The recent fast food workers strike sponsored by the Service Employees International Union (SEIU) demanded a “living wage” of $15 an hour. In progressive public policy, the “living wage is considered the minimum necessary for a worker to meet needs considered basic.” Who decides what the “basic needs” are? Are everybody’s needs the same? Why stop at $15, why not $50 an hour?
Dr. Amy K. Glasmeier, while director of the Poverty in America project at Penn State University, developed a city/county Living Wage Calculator based on census data and economic statistics. I am not sure what the assumed biases are in this particular calculation, but we do know that economic statistics are easy to manipulate, depending on the desired outcome.
“There’s almost no place in America where you can live on $20,000 as a family of four…you need at least $36,000 to pay basic expenses.” http://povertyinamerica.mit.edu/
The Living Wage Calculator (released in 2004, all dollar values were adjusted to 2004 dollars), Community Economic Toolbox, and Poverty in America websites were developed by Dr. Amy K. Glasmeier. The data was “collected, processed, and aggregated by Eric Schultheis, a doctoral student in the Department of Urban Studies at MIT.”
The included definition of “living wage is the hourly rate an individual must earn to support a family, if he/she is the sole provider and is working full-time (2080 hours per year). The state minimum wage is the same for all individuals, regardless of how many dependents they have. The poverty rate is quoted as gross annual income.” http://livingwage.mit.edu/places/5115387312
The “living wage” as described by social justice proponents ignores the fact that labor markets are ruled by the forces of supply and demand and does not include the earned income tax credit families receive and cash and non-cash welfare benefits.
The “living wage” also overlooks the glaring reality that a labor market is composed of many labor submarkets, each with its own supply and demand curves.
In a centralized socialist or communist economy, the “living wage” was subsistence level remuneration decided by ideologues/bureaucrats, “From each according to his ability, to each according to his need.”
The Fair Labor Standards Act (FLSA) of 1938 provided workers with a minimum wage. A minimum wage law imposes a floor on wages and prohibits employers from paying their workers less than that amount. “Tipped employees may be paid less than minimum wage but their wages and tips must equal at least the basic minimum wage.” (CRS, p. 4)
Nineteen states and the District of Columbia have minimum wage rates higher than the federal minimum wage rate. The basic minimum wage rate was raised in 2007 from $5.15 to the current $7.25.
Citing 2011 Bureau of Labor Statistics (BLS), a recent Congressional Research Service report stated, “94.8 percent of employees who were paid by the hour were paid an hourly wage that was greater than the federal minimum of $7.25.” (www.crs.gov, R42713, The Fair Labor Standards Act: An Overview, Gerald Mayer, Benjamin Collins, David H. Bradley, 2013)
Minimum wage, which is not indexed to the price level, has been raised 22 times since 1938 in order to keep up with inflation which has eroded its purchasing power. “In nominal value (current dollar terms), the minimum wage has risen steadily from 25 cents to $7.25 an hour.”(www.crs.gov, R42973, Inflation and the Real Minimum Wage: A Fact Sheet, Craig K. Elwell, September 12, 2013)
Adjustments to the minimum wage are made with the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) and expressed in July 2013 dollars.
Craig Elwell calculated that the peak purchasing power ($10.77) of the minimum wage was attained in 1968. In order to equal that purchasing power, the current minimum wage real value of $7.90 must increase by $2.87 or 36 percent.
The liberal argument is that the minimum wage is not high enough; workers are not paid enough, and are thus forced into poverty. But there is silence when American jobs and investments are legally shipped overseas with Congress’ blessing – it is a global economy. Liberals have little to say about local businesses that hire illegal cheap labor under the overused excuse that these are jobs that Americans won’t do.
In 1964, the federal government adopted the official definition of poverty as families with incomes less than $3,000. The line between poor and non-poor was named the poverty line.
