Part of the reason American policy debates are so unsatisfactory is that they tend to be conducted in “silos”–with little or no recognition of how Policy A might affect issues B and C. This is particularly true of arguments about raising the minimum wage, which tend to focus exclusively on assertions that jobs will be lost and consumer prices will rise.
As cities have ignored those assertions and raised their minimum wages, data has emerged to dispel those concerns. According to economists at the University of California, Berkeley, who studied nine cities that raised the minimum wage in the past decade, higher wages have virtually no effect on employment; only restaurants, with their higher-than-average concentrations of low-wage workers, raised prices, but those raises were trivial.
What this wage discussion consistently misses is the fact that the effects of worker pay go far beyond job numbers and the pros and cons of an extra nickel for a Big Mac.
There is research, for example, suggesting that economic insecurity increases domestic violence and other criminal activity, and contributes to social discord generally. But the effect on our communities doesn’t stop there.
Economic development professionals spend their days trying to lure new employers to their cities and towns, and they are acutely aware of what those prospects look for when they are seeking a new location: an educated workforce and good schools, decent roads and public transportation to get workers and customers to and from their place of business, infrastructure (sewers, etc.) adequate for their particular needs, and more generally, an appealing “quality of life.”
Those community assets are supported by tax revenues. Poorly paid workers pay very little in taxes, of course, but that is a relatively minor part of the problem.
When large numbers of workers in an area are underpaid, when they make wages that barely allow them to subsist, they lack the means to purchase any but the most essential goods and services. Overall demand drops. When demand is weak, businesses suffer. (They also don’t need–or hire–more workers.) When the business’ bottom line declines, so do tax revenues.
Anyone who works for municipal government understands the dilemma: how do we stretch declining revenues? Hire fewer police and firemen? Fail to fill potholes and board up vacant buildings In neighborhoods? Grow classroom sizes? Collect garbage less frequently?
Declining revenues, blighted neighborhoods, fewer city services and a lower quality of life don’t attract new businesses. Economic development stalls.
The American economy depends upon consumption. I happen to think there are a number of unfortunate consequences of that economic model, but it is what we have. When significant numbers of residents in a city or town aren’t being paid enough to allow them to consume, the consequences go far beyond their kitchen tables.
As Kevin Drum has written, in an article for Mother Jones,
Obviously, there’s a limit to how high you can raise the minimum wage without harming the economy, but evidence suggests we’re nowhere close to that tipping point. The ratio between the United States’ minimum wage and its median wage has been slipping for years—it’s now far lower than in the rest of the developed world. Even after San Francisco increases its minimum wage to $15 next year, it will still amount to just 46 percent of the median wage, putting the city well within the normal historical range.
The bigger threat to the economy may come from not raising the minimum wage. Even Wall Street analysts agree that our ever-widening income inequality threatens to dampen economic growth. And according to a new study by the UC-Berkeley Labor Center, it’s the taxpayers who ultimately pick up the tab for low wages, because the federal government subsidizes the working poor through social-service programs to the tune of $153 billion a year.
How many public school teachers and police officers could we pay, how many streets could we pave, how many parks could we maintain with $153 billion dollars a year…
“Anyone who works for municipal government understands the dilemma: how do we stretch declining revenues? Hire fewer police and firemen? Fail to fill potholes and board up vacant buildings In neighborhoods? Grow classroom sizes? Collect garbage less frequently?” An idea that is worthy of consideration and study is to tax each machine that replaces workers at a rate that equals the lost tax revenue from the lost workers wage. These taxes to support the community.
A letter to the editor objecting to raising the salaries of municipal workers appeared in yesterday’s Indianapolis Star. The fellow said that the goal of the city council should be to provide services at the absolute minimum cost. Clearly, he either thinks that municipal workers enjoy working for as little as possible, or he thinks that they have no place else to go, so they have no choice but to work for as little as possible. I wonder who he voted for last year.
“How many public school teachers and police officers could we pay, how many streets could we pave, how many parks could we maintain with $153 billion dollars a year…”
How much more can we do with $306 billion dollars a year?
Yes, a hyperbolic question but not to ignore the fact that many of “US” are not paying enough….
….while Congress and legislatures co-conspire with budget games….to transfer assets from bottom to top without even publicly mentioning revenue increases except to lie about “revising to simplify the tax code”, congress-speak for “slip the tax increase to the wage earners”.
One of the reasons for low and stagnant wages during the past eight years has been the high unemployment rate. As that rate goes down and competition for workers goes up, so will wages to a certain extent. A higher minimum wage only acts to put a foundation under this part of the economy.
There is something else to consider on this subject and that is the declining number of low wage workers available in the work force due to deportation, imprisonment, and drug addiction. All of the Republican policies being pushed so heavily these days do nothing but increase and reinforce these drags on the economy. This kind of waste of human lives is a horrid condemnation of our capitalistic society.
Employers that pay people below a livable wage should be taxed annually the exact amount of money that their employees are subsidized by the taxpayers. Doing this would most likely put a very quick end to low wages.
We absolutely must stop subsidizing corporate welfare queens.
“…arguments about raising the minimum wage, which tend to focus exclusively on assertions that jobs will be lost and consumer prices will rise.”
Minimum wage is not being raised for one simple reason; it would cut into the millions or billions in profits of businesses. Regarding wages in municipal governments; support staff salary levels are usually low and not enough to sustain a family at middle-income levels. Support staff does the actual work generated by elected officials and department heads.
George W. Bush lowered tax rates on the wealthy, included a specified end date for the rate but President Obama, in the biggest mistake of his entire administration, extended the lower rate…temporarily. This was, in my estimation, to carry on “The Audacity of Hope” as expressed in his book, the belief that both parties would be willing to once again sit at the bargaining table to work out our problems. The Republicans took over Congress and ended all hope of that ever happening by continually voting against ending that tax rate. The repercussions of that one decision by Bush, mistakenly continued by President Obama, brought us to the current Trump dynasty of White Nationalists and the Koch brothers being those “men behind the curtain we are told to ignore”.
“Economic development professionals spend their days trying to lure new employers to their cities and towns,…” These same professionals attempt to maintain current businesses by offering increased tax incentives in the form of continuing tax abatements or outright payoffs – with only the low and middle-income workers as primary source for the tax dollars – and the business owners “barter” till reaching their goal. Here in Indiana we can look at the great Messiah Trump’s salvation of Carrier; his lies of saving over 1,000 jobs resulted in salvation of less than 300 but we are still in debt for the $2 million tax payoff to Carrier as unemployment rises.
It is simply Profit and Loss; if it doesn’t Profit the business, it is the Loss to the employees. Follow the money.
Per Kevin Drum; “The bigger threat to the economy may come from not raising the minimum wage.” Per Sheila; “…higher wages have virtually no effect on employment; only restaurants, with their higher-than-average concentrations of low-wage workers, raised prices, but those raises were trivial.” I wasn’t aware till talking to a former career waitress that servers share those tips you leave by your empty plate or add to your credit card slip, are shared with those who bus the tables, the cooks and cleanup crews. Those tray carriers do not pocket your tribute to their services; they retain only a small percentage of the amount. The restaurant owners continue to maintain their profit levels. I wonder what the rental rate is for all businesses in Trump owned developments. By the way; the new Kuchner family business in China “selling” visas and green cards to investors with $500,000 to put into the new Trump development in Jersey City, NJ, has disappeared from the media…what is the status on that situation and what will their tax rate be?
Wage inequality, whose origins began long before but in earnest with the infamous Lewis Powell memorandum to the U.S. Chamber of Commerce in 1971, have so contorted our “free market ideology” that the rich and corporate class has gone beyond such economic abuse for its workers and has in addition demanded lower taxes and less regulation. Gone is the idea of out-competing one’s competition (if any in this day of merger and acquisition and buybacks intended to assauge shareholders) in favor of fattening bottom lines with tax cuts and less regulation. A better mousetrap has been left behind in favor of begging the government for more and more handouts (aka corporate welfare). Why come up with innovation and new products and doing so more efficiently when one can reduce the risk of such innovation-to-market by doing nothing since the bottom line depends upon handouts and not the robust competition contemplated by Smith and other classical economists? Anyone who thinks that abandonment of the duty of government or privatizing the allocation of risk to total corporate control is living in Wonderland. That’s trickle down economics and not the way greed works.
Thus we know that aggregate demand is what makes market economies work; not brilliant CEOs, not even innovation per se. When corporate welfare is added to wage inequality we should not be surprised that we have an underperforming economy nearly always on the edge of recession. Why make the pie bigger (economic growth) when you can get a bigger slice of the existing pie with corporate welfare in the form of lower taxes, less regulation and tepid enforcement of existing rules and regulations? The problem from the other side of the divide is, of course, that when the pie stays the same size and the rich and corporate class takes an increasingly bigger cut of the pie – there is less pie for the rest of us. So what does Trump want? A bigger slice of the pie for those who trade paper and a smaller one for those who are actually involved in the production of goods and services, i.e., the rest of us. This is a certain formula for disaster in the medium to long run both for both the paper shufflers and the rest of us. Wage inequality in its many guises sold as a product of “the market” by the business press controls demand and demand controls the market and is, in my view, our number one domestic issue. Based on history to date, either we pay living wages or, at some point, we sink into Third World obscurity owned by the corporate culture where democracy is lost to total corporate ownership of our lives, which was, I am sure, not the hope of the America Madison and Jefferson had in mind for their young country. Have we learned nothing in our intervening experience since then?
Gerald @ 10:07 great post.
I have been developing a Proposition that American Society as whole is selfish and egocentric. Yes, we will respond as individuals and some organizations with donations, etc., when there is some natural catastrophe – hurricanes, tornadoes, floods etc.
Free College or Trade School for the student, free day care, free public school, free heath care for all, a pension for retirees, etc. Of course it is not “free” taxes on the individual and companies would be required. All of us at some point may move through these stages of life. We would be helping our selves, but helping others also who are in a different stage of life.
However, here in America, the idea of the state insuring that all people have access to the same benefits is anathema. Individual freedom of choice is carried to the ludicrous extreme – I do not want to pay for someone’s birth control – I do not pay for “fill in the blank”, because it does not benefit ME.
I sometimes watch nature shows and see the lion pride cooperatively hunting say cape buffalo. The buffaloes are too big for one lion, but as a pride they are formidable. The buffalo herd by contrast abandons for the most part the individual targeted by the lions.
The Republicans want us to be the buffalo herd. The Ryan-Trump Health Care Plan targets those who are least able to afford to pay for it. The Republican hope is that like the cape buffalo herd we abandon our fellow citizens in the name of selfishness and individual greed.
The Republican argument has always been that an increase in the minimum wage will cost jobs.
In fact, after every increase to the minimum wage, employment increased as well. It should come as no surprise that the same thing has happened in those cities that have increased the MW. How silly of me to think that facts should matter.
Twitter statements: Taxpayers have so far spent $56,500,000 (even more by now) for Melania to stay in New York. Republicans can’t spend $1,000,000 for a special prosecutor.
Quote from a friend: “He [Trump] treats everything and everyone like he’s 4 years old and they’re at his birthday party.” Perfect!
To those troubled by the notion of a $15 minimum wage, there is a strong likelihood that that is the least of our economic balancing challenges. Automation, artificial intelligence, robots, drones, unstoppable offshoring, failing retail chains, self-driving vehicles, more clever computers, etc. are leading to rapidly vanishing job opportunities for all but high-end workers. When 30% to 40% of Americans have no place to go to work in the morning, how will we deal with that? This very real problem is being ignored in a way that guarantees we will be shocked by it when it takes hold. Tackling the problem before it overwhelms us would seem to me to offer some hope for coming up with an answer. If we are to enjoy a growing economy, then in the process we must also focus on how to make income distribution more equitable.