Increasing the minimum wage is necessary, but it's not going to end poverty
News Item: March 18, 2013 — Sen. Elizabeth Warren (D-Mass.) made a case for increasing the minimum wage during a Senate Committee on Health, Education, Labor and Pensions hearing, in which she cited a study by the Center for Economic and Policy Research that suggested the federal minimum wage would have stood at nearly $22 an hour today if it had kept up with increased rates in worker productivity. Read entire Huffington Post Article
The Federal minimum wage was last increased in 2009. It now stands at $7.25 an hour. A full-time worker at that level grosses $15,080. That doesn’t go very far in a lot of places in this country, so 18 states and the District of Columbia have enacted higher state minimums. An employer is required to pay the higher of the two minimums. The California minimum wage is $8.00 and that included tipped workers. The Federal tipped-worker minimum wage was last raised in 1991. It is now $2.13, and that’s what employers in some states get away with paying. Although some wait staff and bartenders in high-end restaurants in major cities make high incomes, the vast majority of restaurant workers, parking lot attendants, nail salon workers and others who rely on tips are in reality poverty-level workers.
According to the web site Raise the Tipped Minimum Wage:
- In 1991, a loaf of bread cost 70 cents, the average salary was $29,000, and the minimum wage for tipped employees was $2.13.
- 21 years later, bread costs $2.89, and American workers are taking home $40,000.
- But the minimum wage for tipped employees is still $2.13.
- Food service workers have 3 times the poverty rate of the rest of the US workforce.
Due to the inadequacy of the minimum wage, 125 localities had passed living wage ordinances by July, 2011. However, these ordinances are also inadequate. First of all, not all low-wage workers in the affected area are covered. A look at the table prepared by the National Employment Law Project shows that in many cases, the exceptions swallow the rule. The living wages, though higher than the federal or state minimum wages, are still very low when one considers the cost of living, especially in California, where many of these ordinances exist. The wages are generally anywhere from one to three dollars higher if the employer does not also offer health insurance. The theory is that the worker will use that extra pay to buy health insurance elsewhere. But given that the low rate of pay must cover the basic monthly bills, and given that individual policies are much more expensive than group coverage, I doubt that many workers are buying insurance, especially if they are young, healthy and have no children.
Sen. Warren had the chance to address the minimum wage issue because of a bill now in Congress called the Miller-Harkin Fair Minimum Wage Act, which would raise the Federal minimum wage to $10.10/hr over three years and the tipped minimum to 70% of the regular minimum. Let’s do some arithmetic. A full-time, non-tipped employee working at $10.10/hr would make $21,008. Seventy percent of that is $14,705.60. That is only if full-time is a forty-hour week. It may not be. According to the website LawInfo, the assumption that full-time work equals forty hours comes from the fact that the Fair Labor Standards Act mandates overtime for more than forty hours per week. But what exactly constitutes full-time work is generally a matter determined by the employer. In California, a 37.5, 36 or even 30-hour full-time week is not uncommon.
Then there is the matter of the underemployed, those who want full-time work but can only find part-time, under anyone’s definition.
And then there are taxes. Low-wage employees pay FICA taxes for Social Security and Medicare, and they do pay income tax. Most low-wage earners get a refund every year, but that only means that the federal government has forced the taxpayer to grant it an interest-free loan every year. A low-wage worker needs to keep whatever he or she can for basic monthly expenses at the time the paycheck arrives.
But let’s assume the 40-hour figure of $21,008: In the contiguous 48 and DC, that sum is almost 183% of the 2013 Federal Poverty Guidelines for a single wage earner, 135% of the guideline for a family of two, and 89.2% of the guideline for that famous family of four the government and the media always talk about. Now get this: In his State of the Union Address in January 2013, President Obama recommended an increase to only $9. Look for that to be the fallback position if House Republicans kill Miller-Harkin.
Low-wage workers are POOR. Passage of the Miller-Harkin bill, which will effectively bump up the wages of workers just above minimum, will not change that. This does not mean that Congress should forego the increase. Workers have not been getting the full benefits of their increased productivity. About two-thirds of that money has gone into the pockets of employers. This is a moral issue that needs redress.
But the practical effects of the moral and economic injustice will never be corrected by the small, slow increases in the minimum wage that are considered politically viable. An increased minimum wage for America’s poorest non-agricultural workers rests in the hands of the 535 members of Congress and the President, all of whom are wealthy and in many cases multi-millionaires. Is it democracy to have the interests of one group, in this case the poor, entirely circumscribed by a group that has opposing interests, in this case the rich (not only the wealthy politicians but the even wealthier business people who back them)? Now think about the fact that, despite the numbers concerning wage rates and working hours, a lot of Americans, especially the Republican/tea party/libertarians, expect workers to be self-reliant and self-supporting, and if they aren’t, it’s their own fault. Does this make any sense? Who is passing (or not passing) minimum wage or living wage laws? Who is setting wages and hours when hiring? Who is making decisions to automate, outsource or layoff? Hint: It’s not the guys and gals making $7.25/hr.
The economic theory upon which the CEPR minimum wage and productivity report rests states that wage increases will not raise the unit cost of labor if they are matched by an equal increase in the productivity rate. That theory was taught to me when I was an economics major at Fordham University in the Bronx New York, in the 1970s. Back then, inflation was the major concern and that theory served as a guideline for wage increases. But keeping unit labor costs steady is not capitalism’s goal. Lowering unit labor costs is. That is why unions are busted or prevented from forming, jobs are outsourced, workers are replaced with technology, and that’s why we have seen a tremendous increase in the use of precarious temp workers, independent contractors, freelancers, and unpaid interns, all of whom are easily jettisoned and to whom no benefits need be paid. And that is why Alan Greenspan spoke of mortgages and credit cards as tool of labor management. Simply put, businesses exist to make profit, profit is the positive difference between the cost of goods sold and the price those goods fetch in the market. Holding the cost of labor down helps to maximize profit. Labor costs are generally more flexible than mortgages, or purchase and repair costs of capital equipment. Businesses thus look to controlling and lowering labor costs above all.
Purchasing power is the other main issue. The purchasing power of all our dollars has declined. In 1979, the last year of my father’s life, he was making 28,000 with the Metropolitan Transit Authority (MTA) of New York City. In 1979, my mother was a full-time homemaker, my parents lived in a high-Rise apartment building with a doorman in Forest Hills, New York, which was a prestigious area, and my father drove a late model used car. He also had health insurance. According to the purchasing power calculator at measuring worth.com, the standard of living that $28,000 bought my father in 1979 would have taken someone $84,100 in 2010. As numerous writers have stated over the years, most American wages have stagnated since 1970. I don’t know anyone making anywhere near that. When and where does the downward slide for the American worker end?
About the Author: Kéllia Ramares-Watson is a 57 year old freelance journalist living in Oakland, CA. She is an associate producer for WINGS – Women’s International News Gathering Service, a syndicated women’s radio program. She is also a member of demonetize.it, a European-based website and email discussion list dedicated to alternative economics such as non-market socialism, the gift economy, the commons, and de-growth solidarity. She holds a B.A. in Economics from Fordham University and a J.D. from Indiana University School of Law, Bloomington.