A conservative friend of mine
was astonished to learn that a couple with two children in his town would need
an income of $57,000 per year to live
there. “I'm a CPA and I've had partners who didn't make $57,000 some years,” he
said.
That actually sounds about right. We have come to the point where a living wage, defined as the minimum hourly
income necessary for a worker to afford basic needs, is close to the U.S. median family income. That means that nearly half of all US households are unable to consistently meet all of their family's
basic needs without some assistance from relatives or from government subsidies.
"Everyone" can't
be above average,” he protested. “If we
set the poverty line or living wage standards above the average American
income, the government could NEVER provide [enough for the poor].”
First, living wage standards
are not set by the government. They are
set by the regional market place where people spend their money and live their lives. Living wages are
calculated based on things like the cost of food, housing, clothing, medical care,
transportation, childcare, and essentials. These family requirements have a free
market price tag that varies from place to place. The poverty line, on the other hand, is an
arbitrary federal government measure used to determine who may be eligible for
government financial subsidy, among other uses.
It is a single value that does not take local economies into account.
Secondly, my friend's response assumes
that it is the government’s role to subsidize America ’s workforce.
On the contrary, it is, and ought to be, the responsibility of employers
and business owners to maintain strong communities and a stable, well-compensated
workforce. When families can no longer
afford to meet their basic needs in a given location they either migrate to
places where their prospects are better or they devolve to survive and the
social order breaks down. Either way,
businesses suffer when this happens. Ultimately,
commerce and markets cannot exist without solid communities and a stable,
healthy workforce. When businesses shirk
their responsibility to properly compensate employees, governments step in to
help stabilize the workforce. This
amounts to a hidden business tax subsidy.
Local communities are the
medium from which businesses are created and through which commerce thrives. When most businesses were locally owned this
truth was self-evident. Local employers took
pride in the standard of living they provided their employees. Business owners were community-minded and
proud of the beneficial impact they had in their home towns. Conservative
Republican values were once rooted in the welfare of local economies.
As businesses became more
regional and less dependent on local economies, pressure from organized labor
unions helped maintain a reasonable standard of living for the workforce. This helped to keep local economies strong,
which was ultimately good for business. With
the rise of national and global corporations, however, the connection between
corporate wellbeing and local community wellbeing has broken down. Large corporations are able to exploit local
economies and then move on to new locations when a local economy falters. Large corporations have the power to control
politicians, overcome unions and raise profits by lowering labor costs. Because of reduced reliance on local
economies for their success, global companies enjoy an autonomy that didn’t
exist before. This has given rise to self-serving
corporate cultures and free-market philosophies centered around profits over
people. The expansion of the welfare
state to bridge the growing gap between lowered wages and rising prices has
helped ease the conscience of business owners and investors during the
transition to this new corporate culture. And as the middle-class started disappearing, capital owners increasingly blame American workers for the decline.
But the really big point
missing here is that median wages have fallen too low in America . The big
story, from which all public discourse on the economy seems designed to
distract us, is that American workers
need a raise. Incomes have declined
substantially relative to the costs of basic goods and services. This decline in American wages is neither
accidental nor inevitable. The
flattening of American wages was done by design at a specific time in our
history. The graph below shows that the decline in wages
corresponds with the decoupling of worker compensation from the rise of hourly productivity. [see also http://bit.ly/IKDFup]
Based on this graph it is obvious that the rise in hourly compensation dramatically diverged from
the rise in productivity per hour in the late 1970s and early 1980s. Hourly compensation has barely risen since
then. This decoupling of wages from productivity coincides with the establishment of industry trade organizations, the creation of extensive business lobbies, and a nearly inverse decline in the membership and influence of labor unions. It shifted compensation for growing productivity to top corporate management and wealthy investors. This shift, coupled with dramatic income tax cuts for the rich in 1980 and 1985 is the root cause of the large income inequality today.
While productivity rates increased 250% since World War II, hourly compensation only increased by 130% nearly all of which occurred before 1977. (The tiny increase around 2007 may reflect the increase in the federal minimum wage that year.) If wages had kept pace with worker productivity since 1977 the median income inAmerica today would be more like $100,000 per year. Extra consumer spending capacity would put
upward pressure on prices if that happened, but the relationship between
discretionary income and consumer prices is neither linear or direct. In other words, the price of goods and services might be higher, but not in proportion to the increased income.
