A National Wage Increase

A National Wage Increase

Richard Mauro, 9/6/17, www.GalvanizeAmerica.com . Please share with all who may have an interest.

Many of us are familiar with the numbers by now. American employees, when adjusted for inflation, have not received a significant pay raise in the last 30+ years. Do not think that this is due to some unavoidable, difficult, economic circumstance afflicting the country that requires a sacrifice of its workers. Quite the contrary. Between 1978 and 2013 alone, the average pay of CEOs even after being adjusted for inflation, increased 937% and grew to 296 times more than what a typical employee their industry now makes1. On average, profits of corporations in recent years and in many of the years over the last three decades have been outstanding. The simple fact of the matter is that in general American employers have not and are not paying their workers fair wages, or anything close to the reasonable pay increases which they have earned. As an example, if the minimum wage had kept pace with the increases in the productivity of the American worker since 1968, as it had during the two decades prior to that time, it would now be about $19/hr2.

The impact of stagnate income of most Americans during the last 30 years is horrible to our people and to our country. Following is a summary of some of the important negative effects:

  1. Forty-three million Americans including 14.5 million children now live in poverty3 despite many holding full-time jobs.
  2. The school drop-out rate4, rates of stress, depression, and many physical ailments5, and the crime rate6 all rise with increases in the poverty rate.
  3. Substandard wages result in a necessary dependency of many Americans on public assistance programs such as food stamps, public housing, Medicaid, etc. Conversely workers earning low wages rightfully pay less in taxes. The combination of these two factors strains government budgets, increases deficits, and threatens our country’s ability to fund other highly important functions such as national defense and upkeep and upgrading of our nation’s infrastructure.
  4. Poor wages place an onerous drag on the economy. This is apparent in the sluggish growth the U.S. economy has for the most part experienced since the assault on working and middle class incomes began several decades ago. In short, it is impossible for a consumer driven economy to operate well if the consumers have little money to spend.

Now adherents to supply side, trickle-down economics, i.e. the great majority of the national Republican leaders today, would argue that the way to solve this low wage dilemma is to cut taxes, especially for the wealthy and businesses, so they can have more money to invest, create jobs, and pass on to their employees in the way of higher wages. The only problem with this logic is that in today’s American economy it is basically theoretical bunk. Now don’t get me wrong, I am not saying that as a general principal tax rates do not have to be reasonable in order to give adequate incentive to entrepreneurs and businesses to pursue projects and reap adequate benefit for their effort and investment. What I am saying is that at the present time our tax rate is already well within that threshold. Do you realize that during the last 39 years while the great majority of American’s paychecks have been flat, taxes for businesses and the wealthy have been cut a combined five times7,8. During this period the income tax rate for those that make the most has fallen 38%, and the corporate tax rate has been reduced by 27%. Do you also realize that while our standard business tax rate is listed as 35%, due to a myriad of available credits and deductions, some that are rather questionable, the effective tax rate that many profitable companies pay averages 13%9. Furthermore, in the 1950’s and 60’s when the U.S. economy was booming and even provided real gains in pay for middle class Americans, the uppermost income tax rate ranged from 70 – 91% which is much greater than current top rate of 43.4%. Now I’m not proposing excessive taxation but the fact of the matter is that if we were going to bring about substantial economic and worker wage growth by cutting taxes for the rich it would have happened already. Instead what we have gotten for these policies and will continue to reap if we don’t pursue a different path is flat wages for most, burgeoning government deficits, and a massive transfer of wealth away from the middle and working classes to the rich. The truth is that the vast majority of businesses in this country won’t pay their employees a fair wage simply because it is the right thing to do. They will pay them the least they can get by with. And factors such as reasonable minimum wage increases that pace inflation, robust union representation, judges sympathetic to workers causes - important elements that created and once sustained the middle class in this country – are precisely the factors that Republican lawmakers have been stifling to the greatest extent they can for the last several decades. Our economy requires balance to function well for everyone. It always has and always will. Right now it is tremendously out of balance. To lavish more wealth in the form of tax cuts onto businesses and the rich, especially considering our deficit situation, simply makes no sense. Corporations in general are sitting on an abundance of capital and have been enjoying bountiful profits. They aren’t using this money in any sort of robust way to expand and create new jobs simply because the demand for their products is not there. What this economy truly needs at this time is more money in the pockets of consumers. And that means primarily the pockets of working and middle class Americans. That would provide the monetary jet fuel that our economy needs to truly prosper and to lift up the financial, social, and emotional fortunes of all Americans. What our country screams for at this time is a national wage increase. Following is a three-pronged approach that I suggest to make the economy work effectively for our country and our people:

