Most Wall Street activity is devoted to diverting money from one person’s pockets to another person’s pockets. Most minimum wage workers do things that are directly beneficial to people.
The past financial crash was worse because Wall Street bankers and financiers took risks with other people’s’ money. The coming financial crash will be worse for the same reason.
The Wall Street bonus system is an incentive to take risks, because the managers get to keep the bonuses when they win and they do not have to give them back when they lose.
Ronald Reagan’s attacks on the minimum wage, families being helped by welfare, those receiving unemployment insurance when the economy failed, became racialized attacks, and not viewed as attacks on the foundation of worker survival.
So in the 1980s, the real value of minimum wage drifted to unprecedented lows, states rolled back eligibility to, and benefit levels for, unemployment insurance and the foundation was laid to attack women who needed help in raising their children to force them into low-wage work.
Without providing any gains to American workers, Reagan mastered the appearance of worker advancement by succeeding not by having wages rise with productivity, as had been the case, but by having wages rise relative to the poor who could not find jobs, or could only find minimum wage jobs.
The silence of the labor movement in the sinking fortunes of the poor meant there was political space, for the first time since the 1930s, to have the economy improve and expand while the poverty rate increased.
A survey by the National Low Income Housing Coalition shows that if you work full-time for minimum wage, 40 hours a week and 52 weeks a year, and set aside 30 percent of your income for housing, you can’t afford to rent a moderately priced standard one-room apartment in any state in the USA. And that goes for states with minimum wages higher than the federal minimum wage.
That doesn’t mean that minimum wage workers have to be homeless. But they do have to work more than 40 hours a week, or devote more than 30 percent of their incomes to apartment rent, or settle for cheap substandard quarters, or all three. Most Americans are struggling these days, but some of us are struggling harder than others.
Conservatives have long portrayed minimum wage increases as a harbingers of economic doom, but their fears simply haven’t played out. San Francisco, Santa Fe, and Washington, DC, were among the first major cities to raise their minimum wages to substantially above state and national averages. The Center for Economic and Policy Research found that the increases had little effect on employment rates in traditionally low-wage sectors of their economies.
Economists with the Institute for Research on Labor and Employment at the University of California-Berkeley have found similar results in studies of the six other cities that have raised their minimum wages in the past decade, and in the 21 states with higher base pay than the federal minimum. Businesses, they found, absorbed the costs through lower job turnover, small price increases, and higher productivity.
The key economic problem for the USA is that American wages are too low.
American consumer demand is the engine that has driven not only the U.S. economy, but much of the world economy, for the past 60 years.
If people don’t have enough money to buy things, there is no economic incentive to make things.
If there is no economic incentive to make things, the world’s wealth does not increase relative to the population.
If there is no economic incentive to make things, rich people and institutions invest in debt, which in the long run makes the problem worse.
If there is no economic incentive to make things, unemployment increases.
There is an economic theory that says that the way to cure unemployment is to allow wages.
It is true that, in a generally prosperous economy, an individual employer might hire more workers if they were available at a lower wage. But that wouldn’t work for the economy as a whole because workers are customers. Without mass prosperity, economic activity is devoted to serving the desires of a tiny economic elite.
One way to wage raises is to raise the minimum wage. This is good for all working people, not just those earning minimum wage or slightly above. It pushes up the general wage level and increases the market for goods and services.
And aside from all these other considerations, do we really want to live in a rich nation in which millions of hard-working people are poor?
An individual fast food restaurant manager might not be able to pay $15 an hour minimum wage and still compete with other restaurants paying $7.25 an hour. But there would be no competitive disadvantage if there was a floor under all wages.
A study by the Institute for Policy Studies indicates that the total amount of bonuses—not salary, but just bonuses—paid to 168,000 employees of Wall Street financial firms in 2014 was more than double the total income of 1 million Americans who worked full time at minimum wage.
The $28.5 billion paid in bonuses would be more than enough to raise wages of tens of millions of American workers to $15 an hour, the IPI said.
