WASHINGTON, November 28, 2014 —During the summer of 2013, it was evident that there was a growing national movement of low-wage earners demanding higher wages. Their goal: to start earning what they defined as a living wage. Both the protestors and official Washington embraced the most obvious and least effective solution available: an increase the federal minimum wage.
Regrettably, the plight of low-wage earners and underemployed Americans is continually being put on the back burner by politicians and business leaders. Renewed protests on one of the most crucial shopping days of the year, however, could create a large enough disruption to “business as usual” that employers are actually forced to listen. Black Friday protests against Walmart, which is America’s largest employer and a major force in determining how much retail workers can be paid by competitors, have great potential to force retail businesses to take the financial needs of workers into account.
Clearly, the current national economy is not providing even adequately for the needs of the American people, as evidenced by the fact that roughly one in six U.S. citizens rely on food stamps, and one in seven rely on local food banks to keep their cupboards full. Not surprisingly, work force participation at 60 percent is near its historic lows, even as productivity continues to trend up and as corporations reap record profits, with the wealthiest Americans continuing to experience significant income growth.
The rest of the country is experiencing income stagnation. The U.S. economy is not distributing America’s national resources in the most efficient or effective manner. It is for this reason that public policy must recalibrate the workings of our once-effective economic machinery.
Dramatically raising the federal minimum wage requirements − long a staple campaign issue for Democrats − may seem on the surface to be the most effective way to press the reset button. But this country’s historically stagnant wages present a more complex challenge.
For one, $15 per hour is now the starting salary for many entry-level positions that require master’s degrees. This is an issue in and of itself since higher education today is a remarkably costly proposition.
One effect of increasing the minimum wage to $15 per hour will be to squeeze the middle class by effectively broadening the lower-tier wage demographic, ultimately accelerating the building trend toward a two-tiered economy — the working class and the rich — that effectively eliminates the middle class from the equation. This, in turn, will insure that large segments of the U.S. population will be ever more dependent on government support.
Like many well-intentioned programs, the federal minimum wage was initially designed to prevent employer abuses and not to ensure income equality or to drive economic expansion. The core issue today is not increasing the minimum wage. Instead, the key problem facing the country is the now nearly complete lack of upward mobility for those who are stuck in the minimum wage trap at whatever wage level that trap is set.
Many opponents of increasing minimum wage argue that doing so will destroy many jobs in labor-intensive industries — fast food jobs, for example — by increasing payroll costs to prohibitive levels. Since fast food pricing is relatively inflexible, the short term effect would be to eliminate any possibility for franchisee profit in order to pay the new minimum wage. Since no business can survive without making a profit, the ultimate consequence of a $15 per hour minimum wage, at least in this entry-level sector, is increased automation while cutting employment rolls further and trimming hours for remaining employees. And this, of course, leads to higher unemployment.
On the other hand, assembly-line industries like fast food are actually tailor-made to embrace automation. They decrease human error by “dumbing down” the production process instead of promoting the retention of workers, broadly utilizing employee potential, and, more importantly, developing employee skills. These jobs seem designed to maintain stagnant wages, since they are not career- or skill-building jobs.
Unfortunately, there are far too many of these jobs, while many others simply do not offer much wage growth potential.
If individuals are not developing marketable skills through their jobs, i.e., via mentoring and on-the-job-training, they must seek out schooling to learn those skills. But constant reschooling comes at great cost for both individuals and society due to the cost of schooling and the cost of time spent in school rather than working and earning an income.
Making matters worse, there is no guarantee today that educated individuals will find employers to hire them for their new skills, training, degree/certification, or experience once they leave school.
There are not now enough living wage jobs for everyone, especially since financing and developing an individual business startup right out of school is usually impossible. The problem is further compounded by the constant increase in the cost of living even as the U.S. economy exerts greater downward pressure on incomes.
Thus we return to the primary defect in today’s U.S. economy: it fails to distribute wealth in a way that benefits the American people as a whole.
Driving this degenerative dynamic are myriad bad government policies that have little if anything to do with the level of the current minimum wage. Starting with globalization, the national economy should be built on servicing the needs of its people with excess production being exported, not outsourced, to other nations.
Embracing so-called free trade policies where the taxation of local production effectively increases the competitive edge of tax-free imported goods results in a lower bidder economy. In such an economy, demand for increased wages in the home country can be resisted, while at the same time necessities can no longer be locally produced due to outsourcing to lower-coast countries. The end result is that the world economy today has become over-reliant on low-cost, low-wage exports from developing countries, the production of which gradually eliminates entire industries and their jobs from the importing nation’s economy.
Because everyone relies on the same goods, they rely on the same set of raw commodities instead of locally plentiful goods. Thus, limited global supplies are sure to translate into increased prices at some point as the world already sees with raw commodities like oil.
Aside from driving production out of the U.S. by effectively making foreign goods temporarily cheaper due to this country’s tax policies and wage issues, the current negative dynamic is also encouraging an over-reliance of a narrow set of limited commodities like oil, while catering to global, not national economic concerns.
Our poor or nonexistent internal policies and practices also hurt workers. In America, for example, the capital gains tax favors financial capital over labor and intellectual capital, with the latter subject to continuous devaluation.
Under current policies, there has also been a tendency to undermine representative groups like unions to the point where workers no longer have the leverage they need to balance their own interests with those of their employer. In addition, regulations and government expenditures are too often geared toward special interests not necessarily linked to national well-being. They are often anachronistic, inefficient and rife with corruption, an phenomenon most accurately described today as “crony capitalism.”
Unfortunately, all of these and other issues must be addressed before the U.S. economy will start distributing wealth in an efficient and sustainable manner. Yet politicians continually take the easy way out and push for an artificial increase in minimum wage. Granted, it is always politically popular. But as history has shown us, it has never solved the problem
In 2014, an increased minimum wage to the levels proposed will only serve to make the American economy an unattractive environment for businesses without addressing the root causes of increasing economic disparity. Instead of embracing this haphazard socialist approach to achieving a living wage, populist capitalism geared toward balancing the interests of all Americans must be embraced.
The minimum wage is not the problem. It is the inability of the majority of people to work their way up to a living wage within a reasonable period of time, providing the opportunity through stable, viable individual fanatical management to grow their lives and careers beyond entry level as they gradually achieve an increasingly elusive middle class lifestyle.