This is Chapter 2 of Part III of my book, Do What Works and Call it Capitalism (footnotes omitted):
Chapter 2. Double the Minimum Wage and set off an Economic Boom.
“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
“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
Congress could do one single thing that would have a greater positive impact on our economy, than any other. It could double the minimum wage 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, 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, 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.
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. For example, the annual gross of the average worker 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. 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 car maker 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. 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.
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 American economy is stalled. The vast majority of Americans either 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. 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. Of course, their market dominance almost certainly has had a deflationary effect on wages throughout their industry as many competitors keep prices and wages low in order to compete.
Subsequent to the Berkeley study, there were studies in other states showing similar levels of reliance on public assistance by Walmart employees. A 2004 Congressional committee staff report estimated that the total amount of public assistance received by Walmart employees each year could have been as much as $1.5 billion. A 2014 report said the amount of government aid to Walmart employes had reached $6.2 billion.
Walmart’s low-wage workers cost U.S. taxpayers an estimated $6.2 billion in public assistance including food stamps, Medicaid and subsidized housing, according to a report published to coincide with Tax Day, April 15.
Americans for Tax Fairness, a coalition of 400 national and state-level progressive groups, made this estimate using data from a 2013 study by Democratic Staff of the U.S. Committee on Education and the Workforce.
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.
Today, billions of dollars in government aid are going to impoverished workers of many the nation's largest and most profitable corporations, including the most profitable corporation in the world, because they are not paying their workers a living wage. Instead, the American people are being taxed by these huge corporations to support their workers and to maintain their high profits. This is both shameful and insane.
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 employees – 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. 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. And the problem can be solved 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. Oregon and Washington have minimum wages nearly $2.00 more than the national wage. Several other states and cities have raised the minimum wage above the federal level, but most have not.
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.
That still is not enough and some states and localities are raising their local minimum wages well above the national minimum. Seattle has set the pace with a $15.00 minimum wage, to be phased in over several years.
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 double the minimum wage through a series of increases over a five 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.
Walmart’s annual profits are approaching $100 billion. If the company's average wage was raised to $15.80 an hour, accounting for slightly higher pay for supervisors and managers, or annually, an average of $30,576, that would be a living wage. Walmart’s profits would be reduced somewhere in the range of $15 billion. And that only would occur if their employees didn't spend more money in their stores. But history shows that is not what would happen. Some percentage of that increase would be returned to Walmart through employee purchases.
Imagine what would happen throughout the economy if every major employer had to pay at least $14.50 per hour, twice the current 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.
It is possible that with an increase of this magnitude, that would drive up the wages of millions of workers, some jobs could be lost. 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. Using Walmart as an example, actual price increases should be minimal. Walmart's increased wage costs probably could be covered by price increases of around 3 per cent, also spread over a five year period, hardly a major economic impact, and a cost we should be more than willing to absorb for the enormous benefit that would result.
Companies that rely on domestic suppliers, rather than companies like Walmart that rely almost entirely on foreign suppliers, might face higher costs. But, the overall impact of the influx of cash into the economy would more than offset price increases. By spreading the doubling over a five year period, employers would have time to adjust, as would the economy overall.
There also are those who advocate expanding the 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.
Corporations should have to bear the real costs of their businesses, and their employees should receive living wages. The tens of billions of government dollars currently going to public aid and EITC payments could be used far more effectively rebuilding the highways and bridges, which also would generate a great deal more economic activity.
There is another substantial national economic benefit of doubling the minimum wage: 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 it, or any competitor. Such a practice, known as “predatory pricing,” occasionally is used by companies 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. 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. In his 203 book, The Unwinding, George Packer wrote (p. 105):
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.
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 doubling the minimum wage. Whatever its price, it is the price of having a civilized and economically stable society that we cannot afford not to pay.