The function of Wall Street investment banks is to find worthwhile companies and provide them with the capital they need to thrive and grow. Doing this job well would be important, but most Wall Street activity is devoted to repackaging existing investments and selling them. A recent study says that only a quarter of Wall Street revenue comes from investment in the real economy.
So arguably the 1 million minimum-wage workers create more value than the wealthy Wall Streeters. At least they don’t create speculative bubbles that crash the economy.
President Obama in his 2013 State of the Union message proposed tying the minimum wage to the rate of inflation.
A blogger named Jamison Foser pointed out that the Democrats, who had a majority in the Senate, did not introduce any legislation in 2014 to accomplish that.
President Obama in his 2014 State of the Union message proposed an increase in the minimum wage.
Foser pointed out that the Democrats, who still had a majority in the Senate, introduced a bill in April to raise the minimum wage and, when it failed, they did not try again.
The Republicans who controlled the House of Representatives meanwhile passed bill after bill to repeal Obamacare.
Pundits ridiculed them for this, but in the 2014 elections, the Obamacare mess was a much bigger issue for voters than minimum wage. Some states that passed referendums to increase the minimum wage still voted Republican.
This is a failure of the whole Washington leadership of the Democratic Party.
What good are politicians who won’t fight for the public good even when it’s popular?
Voters across the nation gave the Republican Party numerous and unexpected victories for state and national office, while approving liberal and progressive ballot referendums. If the election was a mandate, what exactly was it a mandate for?
Alaskans voted in favor of raising the minimum wage, legalizing marijuana and regulating mining companies. Arkansans, Arizonans, Nebraskans and South Dakotans also voted in favor of raising the minimum wage. Denton, Texas, voted to ban fracking. Yet all these places voted Republican in the midterm election.
I don’t think it is because voters in these states misunderstand their true interests. Most people have a clear and accurate idea of what they want and need. And I don’t think it is a result of failure of communication of Democratic leaders. It is because a majority of the population lost ground economically during the past six years.
You don’t have to be an expert on national politics to know whether you are better off or not. As John Dewey said, you do not have to have knowledge of shoe-making to know whether your shoes fit or not.
Exit polls showed that 53% of voters have an unfavorable opinion of the Democratic Party, while 56% have an unfavorable opinion of the Republican Party. So for voters, it wasn’t even a vote against the perceived lesser evil. It was a vote against the incumbent evil.
The late A. Powell Davies, a Unitarian minister, wrote a book called The Urge to Persecute. It seems as if the urge to persecute, when denied its historic outlets (gays, Communists), looks for new outlets (cigarette smokers). Parenting is another example. My parents felt free to leave me to my own devices without being second-guessed by busybodies and the police.
I don’t believe in going after people who read and view pornography in the privacy of their own homes. The ubiquity of pornography, even for those who prefer to avoid it, is another matter.
[Video added 6/28/14. The TED organization refused to distribute this TED talk because it was “too controversial” ]
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Nick Hanauer, a billionaire who lives in Seattle, said he got rich mainly by foreseeing 30 years ago how important the Internet was going to become. What does he foresee now? Pitchforks—that is, revolution against people in his income class unless income and wealth are more widely distributed. He wrote in the current issue of Politico:
The fundamental law of capitalism must be: If workers have more money, businesses have more customers.
Which makes middle-class consumers, not rich businesspeople like us, the true job creators. Which means a thriving middle class is the source of American prosperity, not a consequence of it. The middle class creates us rich people, not the other way around. … …
During the past three decades, compensation for CEOs grew 127 times faster than it did for workers. Since 1950, the CEO-to-worker pay ratio has increased 1,000 percent, and that is not a typo. CEOs used to earn 30 times the median wage; now they rake in 500 times.
Yet no company I know of has eliminated its senior managers, or outsourced them to China or automated their jobs. Instead, we now have more CEOs and senior executives than ever before. So, too, for financial services workers and technology workers. These folks earn multiples of the median wage, yet we somehow have more and more of them.
