Raise the Wage Act a Good First Step
May 13, 2015
Senator Patty Murray (D-WA) and Representative Bobby Scott (D-VA) introduced legislation on April 30 that would raise the minimum wage to $12 an hour. Their bill would phase out the sub-minimum wage (usually given to “tipped” workers) and would set regular increases to the minimum wage to keep up with the median wage (not indexed with the cost-of-living, as some have demanded).
They introduced the bill to help nearly 38 million workers by lifting them and their families out of poverty, and to increase their earnings by more than $100 billion over the next five years.
This bill refreshes the debate on the issue. While President Obama called for an increase in the minimum wage to $10.10 an hour in the 2014 State of the Union address and the legislation was introduced in the 113th Congress, the bill, as we all know, never became law. Nor is there much likelihood that this Congress will pass such legislation, especially in light of House Speaker John Boehner’s comment that he’d “commit suicide before [voting] on a clean minimum wage bill” (Fortune, 4/29/2015).
Let’s hope the bill was introduced seriously as a good first step toward offering minimum wage workers a “living wage,” fighting the wage stagnation that has been holding back economic growth. Skeptics are already saying that the bill is intended to score political points as the 2016 presidential election cycle gets underway. The problem with this criticism is that nearly everything takes on political coloration during any election cycle.
The real problem with a $12 minimum wage is that from a social justice viewpoint it is still inadequate. A full-time $12-an-hour worker would still earn only slightly more than $24,000 per year, which is about the equivalent of the 2015 national federal poverty level for a family of four, but below the poverty line and far less than adequate in many urban jurisdictions. Despite these facts, let’s concede that, if passed, millions of workers would benefit and that such an increase would be a favorable step in the right direction.
Reasons for Passing the “Raise the Wage Act”
In 2014, about 75% of Americans – including 53% of Republicans – approved raising the $7.25 per hour minimum wage to $10.10 an hour, so there is broad support for a raise. As yet, we have no polls at the $12 figure, but in a significant number of states we do have a ballot measures supporting an increase as well as a referendum recommending an increase.
An Economic Policy Institute (EPI) research paper entitled “The Economy Can Afford to Raise the Minimum Wage to $12 by 2020” indicated that a minimum wage increase to $12 an hour would roughly restore the relationship between the minimum wage and workers in the middle relative to 1968 levels when the minimum wage was at its historic peak. EPI makes clear that the value of the minimum wage today is 24% less than it was in 1968 despite the fact that workers today are twice as productive as they were back then. Thus, $12 an hour is a very modest proposal. If the minimum wage had kept up with productivity, it would be $18.30 today.
It is not only productivity that has increased substantially since 1968, but also the education and experience of minimum-wage workers. As EPI’s research paper illustrates: “Significant increases in the productivity, education, and experience of low-wage workers mean that not only should wages be higher, but also that the economy can afford to pay those wages. In 1968 only 17% of workers in the bottom fifth of the wage distribution had some college education or more. By 2012, the percent of workers in the bottom fifth with at least some college education had risen to 46%. And the productivity of low-wage workers has also doubled since 1968.”
As the UC Berkeley Labor Center notes: “Real hourly wages of the median American worker were just 5% higher in 2013 than they were in 1979, while the wages of the bottom decile of earners were 5% lower in 2013 than in 1979. Trends since the early 2000s are even more pronounced. Inflation-adjusted wage growth from 2003 to 2013 was either flat or negative for the entire bottom 70 percent of the wage distribution.” And this problem of stagnating wages is compounded by the decline in employer-based health insurance as well as the prevalence of employees with health insurance paying more for it.
Nearly three-quarters of those enrolled in major public support programs (such as food stamps, – Supplemental Nutrition Assistance Program, SNAP – Temporary Assistance for Needy Families, TANF – Medicaid and Children’s Health Insurance Program, CHIP) are members of working families.
Data compiled by UC Berkeley Labor Center indicates that combined federal/state spending on public assistance amounts to $152 billion per year. Thus, American taxpayers are subsidizing businesses which pay poverty-level wages to their workers!
Raising the minimum wage to $12 per hour would have the greatest impact on women because they constitute about two-thirds of those receiving a minimum wage. And these women are not teenagers, as they may have been in the past. CAP research shows that less than 5% of teenage girls under the age of 18 constitute minimum-wage workers, whereas all the rest are over 18 and one-third are working mothers. Women of color would especially benefit from the “Raise the Wage Act,” since they constitute the largest segment of minimum-wage workers.
Senator Baldwin’s Letter to the SEC
If workers’ wages are nearly stagnant and growing at the slowest pace since the 1960s despite healthy corporate profits and increasing worker productivity, then a major question is exactly how companies are spending their profits. The major disconnection between profits and wages is due to companies’ expending a prominent part of their profits on stock buybacks and dividends, which enrich shareholders to the detriment of workers and other long-term investments. These facts partly explain Senator Tammy Baldwin’s (D-WI) letter at the end of April to the Security and Exchange Commission (SEC).
In her letter, Senator Baldwin called attention to the growing trend of stock buybacks, which corporate executives are increasingly using for shareholder profits instead of making investments in their workers. Specifically, Senator Baldwin requested any analysis that the agency has done about the impact of a rule it issued about stock buybacks and its influence in driving up the price of a company’s stock. Baldwin noted the negative effect stock buybacks have on jobs, wages and investment, which, in turn, have negative impacts on innovation and long-term economic growth and competitiveness.
William Lazonick, a professor of economics at the University of Massachusetts who has studied the issue of stock buybacks for years, called Baldwin’s letter unique because “no one has ever asked the SEC anything about stock buybacks and the rules that are supposed to regulate it.” Lazonick says that getting this kind of information about the monitoring of market manipulation is an important step in bringing about change. Whether that change would translate into a living wage for all workers is a question.
Even though the latest economic data show that overall economic growth is rising, the pace and scale of this growth is not translating into real gains for working families, the majority of whom remain economically vulnerable. As a CAP Issue Brief stated on April 29, “Long-term unemployment is still high, as is poverty and economic inequality. And wages are growing very slowly, while employers are offering few benefits to their employees. The result is that American middle-class families of all stripes – but especially communities of color, single women, and households with less education – continue to struggle economically in this expanding economy.”
Despite these facts, this current Congress has focused on repealing the estate tax for millionaires and billionaires as well as passed a budget that would wreak havoc on the public safety-net programs on which most of the economically vulnerable depend.
The Raise the Wage Act is an important step in the struggle for a living wage. Companies should foster a sense of social responsibility so that those benefiting from a business’ growth perceive the relationship between a healthy economy and the public goods/services that enable it to thrive. This sense of social responsibility should translate into a positive view of the taxes that are needed to maintain these public goods/services. Eventually, it is hoped that a sense of social responsibility will progress into a strong belief in social justice, whereby the good of the community (or the “common good”) supplants rampant individualism. Only then will current economic imbalances be replaced with greater economic equity and a steady diminution of poverty.