While productivity rates increased 250% since World War II, hourly compensation only increased by 130% nearly all of which occurred before 1977. (The tiny increase around 2007 may reflect the increase in the federal minimum wage that year.) If wages had kept pace with worker productivity since 1977 the median income in
As mentioned earlier, when
families can no longer afford to meet their basic needs in a given location
they often move to places where the economy is better. This weakens the local economy
when they move out because there are fewer people supporting local commerce. It may weaken the local economies into which
they relocate by flooding the labor pool (which drives down wages), increasing
housing costs, and burdening local social services. Making sure working families can meet their basic
needs is not just the right thing to do, a stable labor pool is critical to local economies.
That’s why government programs to financially supplement the labor
pool, especially during economic
downturns are so essential. When businesses fail to pay employees enough that they are financially self-sufficient, government programs step in to help with housing costs, food stamps, medical costs, etc.
For the past 40 years wage growth has been nearly flat. Consider the impact this has on
government spending and government revenues. Each year the cost of food, housing, and other basic necessities rises. This means that living wage rates rise faster than our actual earnings. When worker compensation remains flat, income tax revenue remains flat as well. At the same time, the number of families in need of government financial assistance
grows.
Think how much more federal revenue there would be if the median family income today was $100,000 per year instead if nearly half that amount. Imagine how much less the government would have to spend shoring up low wage workers. If wages had continued to rise on par with productivity over the past 40 years our median income would far exceed current living wage levels.
Think how much more federal revenue there would be if the median family income today was $100,000 per year instead if nearly half that amount. Imagine how much less the government would have to spend shoring up low wage workers. If wages had continued to rise on par with productivity over the past 40 years our median income would far exceed current living wage levels.
The case for a living wage has
been around for a long time. In 1891 Pope
Leo XIII first described a living wage in terms that could be generalized and
applied in nations throughout the world. He said, "Wealthy owners of
the means of production and employers must never forget that both divine and
human law forbid them to squeeze the poor and wretched for the sake of gain or
to profit from the helplessness of others."
Even Adam Smith was a supporter of living wages. He viewed them as a way to achieve economic growth and equity. In his Wealth of Nations, Smith recognized that the rising real wages lead to the "improvement in the circumstances of the lower ranks of people" was an advantage to society. According to Smith, the government should align the interests of those pursuing profits with the interests of the labor force in order to grow the nation’s economy. Smith argued that high wages lead to higher productivity and overall growth. In this way, he linked higher wages with increased productivity. For much of our history, this alignment has been evident.
Even Adam Smith was a supporter of living wages. He viewed them as a way to achieve economic growth and equity. In his Wealth of Nations, Smith recognized that the rising real wages lead to the "improvement in the circumstances of the lower ranks of people" was an advantage to society. According to Smith, the government should align the interests of those pursuing profits with the interests of the labor force in order to grow the nation’s economy. Smith argued that high wages lead to higher productivity and overall growth. In this way, he linked higher wages with increased productivity. For much of our history, this alignment has been evident.
Below is a graph prepared by
the Secretary of Public Welfare for the State of Pennsylvania . It was
designed to show how government financial aid is uneven along the earned income
continuum producing illogical "welfare cliffs". However, the graph also reveals the great extent to which working
families need government assistance to bridge the gap between what they make
and what they need. The entire area to the left of earned income represents the gap between living wage compensation and what families actually earn.
Some examples here might be useful. First, consider a case where a Pennsylvania company hires a single mom and pays her the federal minimum wage, $7.25 per
hour. Working 40
hours per week, 52 weeks per year, she would gross approximate $15,000 per year. Subtract income taxes and payroll taxes and
she would clear about $13,000 per year. Using the Welfare Benefits and Wages graph above we see she would require an additional $42,000 per year in government subsidy to meet her family's basic needs.
The only reason her employer can pay her minimum wage and count on her coming to work every day is that so much tax money is spent to supplement her wages. If there were no aid to the working poor her employer would have little choice but to pay this woman a living wage. In this sense, all government aid to the working poor is really a hidden tax break for businesses.
The only reason her employer can pay her minimum wage and count on her coming to work every day is that so much tax money is spent to supplement her wages. If there were no aid to the working poor her employer would have little choice but to pay this woman a living wage. In this sense, all government aid to the working poor is really a hidden tax break for businesses.