The thing about us businesspeople is that we love our customers rich and our employees poor. … …
The most insidious thing about trickle-down economics isn’t believing that if the rich get richer, it’s good for the economy. It’s believing that if the poor get richer, it’s bad for the economy. … …
Hanauer believes that Seattle’s new $15 an hour minimum wage will be good for the local economy.
Capitalism, when well managed, is the greatest social technology ever invented to create prosperity in human societies. But capitalism left unchecked tends toward concentration and collapse.
It can be managed either to benefit the few in the near term or the many in the long term. The work of democracies is to bend it to the latter.
That is why investments in the middle class work. And tax breaks for rich people like us don’t.
Balancing the power of workers and billionaires by raising the minimum wage isn’t bad for capitalism. It’s an indispensable tool.
Growth in small-business jobs is greatest in Washington state, which has the highest state minimum wage, and in San Francisco, which has the highest urban minimum wage.
That conclusion is based on the Paychex | IHS Small Business Job Index, a survey of more than 350,000 small-business clients of Paychex, a payroll processing firm, in partnership with IHS, a consulting firm.
U.S. Small Business Jobs Index
The federal minimum wage is $7.25 an hour. Overall, the United States had a Small Business Job Index of 101.26, which meant that the number of small-business jobs was up 1.26 percent from 2004, when the survey began.
Washington state, with a minimum wage of $9.32 an hour, had a Job Index of 103.51 and San Francisco, with a minimum of $10.74 an hour, had a Job Index of 104.02.
During the past 12 months, small-business jobs increased by 2.2 percent in Washington state. Seattle’s small-business jobs grew by 2.66 percent, the highest 12-month growth rate among large U.S. cities. Small-business jobs in San Francisco’s increased 1.13 percent during the same period.
Maybe this job growth is due to a higher minimum wage giving workers more money to spend at local small businesses. Maybe it is for reasons completely unrelated to minimum wage.
But it provides an answer to the argument of many economists and the Congressional Budget Office that any increase in the minimum wage automatically results in a loss of small-business jobs.
The U.S. minimum wage has failed to keep up with inflation and productivity, and adjusted for inflation (which you always should do) is lower than it has been in the past. So there is no good reason to fear that current proposals to increase minimum wage will result in higher unemployment.
The following link has good background information.
One of the big arguments against raising the minimum wage is based on an over-simple understanding of the law of supply and demand — that if employers have to pay higher wages, they’ll hire fewer workers.
If that were true, then the long-term decline in the minimum wage and in median workers’ wages (adjusted for inflation, which you should always do) would have resulted in full employment. Obviously this hasn’t happened.
A rational employer will hire as many workers as necessary for the profitable operation of the business, and no more. The law of supply and demand sets limits. The employer will not pay so much that he can’t operate profitably, nor so little that nobody will work for him. But, as is shown by the difference between Costco and Walmart, there is a broad range between those two limits.
Suppose I have a franchise to operate a McDonald’s restaurant. I would not raise wages to the point where higher costs forced me to charge more for a hamburger than the Burger King restaurant across the street. But if the minimum wage was raised for both of us, we could pay higher wages and still be on a level playing field.
In theory, minimum wage could be raised to the point where I charged more for hamburger than people were willing to pay. But there is no evidence that this has ever happened with minimum wage in the United States.
One economist, for example, compared employment in adjoining counties of adjoining states with different state minimum wages. There was no evidence of any difference in unemployment rates or job availability.
A higher minimum wage could have a positive effect on employment. If low-wage workers have more money to spend, there is a greater demand for goods and services, and could result in new hiring.
Many Americans who dine out in restaurants ask questions about the food they eat—whether it is wholesome, whether it is locally-grown, whether it is organic, even whether the meat animals have been raised in humane conditions.
Saru Jayaraman, in her book, Behind the Kitchen Door, which I just got finished reading, argued that we diners should be equally concerned about the people though whose hands our food passes. It is short and highly readable, and told mainly through personal stories.
