The recent stalemate in Congress over a raise in the minimum wage tied to a further reduction in the estate tax illustrates the two schools of thought that dominate American views of the economy. One says that for the economy to thrive, costs—especially taxes and labor—must be as low as possible so that corporations can reinvest and create jobs. The other says that money (in the form of targeted progressive tax policy or higher wages) placed in the hands of the middle and lower classes creates a larger marketplace for goods and services and less demand for government subsidies for low-income workers—thus stimulating the economy.
To be sure, there is merit in both schools. The trick is to find the right balance between stimulating the economy from the top down and from the bottom up. If labor is starved for decent wages and benefits, workers drop out of the marketplace. They don’t earn enough to consume the products they produce. Alternatively, if business is starved for capital it cannot make the investments necessary to create jobs or increase productivity. Each needs to get their fair share of the economic pie.
The trend is clearly that the corporate slice is getting bigger while labor’s slice is diminishing. United for a Fair Economy in conjunction with the Institute for Policy Studies reports that if the minimum wage had increased at the same rate as CEO pay since 1990, the minimum wage would be $23.03. But it hasn’t changed from $5.15 in the last nine years. The gap between the wealthy and the working class is definitely widening.
The universal living wage is a formula to determine what the minimum wage should be by locale based on HUD fair market rents. The concept is simple. A worker works 40 hours per week and spends no more than 30% of his or her income on housing. The minimum wage is indexed to the fair market rents set annually for each municipality by HUD. Thus the minimum wage would be higher in a city with high housing costs like San Francisco than in a city with more reasonable housing costs like Fargo.
The idea is that workers paying no more than thirty percent of their income for housing expenses are not going to be dependent on housing subsidies and other assistance, easing the burden on local, state and federal government programs as well as faith-based and other nonprofit programs, while providing workers with enough income to become vital participants in the marketplace—stimulating economic growth and raising the living standards of the working class.
Critics argue that any floor on wages is inflationary and hinders job creation. Many advocate the Earned Income Tax Credit (EITC) as the best way to redistribute wealth to the working class. Without doubt, the EITC has been a successful way of providing aid to low-income working families, but a once a year tax refund is no substitute for a decent weekly paycheck. While there is evidence to support the inflationary and job suppression claims, and economist Joseph Stiglitz shares the viewpoint, there is also evidence that disputes the claims.
Alan Krueger, a Princeton economist, testifying before the California legislature stated, “The bulk of the research, including the most credible studies show that moderate minimum wage increases have no detectable effect on employment.”
While the US Congress has been unable to pass a minimum wage increase, much less debate a living wage, several states and municipalities have taken the lead and passed increases in the wage floor. Baltimore, Tucson, San Diego, San Francisco, Denver, Chicago, Ypsilanti MI, and Moorhead MN are among the communities that have established minimum wage or living wage policies independent of the federal minimum wage.
Minnesota is one of the states with a minimum wage above the federal level. Minnesota’s minimum wage is $6.15 for businesses grossing over $625,000 per year. Businesses grossing less than $625,000 who wish to be competitive in the job market undoubtedly feel pressure to pay the $6.15 rate.
According to Moorhead city manager, Bruce Messelt, Moorhead’s policy is that any business receiving economic support from the city in the form of sales or property tax relief is required to pay a minimum wage of $7.75. Moorhead also tracks the average wages paid by businesses receiving economic support from the city. The current average is $12.38. Businesses can argue for an exception in the case of certain part-time positions. The wage requirement does not necessarily extend to all businesses that contract with the city. A business that merely sells pencils (or other goods) to the city is not required to pay the $7.75 rate. In addition, the city of Moorhead pays all of its workers (including part-time) a minimum of $9.00 per hour.
Messelt says Moorhead “has no evidence either way” on how the wage floor has affected employment rates in Moorhead. An argument could be easily made that if the average wage is $12.38 that a $7.75 wage floor would have a minimal effect if any.
However, Messelt says that the wage has been an issue with some businesses seeking economic support. The city’s position has been that it must take the lead on this issue and provide a living wage for its workers and require the same for employees of businesses receiving economic support.
Undoubtedly, this policy is not without spillover effects. Other businesses are likely to pay similar wages in order to be competitive when seeking employees.
Some major corporations have taken a lead on this issue as well. Security giant Pinkerton’s Inc., a $2.5 billion company with 125,000 employees, committed to a living wage in 2001. The company believes that a living wage attracts better quality employees, decreases turnover, lowers training costs and promotes morale and loyalty among its employees.
Costco is another company committed to paying its employees a living wage. Costco CEO Jim Sinegal says, “I don’t see what’s wrong with an employee earning enough to be able to buy a house or having a health plan for the family.”
Clearly there is a need for a living wage, or at least an increase in the minimum wage. Exceptions can be made for certain types of positions or circumstances. Many communities and businesses are recognizing a living wage as a sound business practice and viable government policy. Since the living wage is unique to each community, it makes sense for each community to formulate its own policies in keeping with its distinct character and economic goals—a federal mandate is probably not desirable. The days of substandard wages that require workers to be subsidized by local, state and federal government to make ends meet is no longer acceptable.
Next month we will explore the issue of homelessness as the nation prepares to observe National Hunger and Homeless Awareness Week from November 13—20.
Please email your thoughts, comments, questions or criticisms to me at mmelon15@hotmail.com.
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