For another example, consider a family of four living in Harrisburg, PA, making a living wage. Using the Living Wage Calculator we find that the living wage in Harrisburg is approximately $51,000 per year. This corresponds to about $24 per hour (more than 3 times the minimum wage). Subtract payroll and income
taxes from the living wage and this family's net income is around $38,000 per year. Using the PA Welfare Benefits
and Wages graph above it appears that this family might still need some assistance paying for child care if both parents worked, and possibly for health care as well. However, if increases in hourly compensation had kept pace with hourly
productivity over the last forty years this same family would be earning more than $100,000 per
year. They would be contributing to state
and federal revenue rather than being a drain on tax revenue.
If wages had doubled
since 1977 (productivity rose 1.5 times) median family wages would be closer
to $48 per hour and as many as 50 million American's who now receive subsidy would instead be contributing to federal revenues. It
is about time we began pressing the case for passing a living wage law.
Below you will find a link to a living
wage calculator. Developed by Dr. Amy K. Glasmeier and Pennsylvania State University , the calculator estimates the hourly wages a
person needs to meet their basic human needs. The calculator estimates
living wages for each state or county, and many municipalities, in the United States . Check out what a living wage looks like near
you.
Introduction to the Living Wage Calculator
http://www.livingwage.geog.psu.edu/
In many American communities, families working in low-wage jobs make insufficient income to live locally given the local cost of living. Recently, in a number of high-cost communities, community organizers and citizens have successfully argued that the prevailing wage offered by the public sector and key businesses should reflect a wage rate required to meet minimum standards of living. Therefore we have developed a living wage calculator to estimate the cost of living in your community or region. The calculator lists typical expenses, the living wage, and typical wages for the selected location.
Introduction to the Living Wage Calculator
http://www.livingwage.geog.psu.edu/
In many American communities, families working in low-wage jobs make insufficient income to live locally given the local cost of living. Recently, in a number of high-cost communities, community organizers and citizens have successfully argued that the prevailing wage offered by the public sector and key businesses should reflect a wage rate required to meet minimum standards of living. Therefore we have developed a living wage calculator to estimate the cost of living in your community or region. The calculator lists typical expenses, the living wage, and typical wages for the selected location.
As you point out, improvements in productivity haven't been reflected in wages, and you tie this (correctly, I think) to corporatist influence on governments. What do you see as the solution? Having the government step in and increase the minimum wage as was recently done in California can have serious negative effects. E.g.: "UC Berkeley Touts $15 Minimum Wage Law, Then Fires Hundreds Of Workers After It Passes". Using tariffs to penalize global corporations for moving jobs offshore is also a two edged sword. For example, if you put a tariff on a finished good, the source country may throw an export tax on a component that you need from them to assemble your own goods. I don't see a solution, other than to strike at the root of the problem: get money out of politics.
ReplyDeleteMaybe some corporations are too big to shame them into sharing profits with their employees, but that doesn't mean the public has to subsidize the true cost of labor. We have to start by building a consensus, both nationally and globally, that minimum wage levels must produce economically self-sufficient employees.
ReplyDeleteA fair days wage for a full day's work!
This must be part of our social contract. It must become a portion of the cost of doing business. Taxpayers should not have the burden of stabilizing the private sector workforce with publicly funded social programs such as food stamps, housing subsidy, daycare or even healthcare. This amounts to governments subsidizing private profits. Businesses should either fully support their own employees, or governments should recover from them the costs associated with providing public subsidies for their workers. There should be no such thing as "the working poor".
This should not be just a national ideal, but a global goal. Every worker everywhere should receive a living wage for full-time employment. It is our right as human beings to have our basic human needs met in fair exchange for our service to others. This human right should be foundational in every foreign trade agreement between nations and in every international corporate venture.
Eliminating foreign wage exploitation and sustaining human dignity abroad would properly raise the cost of relocating businesses outside of the United States. This, along with other reasonable measures, might discourage company from relocating, Where U.S. companies do have foreign operations, living wage requirements would reinforce or encourage fair wage laws and worker rights in those countries as well. And fair wages for foreign workers can be enforced. Provisions can be added to foreign trade agreements that facilitate collection of the cost of public subsidies where companies from one country fail to pay living wage on foreign soil.
Of course none of this can happen in the U.S. as long as corporations and wealthy donors subsidize our democracy. So,yes! We have to get money out of politics as part of the fix for corporate wage suppression.
Thank you for replying to my article.
This comment has been removed by the author.
ReplyDeleteGreat article! We always talk about the minimum wage but not a standard wage. Well done.
ReplyDelete