The most shocking chapter was the one entitled “Serving While Sick.” Most restaurant workers do not receive paid sick leave, and cannot afford to skip work because they depend on tips for most of their income. Employers expect them to come to work even if they have ‘flu or other infectious diseases. Jayaraman told the story of Nikki, who was forced to continue serving food in a Washington, D.C., restaurant after coming down with conjuntivitis, and Woong, a Korean-American who served food in an upscale French bistro even after contracting swine ‘flu (H1N1).
A 2011 survey by the Centers for Disease Control indicated that one in eight restaurant workers continued to work on two or more shifts during the previous year while suffering from ‘flu symptoms, vomiting or diarrhea. In summer 2011, thousands of people had to be vaccinated after being exposed to hepatitis by an Olive Garden worker who couldn’t take a day off without losing his job.
Jayaraman said that restaurants who require employees to work while sick are the same ones that cheat employees on wages and tips, demand they work in unsafe conditions and discriminate against dark-skinned and women employees.
The federal minimum wage is $2.13 an hour for restaurant workers, which has been unchanged for 20 years. Workers are expected to make up the rest in tips. In the United States, a tip is not a gratuity—something extra on top of the wage. It is what workers are expected to live on. A tip does not go just to the server. It is supposed to be divided up among all the workers, including the kitchen workers.
Some states do have higher minimum wages than the federal minimum, and California and six other states set the same minimum wage for all workers. But the median wage in 2010 for restaurant workers nationwide was $9.02 an hour, including tips. Restaurant workers’ annual income is about a third of that for all U.S. workers.
In many restaurants, according to Jayaraman, the managers don’t pay them for all the hours worked, and they take a share of the tips, even though both practices are illegal. Racial discrimination and sexual harassment are rampant in restaurants, she wrote. Typically the wait staff are white, the bussers are brown-skinned Latinos and the kitchen staff are black.
We Americans sometimes speak of racism in the past tense, but many restaurants treat employees as they did in the Jim Crow era, and with the same rationale—that white customers wouldn’t like to be waited on by black servers.
Reading this book made me realize what a sheltered life I have led. During my career, I had bosses I didn’t like, but I never had a one who threw things at me, cursed me out in public or refused to pay my wages, let alone one who demanded sexual favors or denied me the possibility of promotion because of my race.
Not all restaurants abuse their employees. I eat out a lot, and I would hate to think my favorite neighborhood diner treats its employees like the ones described in the book. Jayaraman gives examples of restaurant owners who treat their employees fairly, and still make a profit. Her organization, the Restaurant Opportunities Centers United, which she co-founded with Fekkak Mamdouh, helped found worker-owned restaurants in New York City and Detroit which eventually made a profit.
Nor is a sub-minimum wage necessary for a thriving restaurant industry. Restaurants are prospering in California and especially in San Francisco and Los Angeles, which have strong minimum wage laws.
Jayaraman said restaurant diners can help by being as concerned about the conditions under which their food is prepared as they are about the conditions under which it is produced. And they can help by supporting legislation to give restaurant workers the same protections as other workers.
One of the arguments against raising the minimum wage is that employers won’t hire people if the wage is higher than the value of the employee’s work.
Obviously this principle is true. In fact, an employer will not hire someone unless the wage is less than the value of the employee’s work to the employer. Otherwise the employer would make no profit.
Under conditions of economic competition, there is pressure to keep wages as low as possible. This is especially true for franchise and subcontract businesses, when the franchisers and the buyers have the economic power to squeeze their profit margins as low as possible.
Workers have no power, as separate individuals, to prevent wages from being forced down to subsistence level. There’s a name for this process, the Iron Law of Wages, which was formulated by the economist David Ricardo 300 years ago.
The reason that, contrary to Ricardo, wages have risen over the century is that sometimes skilled workers are scarce and command a higher wage, sometimes workers have been able to organize unions and bargain collectively, and sometimes governments have set minimum wages to limit how far wages can be pushed down.