  1. A Living WageIncrease the federal minimum wage over a two to four year period to about $12.50/hr.. This would allow a family of four with two adults to work a total of 60 hrs./week (one parent full-time and one part-time) and be 60% above the federal poverty threshold, and all individuals without dependents to be well above the poverty line10. A reasonable definition I believe for a living wage for most. The effective federal minimum wage for servers and other tipped employees should likewise be raised to $5.00/hr.. The current minimum of $2.13/hr. is so low that it sometimes is not sufficient to cover common work-related deductions from employees checks. The modest increase proposed would not be so great to discourage customers from tipping fully but would be a welcomed and necessary raise for servers who often are single parents who, high-end establishments not withstanding, frequently earn very low wages. Servers whose tips and hourly wage do not reach the level of the minimum wage for non-tipped employees should likewise have the difference made up by their employer in all states.
  2. Index the Living Wage (Minimum Wage) to InflationA true living wage can only be effective in keeping working people’s financial heads above water if it stays current with inflation and the prevailing economic times. A factor that makes the present federal minimum wage so impotent in terms of improving economic solvency for many Americans today is simply that due to consistent, steadfast opposition to minimum wage increases over time by the Republican party it has not effectively kept pace with inflation. I propose that a newly instituted living wage be adjusted for inflation every three years. This would be less inflationary and disruptive to businesses than an annual increase, yet would maintain the relevancy of the law to its purpose.
  3. A National Wage BonusThe simple fact is that during the last 30+ years our lowest wage employees (in others words, those that would benefit by an increase in the minimum wage) have not been the only ones that have seen their paychecks stagnant and personal economic fortunes take a hit. This conundrum has been the reality across the board for the majority in the middle and working classes. Though increases in the minimum wage only, do in time benefit the wage scale for virtually all American workers (the height of the first floor determines the height of all the floors above it), more is called for in terms of helping those who would not see immediate benefit in their pay checks due to an increase in the minimum wage. What is prudent for these employees is a National Wage Bonus. The basics of the national wage bonus that I propose are that it would be $2,000/year, for two consecutive years, for all employees who earned $200,000/year or less. Some primary details of how it would work follow: The amount of the bonus each is entitled to would be based on their earnings during the current year (that the wage bonus came into effect), compared to their wages two years prior. For instance, if your hourly or salaried rate of pay during the current year does not result in at least a $2,000 raise compared to your similar pay two years ago, then you would be entitled to a bonus amount that brings you up to a $2,000 increase for the year. This process would be repeated for a second year under the wage bonus policy so that an employee could receive up to $4,000 total in pay increases for the two years under the law. The worker’s employer from two years prior would be responsible for paying the wage bonus whether they still worked for them or not. A person would not have to be currently employed to receive the wage bonus as long as they were employed two years prior. Persons who worked part-time two years ago would have the amount of the bonus reduced based on their hours less than full-time. Overtime pay either during the current year or two years before would not affect the wage bonus - it would be based on regular rates of pay. Those who received a raise in their regular pay during the current year either due to a minimum wage increase or scheduled adjustment from their employer that exceeded $2,000 compared to two years prior would not be eligible for an additional wage bonus under the law. Many fine details of the plan would have to be worked out or modifications made as appropriate, but this would be the basic formula for making sure that all working and middle class Americans, after over three decades of neglect and degradation of paychecks, are included in a well-deserved wage increase.  

The national wage increase (minimum wage that is increased to a living wage and adjusted periodically for inflation, and a national wage bonus) if implemented would instantly turn around for good the economic fortunes of millions of Americans, and immeasurably strengthen our economy and country. The rate of poverty in the United States, and all of the various social, medical, and emotional afflictions that are associated with it would decline dramatically. Reliance on government safety net programs would be greatly reduced and tax revenue, without any actual tax increases, would grow allowing the governments to fully fund necessary projects such as infrastructure yet still have an honest opportunity to reduce the deficit. The economy, flush with cash in the hands of that great number of average citizens who will actually spend it, will surge in the manner that we have desired for quite some time. Most of all the great majority of Americans would simply have true economic hope for themselves and their children once again.

