue that because a job does not require
great skills it is not important, and should not command a living wage. No
pizza company can make any money without the people in their restaurants who
make the pizzas. McDonald's cannot make any money without workers who cook
those hamburgers, and take orders and payments from customers. Those tasks are
essential to those businesses. The people who perform those tasks are essential
to the businesses. It doesn't matter if they are easily trained, or easily
replaced, or if the job has no educational requirements. Their value is in the
work they do, which is critically important to the success of those businesses.
It is
illegal for a business to price its products so low that no profit can be made
from them by anyone. Companies occasionally use this practice, known as
“predatory pricing,” to monopolize a product by driving out competition. It can
be challenged under the antitrust laws. It doesn't happen very often, but the
protection exists for the unusual case. There is no such protection for the
individual. Within the limits of the minimum wage laws, people can work for
wages that do not support them. And when they do, they effectively are reducing
the number of jobs that do offer living wages.
We
currently are experiencing a downward spiral of wages because of the growth of
minimum, and near-minimum wage jobs. A monopoly in a product is viewed as a
negative to the economy. Low wage jobs also are a negative to our economy. They
reduce the amount of spending by consumers. They increase government expenses.
They reduce economic opportunity. And they provide no benefit to the nation.
This must end. Wages must be set at a level that sustains life. And since
businesses will not do this voluntarily, governments must require it.
Communities
across the nation, and especially state and local government officials, should
consider whether those big box stores, which may have received some financial
incentives to locate in their areas, really are a benefit to their communities.
Their poorly paid employees are likely to seek public assistance just to
survive. If these giant stores don't drive out the local competing businesses,
whose profits stay in the community, those businesses may be forced to lower
prices to compete, and also to pay lower wages. Walmart buys most of its
products from China, not from American companies.
Local
officials should insist, before granting any special considerations, that any
major business located in their areas pay living wages to their employees, and
certainly no wages so low that employees need, and can qualify for, public
assistance.
"It was only after his death, after Wal-mart's down home founder was no
longer its public face, that the country began to understand what his company
had done. Over the years, America had become more like Wal-Mart. It had gotten
cheap. Prices were lower and wages were lower. There were fewer union factory
jobs, and more part-time jobs as store greeters. The small towns where Mr. Sam
had seen his opportunity were getting poorer, which meant that consumers there
depended more and more on everyday low prices, and made every last purchase at
Wal-Mart, and maybe had to work there, too. The hollowing out of the heartland
was good for the company's bottom line. And in parts of the country that were
getting richer, on the coasts and in some big cities, many consumers regarded
Wal-Mart and its vast aisles full of crappy, if not dangerous, Chinese-made
goods with horror, and instead purchased their shoes and meat in expensive
boutiques as if overpaying might inoculate them against the spread of
cheapness, while stores like Macy's, the bastions of a former middle-class
economy, faded out, and America began to look more like the country Mr. Sam had
grown up in."[xxi]
The huge
growth of the American industrial base in World War II led to the
explosion of the middle class in the 1950s when, for the first
time, the overwhelming majority of Americans earned incomes that provided well
for their families. Things began to change in the late 1970s, and for the middle class, things have
gotten steadily worse ever since. Real poverty has returned to a
level not seen since the 1960s. All of this is shameful, and unnecessary.
Ensuring
that all who hold full-time jobs are able to make decent livings would create
an economic boom that would be sustainable into the foreseeable future. That
can begin by increasing the hourly minimum wage to $15.00. Whatever its price,
it is the price of having a civilized and economically stable society that we
cannot afford not to pay.
[i] Adam Smith, p. 28-29. He further elaborated: “The labour of an
able-bodied slave...is computed to be worth double his maintenance; and that of
the meanest labourer, he thinks, cannot be worth less than that of an
able-bodied slave. Thus far, at least seems certain that, in order to bring up
a family, the labour of the husband and wife together must, even in the lowest
species of common labour, be able to earn something more than what is precisely
necessary for their own maintenance...”
[ii] Ehrenreich,
Barbara. Nickel and Dimed. New York:Metropolitan Books 2001, p. 221.