Certain libertarians and free-market theorists oppose a role for government or even for labor unions. They say wages should be negotiated between free individuals. When an individual business owner is hiring an individual worker, that may make sense.
When a worker is up against a powerful collective organization, such as a corporation, then the worker needs something to equalize bargaining power. And in the case of fast-food franchises, workers are not up against the individual business owners. They are up against the corporations that set the terms for the franchisees. A higher federal minimum wage would change the equation.
This is true, although in terms of purchasing power, the Australian minimum wage for fast-food workers is more like $12 in the United States. Click on Australia minimum wage for details from the Real News Network.
Many economists say, without any empirical evidence, that an increase in the minimum wage will automatically result in increased unemployment. This is because it is a basic principle of economics that if you increase the price of something, people will buy less of it, and so it is with wages.
Under certain conditions, that would be true. Fewer people would be hired for minimum wage jobs if, say, the U.S. minimum wage was raised to $72.50 an hour. But there is no evidence that any of the actual increases in the minimum wage have had any adverse measurable effect on U.S. employment. Indeed, the number of minimum wage and near-minimum wage jobs has increased dramatically since 2007-2009, when the minimum wage was increased from $5.15 to $7.25 an hour.
The basic concept of economics—that the law of supply and demand describes how people respond to economic incentives—is true as far as it goes. This concept has such beauty and explanatory power that it is easy to forget the other dimensions of human behavior. Economists who forget this wind up like the physicist in the joke, who could infallibly predict the outcome of horse races, provided there were spherical horses racing in a vacuum.
I lead a good life, and that life is made possible by the hard work of many people—many of whom earn less than I do. As I get older, I eat more meals in restaurants, and it makes a difference to me whether the waiters and waitresses know their business (they usually do) or not. They’re on their feet almost all the time, they have to keep track of orders and notice when customers need their attention, and they maintain a cheerful, friendly appearance, even at the end of a long day when they may not feel like it.
Nearly one in 10 American workers, a total of 13.1 million people, are employed in the restaurant industry, and they’re among the worst-treated of American workers. According to an article by Matt Frassica for Salon:
Restaurant employees receive the lowest wages of all employment categories tracked by the Bureau of Labor Statistics. In 12 states, the minimum wage for workers who receive tips, such as waiters, waitresses and bartenders, is $2.13 an hour, the lowest allowed by minimum law. Many other states (but not all) set a sub-standard minimum wage for tipped workers.
One survey indicates that nearly 90 percent of restaurant workers are without paid sick days, vacation days or health insurance.
Employers commonly violate federal and state labor laws, by engaging in wage theft (not paying for all hours worked) or requiring tip pooling.
Only about 1 percent of restaurant workers belong to labor unions. Most of those work for hotels and casinos in Nevada, which are able to earn a decent profit while paying decent wages.
Many people have the mistaken idea that waiters and waitresses earn federal minimum wage, and that a tip is something extra that a customer gives out of benevolence or as gratitude for extra-good service. The fact is that tips are regarded as part of their base compensation, which is why laws so often allow sub-minimum wage pay.
I suppose the ultimate answer is a stronger labor union movement and better federal and state labor laws, but I’m not going to hold my breath until these come about. The least I can do is to leave an adequate tip (20 percent) and treat waiters and waitresses with normal human courtesy.
Click on BIG SHOTand read the post and comment thread for blow-by-blow descriptions of encounters between restaurant servers and obnoxious customers. Servers sometimes have ways of striking back.
The chart above shows that, compared to prosperous European countries, the United States has a relatively low minimum wage. We are in the same ballpark as Greece and Spain but much lower than Britain, France or the Low Countries.
Germany, the Scandinavian countries and Italy have no minimum wage laws. In the case of Germany and Scandinavia, that is probably because the labor unions were so strong that the need for wage legislation wasn’t felt. Labor leaders sometimes prefer to have workers look to the union rather than to legislation for good wages.
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