Now supply-side, trickle-down adherents (again, including most if not all Republicans officials at the national level) would be simply aghast at these proposals. They would wage two major arguments, neither of which though hold water. The first is that it would be inflationary. That’s true – to an extent. But not to the extent that it will offset the tremendous benefits to American employees. Let me explain. The total cost of goods in America are not based only on the labor rates of American employees. Take for instance a shirt which you purchase at a local retail store. Yes, part of the cost is due to the labor rate of the clerk at the store that checks you out, and perhaps the American trucker that delivered it to the store. But the cost of the materials in the shirt are not necessarily going to rise, and, due to the unfortunate circumstance of much our economy today, because the shirt is likely imported the cost of manufacture of the shirt (which is one of the major costs) is not going up. Additionally, the company can choose not to pass all increased labor costs onto the customer. They could for instance, to remain more competitive, actually decide to reduce the rate of growth of compensation to their CEO (God forbid!). To look at it another way, for as long as anyone cares to remember wages of American workers have been flat. So during this time has inflation ceased? Hell no! Though inflation for the most part over these years has been reasonable it still has occurred and without the timely, adequate wage increases needed the financial situation of most American families has been stuck in place or going backwards. The truth is a decent wage increase for our employees at this time will well outpace any resulting inflation caused by it, people in the middle and working classes will be much better off, and our economy and country will benefit greatly.

A second criticism of a national wage increase by the supply-siders is that it will cause jobs to go overseas. You don’t say? It’s just amazing to me that during these recent decades of virtually no wage growth for our workers, a factor that you would think would keep our jobs at home, we have witnessed a never-ending parade of jobs and companies leaving our country. The truth is short of paying American employees two or three dollars an hour, something that is and always should be morally reprehensible, many companies will outsource as many jobs as they possibly can. Often they don’t do this because it’s impossible to make a decent profit using American labor - they do it because they want to eke out every penny of profit they possibly can in spite of the costs to our people and nation. Regardless of the proportion of goods in our country manufactured domestically or overseas, there will always be American jobs associated with these goods. For instance, a car may be imported but it takes an American trucker to deliver it to the lot, a salesman and financial specialist at the franchise to sell it, and a repair person to keep it on the road. The best thing we can do in our economy is to make sure that those jobs that remain at home pay well including good benefits. Though increased wages may result in a few more jobs going abroad, the injection of cash into our economy in the form of significantly more money in the hands of our consumers will result in the creation of more jobs than we’ll ever lose.

A final factor mandating a national wage increase is that all Americans, including the wealthy, in the longer term will be much better off. Too often corporate owners take only a very narrow view of what will maximize profits for their company in the short term. Invariably they conclude minimizing labor costs (in other words paying their people as little as they can get by with) is the approach that will accomplish this. But this short-sightedness hurts the entire economy, including likely their own interests in the long-run. In other words, they can’t see or don’t look beyond the length of their nose. If we insisted on good wages for all employees in our country we would be ensuring that a factor that the economy especially needs at this time and will always need, decent money in the hands of consumers to propel growth, would always be available. Though this may result in a mildly lower percentage of business income going to corporate interests, the economic pie would be so much larger overall that the actual money generated for both the company and its employees would be greater.

Thirty years is entirely too long to wait for a raise. The patience of American workers should be at an end. The great benefits of good wages to our people, economy, and country are much too important to ignore or resist. It is time for a national wage increase. It is time to speak up for it among your friends and in social circles, to support organizations that support a national wage increase and to take nonviolent social and workplace action in favor of it. Most of all, it is critical to make your views known to politicians and to not vote for those who will not directly support increasing paychecks. Together we can turn this thing around, restore wages for our working and middle classes, and to give economic hope and excitement for the future to all Americans and their families once more. www.GalvanizeAmerica.com .

Literature Cited

  1. Economic Policy Institute. CEO Pay Continues to Rise as Typical Workers are Paid Less. Report by Alyssa Davis and Lawrence Mishel, 6/12/14. www.epi.org .
  2. Economic Policy Institute. Lagging Minimum Wage is One Reason Why Most Americans’ Wages have Fallen Behind Productivity. Economic Snapshot, Heidi Shierholz, 7/11/13.
  3. U.S. Census Bureau, Income and Poverty in the United States: 2015.
  4. National Center for Educational Statistics. Trends in High School Dropout and Completion Rates in the United States: 1972 – 2009. Angelina Kewa/Ramani, Jennifer Laird, Nicolle Ifill, and Chris Chapman.
  5. My Family Plate. Poverty and Health: Obesity, Stress, Disease. 12/11/2010.
  6. Sage Publications. Poverty, Not the Teenage Brain, Accounts for High Rates of Teen Crime. Science Daily, March 5, 2015.
  7. Bradford Tax Institute. History of Federal Income Tax Rates: 1913 – 2017. www.bradfordtaxinstitute.com .
  8. Economic Policy Institute. Corporate Tax Rates and Economic Growth since 1947. Report by Thomas L. Hungerford, June 4, 2013. www.epi.org .
  9. U.S. Government Accountability Office. Corporate Income Tax: Effective Tax Rates Can Differ Significantly from the Statutory Rate. GAO-13-5201. Published: May 30, 2013.
  10. United States Census Bureau. Poverty Thresholds 2016. www.census.gov.