American workers keep falling behind

As corporate profits soar, American workers’ pay keep falling behind.

Momentum To Raise the Minimum Wage

The movement to increase the minimum wage for American workers has been gaining momentum. In the past year, six states, including California, have raised their minimum wage. Here in California, the minimum wage will go from the current rate of $8 an hour to $9 an hour on July 2, 2014 and to $10 an hour on January 1, 2016.

Now, the movement is getting national attention. In his January 28 State of the Union address, President Obama called attention to the difficulties faced by many American workers, arguing that no one who works full-time should have to raise a family in poverty. He reiterated his support for a Senate bill that would raise the minimum wage to $10.10 an hour and then index it to inflation. He also announced that he will raise the minimum wage for federal contract workers to $10.10 an hour by Executive Order. On Wednesday, he followed through on his promise by signing the Executive Order, and the new minimum wage takes effect for new/renewed contracts on January 1, 2015.

The $10.10 Minimum Wage Has Both Logical and Historical Support

As Labor Secretary Tom Perez has explained:

$10.10 is not something that was plucked out of thin air. $10.10 allows a family of four, when you take into account benefits like the earned income tax credit, to get above the poverty line again. Nobody who works a full-time job should have to live in poverty.

$10.10 an hour also has a historical basis. According to the New York Times, today’s federal minimum wage is 32% lower in real dollars than it was in 1968. The real value of the minimum wage has dropped steadily over the years since then. In fact, in the past four years alone, the real value of the minimum wage has dropped by more than 8%!

The reason is simple: when the cost of living rises each year but wages do not increase to match, their value is slowly eroded. The manual adjustments to the minimum wage by Congress have failed to keep up with inflation. By raising it to $10.10 an hour, we get closer to the level that it was at in 1968, which is about $10.60 an hour in today’s dollars.

In addition, by linking the minimum wage to inflation, we can help ensure that its real value remains stable so that working families can stay above the poverty line.

With Record-Breaking Profits, Businesses Can Afford to Pay Higher Wages

Many of the higher paying jobs lost in the recession haven been replaced with lower paying, lower quality jobs (see this chart, for example). And we all know that companies are enjoying record profits. But until recently, I did not connect the two.

The two are, in fact, linked. According to Jan Hatzius, the chief U.S. economist at Goldman Sachs:

The strength (in profits) is directly related to the weakness in hourly wages, which are still growing at just a 2% nominal pace.

Thus, a substantial portion of the increased prosperity to corporations and shareholders is coming at the expense of workers.

Given that these corporate profits are at record levels, it would be hard to argue that businesses cannot afford to increase wages to a level that keeps workers out of poverty. While some might fear that raising the minimum wage would lead to higher unemployment or significant cost increases for business, the data has shows that it would do neither, according to a New York Times piece by Laura D’Andrea Tyson, professor at the Haas School of Business at UC-Berkeley and former chairwoman of the Council of Economic Advisers.

Conclusion

There is tremendous public support to increase the minimum wage, with report by NELP finding that 80% of Americans are in favor of it. The momentum has grown, and this is the time. By raising the federal minimum wage to $10.10 an hour, and indexing it to inflation in the future, Congress would ensure that the value of wages don’t erode for the most vulnerable workers.

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Photo ©iStock.com/igorr1

When Record Profits Come at the Expense of Workers, It’s Time to Raise the Minimum Wage was last modified: November 16th, 2016 by Ramit Mizrahi

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