Pandemic Diary Entry #79
March 1, 2021
The fight for a $15 minimum wage is once again in the news.
The first federally mandated hourly wage of 25 cents was set in 1938 by Franklin Delano Roosevelt, it has been raised 22 times by 12 different presidents. The last increase was twelve years ago.
Until 1968, the minimum wage not only kept pace with inflation, it rose in step with productivity growth.
While a $15 an hour increase appears to be a leap, had the minimum wage kept up with inflation it would now be $24 an hour. If the minimum wage had increased at the same rate since 1985 as Wall Street’s average bonus the rate would be $44.12 an hour.
Our $7.25-an-hour minimum wage is 38% lower than Germany’s and 30% lower than Britain’s, Canada’s and France’s. This is why the US has such a divide in income inequality. Out of the 37 countries that belong to the Organization for Economic Co-operation and Development (OECD), only Mexico, Chile, Costa Rica and Bulgaria have a larger income disparity problem. And the US has the third highest poverty rate among the OECD countries with only Hungary and Costa Rica ranked higher.
I was a business owner and paid my entry-level employees above minimum wage, with increases as their skills increased and annual increases when fiscally possible. Paying a decent wage was not a burden, but it did mean I am not rich. I did not make as much money as I might have, had I only paid all of my employees minimum wage, but we ran a company where our employees were an asset and not a liability on the balance sheet. I also believe in people over profit.
This is why I disagree with people who say an increase in the minimum wage will harm business. The Congressional Budget Office agrees, stating that a $15-an-hour minimum wage would heavily outweigh the downside. This increase would lift as many as 1.3 million people out of poverty.
Another argument against the increase is that it would lead to a loss of jobs. While historically this has always been an argument, in fact, it has never occurred. According to the CBO report many companies “hold wages below what a competitive market would offer.”
The added financial benefit to an employer is that a decent wage helps to maintain employees eliminating the costs of continuous turnover and training.
These are not just theories. For most of the prior decade, the state of Washington had the highest minimum wage. In June of 2018 Washington had an unemployment rate of 4.7%, which was 0.5% higher than neighboring California and 0.7% higher than Oregon. The jobless rate for the United States during that period was 4%. This shows that paying a significantly higher wage does not have a significant impact on employment. At that time, Washington’s minimum wage was $4.25 per hour higher than the federal minimum.
A benefit to all Americans is that an increase in the minimum wage would help to bring back the middle class. Increasing the minimum wage has shown to have a trickle-up effect. So an increase in the minimum wage would at first affect the most impoverished families, but it would move up to the middle class and eventually even reach the wealthy. A far better policy, than the proven false theory of trickle-down economics.
Another benefit is an increase in taxes to cities and counties. A report from the Federal Reserve Bank of Chicago found that a $1 increase to the minimum wage would boost consumer spending in those households by over $2,000. A boost could also lessen the need for government-provided or funded social services.
Sadly, neither a $10 an hour wage ($20,800/year) nor a $15 an hour wage ($31,200/year) is a living wage anywhere in the United States.
To understand how difficult it is to live in this country on a given state’s minimum wage, one needs to look at living wages. A living wage is an income needed to cover necessary and discretionary expenses with enough left over to contribute to a savings account. The numbers used here are based on The Bureau of Labor Statistics and the 50/30/20 rule (50% to necessities, 30% to discretionary expenses and, 20% to savings).
Below are comparisons on how minimum wage pencils out in the three states with the highest living wage and the three with the lowest living wage.
The result of this gap in income and livability means 10.5% of Americans live below the poverty line.
Within the OECD, the US has the third-highest percentage of low-wage workers, with nearly one in four workers defined as low-wage. Only Latvia and Romania are worse. A Brookings Institute study found that 53 million Americans hold low-wage jobs, with a median pay of $10.22 an hour and median annual earnings of $17,950.
America is the 12th richest nation in the world by per capita GDP, and yet nearly 8 in 10 U.S. workers live paycheck to paycheck.
COVID has put another employment issue front and center. One that is often cited when arguing against a minimum wage. Some argue employers may decide to outsource their labor to countries where the costs are much lower. They could also decide to use independent contractors or freelancers to fulfill specific projects instead of hiring full-time employees with benefits. However, this argument seems to be somewhat difficult to justify as that is what is already happening in the US. Prior to the Pandemic, 36% of Americans were part of the gig economy.
We have a gaping maw in economic equity in this nation, a $15 an hour minimum wage isn’t the only answer, but it is a start. It is also important to note that 2/3rds of Americans support the increase. This is true across party lines. For Americans making under $40,000 a year 74% support the $15 wage 56% of Republicans making under $40,000 also support the raise to $15.
Sadly, raising the minimum wage is in the hands of our congresspeople, many of whom find their constituents to be lower on their priority list than standing pat on opposing everything brought forth by the other party.
San Francisco weather: 60 degrees and sunny
NYSE DOW compared to one year ago: + 5475
COVID cases in the US: 29,257,672
Deaths from COVID in the US: 525,790
Vaccines doses administered in the US: 75,236,003
OED word of the day: hiraeth — deep longing for a person or thing which is absent or lost; yearning; nostalgia; spec. homesickness.
Days since Shelter In Place was initiated: 350
Reading: The Fortune Cookie Chronicles: Adventures in the World of Chinese Food by Jennifer 8 Lee
My Black and White Picture of the Day
Something Silly From the Internet: