minimum wage – Page 2 – Sheila Kennedy

Proving Nick Hanauer Right

I have previously cited Nick Hanauer, the billionaire who has repeatedly pointed out that the belief–embraced by the GOP–that raising the minimum wage depresses job creation is a fallacy.

As Hanauer has emphasized, this economic theory has cause and effect backwards: jobs are created by demand. (If you aren’t selling your widgets, you aren’t hiring more people to produce greater numbers of them.) Pay workers a living wage, putting disposable income in the hands of people who hadn’t previously had any, and increased demand will boost both job creation and the economy.

I get an email newsletter from Axios, (link unavailable) and a recent one included a report on fast-food industry earnings that certainly seems to confirm Hanauer’s thesis.

Between the lines: The fast-food industry’s biggest tailwind is coming from a surprising source — the increased pay of low-wage workers.

After trailing higher-paid workers for years since the financial crisis, earnings for the bottom 25% of workers have been growing at a rate much faster than the national average, and weekly earnings for the bottom 10% of full-time workers have grown even faster, data shows.

Generally, rising wages would be seen as a negative for the industry, but coupled with stable gas prices, the increasing paychecks of low-wage workers means more money spent at fast-food and fast-casual restaurants.

Be smart: Goldman’s research team estimates 70% of the industry’s sales growth over the past 5 years can be explained by rising wages, lower gas prices and a boost from third-party apps like GrubHub and Uber Eats.

Traditional economic theory says that if I have to pay employee A more, I will have less money available and I will thus be unable to hire B. That makes all kinds of sense–all else being equal. What real life tells us, however, is that all else isn’t equal. As the Axios report shows, the increase in buying power more than compensates for the increase in payroll.

You would think that a political party devoted to the theory that cutting taxes will generate revenue sufficient to pay for those cuts would understand this.

The theories may be similar, but reality can be a cruel mistress: when the issue is raising the minimum wage, real-world outcomes demonstrate that Hanauer’s approach works, but when the issue is tax rates, the Republican approach– cutting taxes on rich people– doesn’t.

As Paul Krugman has written,

In late 2007 the Trump administration pushed through a large tax cut, whose key component was a drastic reduction in the tax rate on corporate profits. Although most economists were skeptical about claims that this would do wonders for economic growth, conservatives were ebullient. Lower tax rates, they claimed, would give American corporations the incentive to bring back trillions of dollars invested overseas, and foreign corporations a reason to invest huge sums in the U.S.

And Republican politicians bought this argument. Even Susan Collins, the most moderate Republican in the Senate (although that isn’t saying much) declared herself convinced that the tax cuts would pay for themselves.

Krugman followed those opening paragraphs with graphs and statistics demonstrating rather dramatically that the tax cuts did not pay for themselves. Not even close.

For example,Krugman says

Business investment was 13.2 percent of G.D.P. before the tax cut went into effect. It’s now … 13.5 percent. That’s a rise of around 0.3 percentage points, or less than a tenth of what the tax-cut advocates predicted.

As a result of the GOP’s 2017 tax cuts, deficits and the national debt have ballooned. Republicans would have marched on Washington with pitchforks if debt levels this steep had been generated by a Democratic Administration.

Real-world evidence says: pay working people a living wage, and everyone benefits.

Give the rich a tax cut, they sock their savings away in a tax haven, and no one else benefits.

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Patriotic Millionaires

Prejudices against “those people” tend to be the familiar age-old biases based upon race, religion and the like, but other stereotypes abound and can be equally misleading. (In his teens, my middle son looked askance at anyone in the “business class”– he felt they all valued profit over people. When he grew up, he came to recognize the infinite variety of people who own businesses, and adjusted his expectations accordingly.)

Too many Americans these days characterize “the wealthy” as uniformly predatory capitalists with their boots on the necks of the working class–a description every bit as over- inclusive as my son’s earlier stereotype. Just as there are greedy and unattractive folks at the top of the income ladder, there are also good, caring people who are working for economic fairness.

Vox recently reported on a group of millionaires doing just that.

A group of millionaires dedicated to decreasing the influence of money in politics is planning to endorse candidates for the first time, in the 2018 midterm elections.

The only requirements: The candidates it backs have to be running against an incumbent who voted for the Republican tax cuts, and they’ve got to be able to talk about taxes in a way that doesn’t put voters to sleep.

Erica Payne, a progressive strategist, is the president of Patriotic Millionaires, the group making the endorsements.

Patriotic Millionaires is a group of about 200 wealthy Americans who advocate for less income inequality and against the concentration of wealth. It’s a bipartisan group, but it’s opposed to a central Republican idea: that benefits for the wealthy will eventually “trickle down” to the rest. That’s the thinking behind the 2017 tax cut bill, which reduced the corporate tax rate to 21 percent from 35 percent and disproportionately benefits businesses and the wealthy.

The group first came together in 2010 to oppose the extension of Bush-era tax cuts for millionaires. Since then, it’s expanded its focus beyond taxes to also include issues such as the minimum wage and campaign finance reform.

It has also expanded its membership to more than 200 people— to join, you have to have an annual income of more than $1 million or assets of more than $5 million. Morris Pearl, a former director at the investment firm BlackRock, chairs the group.

Patriotic Millionaires is a bipartisan organization concerned about the concentration of wealth; it advocates for less income inequality and rejects the argument–parroted by “policy wonks” like Paul Ryan— that benefits for the wealthy will eventually “trickle down” to the rest of us. “Trickle down” of course, was the purported justification for the 2017 tax cut bill, which reduced the corporate tax rate to 21 percent from 35 percent.

Despite claims that the measure would create jobs, it has disproportionately benefited businesses and the wealthy–while exploding the deficit.

According to estimates from the Center on Budget and Policy Priorities, the top fifth of earners get 70 percent of the bill’s benefits, and the top 1 percent get 34 percent. The new tax treatment for “pass-through” entities — companies organized as sole proprietorships, partnerships, LLCs, or S corporations — will mean an estimated $17 billion in tax savings for millionairesin 2018. American corporations are showering their shareholders with stock buybacks, thanks in part to their tax savings, and have returned nearly $700 billion to investors this year.

As noted above, the 2018 midterms will be the first time Patriotic Millionaires will endorse candidates.

Patriotic Millionaires is currently considering about 60 candidates for potential endorsement, most of whom are Democrats opposing incumbent Republican lawmakers in the House of Representatives in competitive districts. The candidates on the list tend to fall into the more moderate, establishment camp, but some, such as Katie Porter in California and Kara Eastman in Nebraska, are avowed progressives.

The group is bipartisan and would therefore theoretically be willing to back a Republican who voted against the tax bill— there are 12 of them. I also asked if they were willing to back a democratic socialist candidate, to which Payne, the group’s president, replied that they will consider endorsing any candidate who is running against one of the lawmakers who voted to support the bill. “This tax bill is such a complete abomination that anybody who voted for it should be hurled from office,” she said.

Patriotic Millionaires joins other rich activists–Nick Hanauer and Tom Steyer come to mind–in arguing for economic sanity.

Think about these activists before you diss all rich people.

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Indiana–Always Last

The Hill recently reported on a number of states where 2018 will see raises in the minimum wage. Indiana, of course, was conspicuously absent from their list.

The lowest wage workers in 18 states will get a boost in their paychecks starting on New Year’s Day, as minimum wage hikes take effect.

Many of the wage hikes are phased-in steps toward an ultimately higher wage, the product of ballot initiatives pushed by unions and workers rights groups over the last few years.

The minimum wage in Washington state will rise to $11.50 an hour, up 50 cents and the highest statewide minimum in the nation. Over the next three years, the wage will rise to $13.50 an hour, thanks to a ballot measure approved by voters in 2016.

Mainers will see their minimum wages rise the most, from $9 an hour to $10 an hour, an 11 percent increase. Voters approved a ballot measure in 2016 that will eventually raise the wage to $12 an hour by 2020.

Arizona, California, Colorado, Hawaii, New York, Rhode Island and Vermont will see their minimum wages increase by at least 50 cents an hour. Smaller increases take effect in Alaska, Florida, Michigan, Minnesota, Missouri, Montana, New Jersey, Ohio and South Dakota.

Our overlords at the Indiana Statehouse like to brag that keeping Indiana a “low wage” “right to work” state means we are attractive to businesses looking to relocate. What they don’t seem to understand is the flip side of the equation, beginning with the state’s inability to provide the quality of life amenities (not to mention smooth highways) that appeal to businesses proposing to relocate. Higher wages would generate more tax dollars. Higher wages would also reduce the number of people who–despite working full-time–must depend upon social welfare programs funded by tax dollars simply to make ends meet.

I have posted before about the ALICE study, conducted a couple of years ago by Indiana’s United Ways. That study found

More than one in three Hoosier households cannot afford the basics of housing, food, health care and transportation, despite working hard.
In Indiana, 37% of households live below the Alice threshold, with some 14% below the poverty level and another 23% above poverty but below the cost of living.
These families and individuals have jobs, and many do not qualify for social services or support.
The jobs they are filling are critically important to Hoosier communities. These are our child care workers, laborers, movers, home health aides, heavy truck drivers, store clerks, repair workers and office assistants—yet they are unsure if they’ll be able to put dinner on the table each night.

Here in Indiana, we don’t seem to find ALICE poverty problematic or immoral, despite the fact that virtually all of us who are more privileged depend upon the services these people provide.

Even more immoral, in my humble opinion, is having my tax dollars effectively paying a portion of the wages of Walmart, McDonalds and other big employers’ workers. As I have previously posted,

Walmart generates nearly $500 billion in revenue annually; over the past five years, its yearly profits have averaged $15.5 billion dollars, and the family that owns it has a net worth of $129 billion dollars.

Despite its obvious ability to do so, the company declines to pay its employees a living wage, instead relying upon government programs–taxpayer dollars– to make up the difference between its workers’ paychecks and what they need to make ends meet. In essence, when a Walmart employee must rely on food stamps or other safety-net benefits, taxpayers are paying a portion of that employee’s wages.

Walmart (including its Sam’s Club operation) is currently the largest private employer in the country–and one of the largest recipients of corporate welfare. Walmart employees receive an estimated $6.2 billion dollars in taxpayer-funded subsidies each year. Money not paid out in salary goes directly to the shareholders’ bottom line.

The Indiana legislature declines to offer even a modicum of help to the third of Hoosiers who are working for below-subsistence wages, but they are evidently happy to continue subsidizing the wealthy.

The Hoosier bottom line.

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The Deepening Divide

America is reaching historic levels of inequality. We are likely to surpass the divide between rich and poor that characterized the Gilded Age, and what is worse, lawmakers are doubling down on policies that eviscerate the middle class and further enrich the wealthy.

We are getting used to seeing articles that tell us how much someone has to make in order to afford basic housing. The bottom line: there is not a single place in the United States of America where someone working a full-time minimum wage job can afford to rent a two-bedroom apartment.

What about a one-bedroom unit?

You would have to earn $17.14 an hour, on average, to be able to afford a modest one-bedroom apartment without having to spend more than 30 percent of your income on housing, a common budgeting standard. Make that $21.21 for a two-bedroom home — nearly three times the federal minimum wage of $7.25.

Forget compassion (the GOP certainly has.) Lawmakers with even a cursory understanding of economics ought to look at that mismatch between the minimum wage and a worker’s ability to afford a roof over his head and realize that people making that wage–people who are spending every cent they have on life’s necessities– have no disposable income to spend in the marketplace.

It is demand that drives our economy and creates jobs; if fewer people can afford my consumer goods, I buy less from my suppliers, who then buy less raw material. I need fewer salespeople, and my suppliers need fewer people on the factory floor.

If we needed evidence that today’s Republicans dismiss both arguments– compassionate and economic–Karen Handel recently reminded us. Handel is running against Jon Ossoff in Georgia, in a special election to fill a Congressional seat recently vacated by Tom Price. During a debate, Ossoff was asked about the wage issue, and strongly endorsed raising the minimum wage. Handel responded to the same question by saying, “No, I don’t support a livable wage. I’m a Republican.”

While Handel didn’t have to take a hard line on a “livable wage,” her views are not out of the mainstream for Republicans in a place like Georgia, where opposition to any minimum wage is common. The Republican who held the district for a dozen years before becoming HHS secretary, Tom Price, voted against the increase that raised the minimum wage to where it is today.

If America had an adequate social safety net, the wage issue might be ameliorated somewhat, but very few of the working poor qualify for any sort of benefit. The most glaring omission from that safety net, of course, is healthcare. The Affordable Care Act (aka “Obamacare”) is imperfect, but it was a step in the right direction. Most other industrialized countries have some version of national healthcare, or single-payer; such systems not only improve health outcomes significantly, they make an enormous difference to low-wage workers.

When a broken leg can mean the difference between an uninsured person paying the rent or being evicted, the Republicans’ current mean-spirited effort to deprive twenty-three million people of health insurance is incomprehensible.

Equally incomprehensible is Congress’ steadfast refusal to allow government agencies to negotiate prices with Big Pharma, or to allow Americans to purchase drugs manufactured in America from countries that have negotiated for–and achieved–lower prices.

If you are poor in the United States, a broken leg or extended bout of influenza is bad enough, but treatment of a serious illness like cancer is simply unaffordable. Doctors are desperately trying to find ways to keep cancer patients alive without bankrupting even those with better-than modest resources.

A group of prominent cancer doctors is planning a novel assault on high drug costs, using clinical trials to show that many oncology medications could be taken at lower doses or for shorter periods without hurting their effectiveness….

The initiative is the latest response to rising concerns over “financial toxicity,” the economic devastation that can be wrought by the high cost of cancer care. With new oncology therapies routinely debuting at more than $100,000 a year, “lots of people are worried about developing drugs that people can’t get,” said Leonard Saltz of Memorial Sloan Kettering Cancer Center in New York, who helped organize the new group.

Our lawmakers are very good at protecting the profits of drug companies. They are also good at figuring out how to fund tax cuts for the wealthy–just decimate Medicaid and stop subsidizing health insurance for poor Americans.

What they aren’t so good at is recognizing the human, social and economic consequences of continuing to expand the abyss between the rich and the rest.

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Making Connections Visible

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…

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