The 1976 goal to move all Americans above the poverty line was not met even though in a decade (1963-1973) those living in poverty dropped from 20 percent to 11 percent. Subsequently, the poverty line was modified to account for family size and is adjusted yearly to the cost of living. In 2005, the poverty line for a family of four was $20,000, leaving 12.6 percent of Americans below the poverty line.
According to economists, poverty is associated with homelessness, illegitimacy, drug dependency, and poor health. Critics argue that official data badly overstate the number of poor persons, making poverty a relative concept.
Some economists argue that if the current definition of poor based on cash was changed to include other goods that the poor receive such as public education, public housing, health care, food, WIC, etc., the number of poor would drop precipitously.
Poverty can be gauged based on a family falling behind a certain minimum standard of living or falling behind the average income. The progressive argument and definition of the “living wage” could be based on both, average income and standard of living (“basic needs”).
Income statistics based on household can be very misleading. Low-income households are often composed of single mothers on welfare, their children, retirees on Social Security, or individuals not working, working sporadically, working part-time, and disabled. We have more people on disability currently than the entire population of Greece.
“Most households in the bottom 20 percent by income do not have any full-time, year-round worker and 56 percent of these households do not have anyone working even part-time.” (Dr. Thomas Sowell, Economic Facts and Fallacies, Basic Books, 2011, p. 143)
Politicians, do-gooders, and government think that they can legislate and mandate people out of poverty through re-distribution of wealth and forcing employers to pay a much higher minimum wage than the labor market can bear. The war on poverty made few gains in spite of trillions spent to fight it.
What are the unintended consequences of offering the demanded “living wage” for fast food workers who call their wages, “poverty wages?”
– Higher shortage of minimum wage jobs
– Higher unemployment among those seeking minimum wage jobs such as teenagers
– Higher employment of illegal aliens because employers are not required to comply with the ObamaCare mandate and thus are not required to pay a penalty for not providing health care insurance to illegal alien employees
Minimum wages were not set in place as a life-long career; they were temporary stepping stones to better training, education, and higher income.
The federal government established in 1976 generous earned income tax credit to help low-income earners with children.
According to David Neumark, Director of the Center for Economics and Public Policy at the University of California, Irvine, the federal government spent $55 billion in 2011 on earned-income tax credit, twice as much as it did on welfare. A low-income family with two children, earning $13,430, could receive 40 percent of its income subsidized or up to $5,372, phasing out gradually to $487 or 7.6 percent of income for families with no children. http://economix.blogs.nytimes.com/2013/12/09/the-minimum-wage-aint-what-it-used-to-be/?emc=eta1&_r=0
Neumark asks, “Do we really care if a low-wage teenager in a middle-class family makes an extra dollar an hour?” Sam Lundstrom found out that increasing the minimum wage by one dollar affected only 21.3 percent of workers from poor families; 30.9 percent of those affected were from families with incomes three times higher than the poverty line.
What are the reasons then for demanding a “living wage?” Obviously it fits the “social justice,” “income inequality,” and “redistribution of wealth” progressive narrative.
What are then the reasons for unequal incomes? The favorite narrative of liberals places blame on the evil rich who prevent the poor from improving their economic condition by stealing from them.
There are several reasons for unequal incomes that economists William J. Baumol and Alan S. Blinder describe in their book, Economics, Principles and Policy, 2007 ed., pp. 450-452)
– Differences in ability (some people are more capable and talented than others)
– Differences in intensity of work (some people work longer hours and more intensely than others)
– Risk taking (in business ventures, stock market)
– Compensating Wage Differentials (better compensation for unpleasant and dangerous jobs)
– Schooling and other type of training
– Work experience
– Inherited wealth
Before you demand a higher wage, ask yourself, how valuable am I as an employee, what are my wants and needs, what is my worth to the company from my perspective and the company’s perspective, what are my unexpected expenditures, how much does it take for me to live in a certain area vs. another area, how indispensable am I to the company, aren’t some people more valuable to the company than I am, and last but not least, can the company afford raises in a depressed economy when payroll is the highest expense?
The scariest question remains, if the government mandates everyone’s worth, are we really in control and free to choose?