[iii] Various
minimum wage exceptions apply under specific circumstances to workers with
disabilities, full-time students, youth under age 20 in their first 90
consecutive calendar days of employment, tipped employees and student-learners.
[iv] Bureau of
Labor Statistics. May 2011 National Occupational Employment and Wage Estimates
United States. http://www.bls.gov/oes/current/oes_nat.htm#00-0000
[v] Twenty-nine
states have minimum wages higher than the federal minimum wage. Recently, a
number of states have raised minimum wages to reach as high as $11.50 (District
of Columbia in 2016). California, Connecticut, Hawaii, Maryland, Massaschusetts
and Vermont all will have minimum wages at $10.00 or higher by 2018, or sooner.
A number of communities have raised their minimum wages to higher levels,
including the City of Seattle, which increased it to $15.00. Multnomah County,
Oregon, which includes the City of Portland, increased the minimum wage for its
employees to $15.00. The District of Columbia's currently minimum wage is $9.
Among the states, Washington currently has the highest statewide minimum wage,
$9.47. Oregon is second at $9.25. A bill to raise Oegon's minimum wage to
$15.00 was being considered by the state legislature in 2015. Both Washington's
and Oregon's minmum wages increase with the cost-of-living.
[vi] Near the end of 2014 Walmart announced that
it would be increasing wages so that no employee worked for the minimum wage,
but how the change would affect overall wage levels was not revealed.
[vii] John Schmitt. “Low Wage Lessons.”
Washington, DC: Center for Economic and Policy Research, January 2012.
[viii] “Vantage
Point, January, 2013,” The Federal Reserve Bank of San Francisco, Feb.11, 2103.
[ix] Arindrajit Dube & Ken Jacobs. “Hidden
Cost of Walmart Jobs.” UC Berkeley Labor Center. August 2, 2004.
[xi] Ibid.
[xii] Rep. George Miller/Democratic Staff of the Committee
on Education and the Workforce. U.S. House of Representatives. “Everyday Low
Wages: the Hidden Price We All Pay for Walmart.” February 16, 2004.
[xiii] Clare O'Connor. "Report: Walmart
Workers Cost Taxpayers $6.2 Billion In Public Assistance." Forbes April
15, 2014.
http://www.forbes.com/sites/clareoconnor/2014/04/15/report-walmart-workers-cost-taxpayers-6-2-billion-in-public-assistance/
(accessed July 26, 2014)
[xiv] Schmitt p.
6.
[xv] For other
examples, see The Thom Hartman Show. "How All of Us Are Paying a Heavy
Price for Corporate Greed." Alternet.org. July 23, 2014.
http://www.alternet.org/corporate-accountability-and-workplace/how-all-us-are-paying-heavy-price-corporate-greed?paging=off¤t_page=1#bookmark
(accessed July 26, 2014)
[xvi] "Over
600 Economists Sign Letter In Support of $10.10 Minimum Wage." Washington,
DC: The Economic Policy Institute. June, 2014.
http://www.epi.org/minimum-wage-statement/ (accessed July 26, 2014)
[xvii] All figures from the Walmart 2014 Annual
Report. http://cdn.corporate.walmart.com/66/e5/9ff9a87445949173fde56316ac5f/2014-annual-report.
(accessed Jan. 25, 2015)
[xviii] Shelly
Banjo. "Pay at Wal-Mart: Low at the Checkout, But High in the Manager’s
Office." The Wall Street Journal, June 23, 2014. http://blogs.wsj.com/corporate-intelligence/2014/07/23/pay-at-wal-mart-low-at-the-checkout-but-high-in-the-managers-office/
(accessed Jan, 25, 2015),
[xix] This is my own estimate based on
calculations in other studies of increases in the company's salaries and wages
but without a breakdown by job type and wage, it cannot be anymore than an
estimate.
[xx] For a detailed analysis of the EITC see:
"Chart Book: The Earned Income Tax Credit and Child Tax Credit."
Washington, DC: Ccnter on Budget and Policy Priorities. Jan. 16, 2015. http://www.cbpp.org/cms/index.cfm?fa=view&id=5253
(accessed Jan. 16, 2015).
[xxi] Packer,
George. The Unwinding. New York: Farrar, Straus and Giroux, 2003. p.
105.
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