The high cost of low wages: subsidizing corporate welfare

BernieSanders-400x400Workers in retail, fast food and other industries protested across the nation on Wednesday, calling for the minimum wage to be raised to $15, Workers #Fightfor15 in nationwide protests (video), including in Phoenix, Valley protesters push for raise in minimum wage, and in Tucson. Tucson joins ‘Fight for $15’ protests as more workers join movement.

The Economic Policy Institute recently reported How to Raise Wages: Policies That Work and Policies That Don’t:

As EPI has documented for nearly three decades, wages for the vast majority of American workers have stagnated or declined since 1979 (Bivens et al. 2014). This is despite real GDP growth of 149 percent and net productivity growth of 64 percent over this period. In short, the potential has existed for adequate, widespread wage growth over the last three-and-a-half decades, but these economic gains have not trickled down to the vast majority.

As EPI has demonstrated throughout its Raising America’s Pay project, wage stagnation is not inevitable. It is the direct result of public policy choices on behalf of those with the most power and wealth that have suppressed wage growth. Because wage stagnation was caused by policy, it can be alleviated by policy.

In How to Raise Wages: Policies That Work and Policies That Don’t, EPI President Lawrence Mishel and Vice President Ross Eisenbrey lay out a series of concrete, achievable policies that can raise wages, and explain why some of the most frequently cited policies will not help. The paper provides the underpinning of EPI’s Agenda to Raise America’s Pay—an 11-point set of policy solutions that policymakers can and should adopt to combat and reverse the past three-and-a-half decades of wage stagnation.

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Along with the briefing paper, the 11-point Agenda to Raise America’s Pay will be a crucial guide for anyone concerned with Americans’ stagnant wages—including policymakers at the Federal, state and local levels and presidential candidates.

The 11 points of the Agenda to Raise America’s Pay are:

  • Raise the minimum wage to $12.00 an hour by 2020
  • Update overtime rules
  • Strengthen collective bargaining rights
  • Regularize undocumented workers
  • Provide earned sick leave and paid family leave
  • Close race and gender inequalities
  • Support strong enforcement of labor standards
  • Use monetary policy to encourage economic growth
  • Enact targeted employment programs and undertaking public investments in infrastructure to create jobs
  • Reduce our trade deficit
  • Use the tax code to restrain the incomes of the top 1 percent

The Agenda to Raise America’s Pay serves as a counterpoint to commentators who bemoan the lack of solutions to wage stagnation, and will be an essential document for policymakers, members of Congress, and other leaders looking for ways to raise wages.

Those with wealth and power write the rules, and they have written the rules to benefit themselves at the expense of everyone else.

Ken Jacobs, the Chair of the UC Berkeley Center for Labor Research and Education and co-author, with Jenifer MacGillvary and Ian Perry, of “The High Public Cost of Low Wages,” writes at the Washington Post today, The high cost of low wages:

The low wages paid by businesses, including some of the largest and most profitable companies in the U.S. – like McDonald’s and Wal-Mart – are costing taxpayers nearly $153 billion a year.

After decades of wage cuts and health benefit rollbacks, more than half of all state and federal spending on public assistance programs goes to working families who need food stamps, Medicaid, or other support to meet basic needs. Let that sink in — American taxpayers are subsidizing people who work — most of them full-time  (in some case more than full-time) because businesses do not pay a living wage.

Workers like Terrence Wise, a 35-year-old father who works part-time at McDonald’s and Burger King in Kansas City, Mo., and his fiancée Myosha Johnson, a home care worker, are among millions of families in the U.S. who work an average of 38 hours per week but still rely on public assistance. Wise is paid $8.50 an hour at his McDonald’s job and $9 an hour at Burger King. Johnson is paid just above $10 an hour, even after a decade in her field. Wise and Johnson together rely on $240 a month in food stamps to feed their three kids, a cost borne by taxpayers.

The problem of low wages and the accompanying public cost extends far beyond the fast-food industry. Forty-eight percent of home care workers rely on public assistance. In child care, it’s 46 percent. Among part-time college faculty—some of the most highly educated workers in the country—it’s 25 percent.

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UC Berkeley’s Center for Labor Research and Education, which I chair, has analyzed state spending for Medicaid/Children’s Health Insurance Program and Temporary Assistance for Needy Families, and federal spending for those programs as well as food stamps and the Earned Income Tax Credit.

We found that, on average, 52 percent of state public assistance spending supports working families (defined as working for at least 26 weeks a year and 10 hours a week) – with costs as high as $3.7 billion in California, $3.3 billion in New York, and $2 billion in Texas.

In recent months, the substantial public cost of low wages has prompted elected officials to take action. Legislators in California, Colorado, Maine, Oregon, and Washington are considering increasing the minimum wage to $12 an hour. In Connecticut, a proposal currently moving through the state legislature would fine large companies that pay low wages in an effort to recoup the costs imposed on taxpayers.

When 73 percent of people who benefit from major public assistance programs live in a working family, our economy isn’t operating the way it should – and could – be. From 2003-2013, inflation-adjusted wages fell for the entire bottom 70 percent of the workforce. Over the same time period we have also seen a large decline in the share of Americans with job-based health coverage.

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Public assistance programs provide a vital support system for American families. But when Americans like Wise, Johnson and Hughes are working as hard as they can and are still paid too little to get by without public support,  we need action to raise wages. On Tax Day it is a good time to take a hard look at the high public cost of low wages in the United States.

The Phoenix New Times reports that Most Arizonans on Welfare Have Jobs:

The majority of federal and state dollars spent on Arizona anti-poverty programs go — not to the unemployed — but to college professors, home-healthcare nurses, child-care specialists, and other low-wage workers.

According to a new University of California, Berkeley study, 57 percent of the $6,596 million the federal government spent on the social safety net in Arizona between 2009 and 2011 went to working families. Fifty-one percent of the $1,335 million the state threw into the pot was claimed by the employed.

“There is a real cost to the states, the federal government, and taxpayers when jobs don’t pay enough for people to provide for their families,” said Ken Jacobs, chair of U.C. Berkeley’s Center for Labor Research and Education.

Unsurprisingly perhaps, Jacobs found front-line fast food workers, who earn an average of $9.19 per hour, or $19,640 a year, were the most likely to rely on public assistance. Nationally, 52 percent received the Earned-Income Tax Credit, and/or enrolled in Medicaid, cash assistance, or food stamps.

Jacobs found, however, that workers in several unlikely sectors, including healthcare and education, are suffering, too. Forty-eight percent of home healthcare workers and 46 percent of child-care workers turned to the government for help between 2009 and 2011, according to the report. Among adjunct professors, 25 percent relied on welfare programs.

“Real wages have declined, middle income jobs have been hollowed out, and now we’re seeing a real change in the demographics of low-wage workers,” Jacobs told New Times. “They tend to be older and have more college education.”

Some believe the solution is raising the minimum wage. Tens-of-thousands of people across the country are expected to turn out to call for increased wages this afternoon as part of the “Fight for $15” movement. Fight for $15 started as a protest of several hundred New York City fast-food workers in 2012, but has since spread to more than 200 cities. Other low-paid workers, including adjunct faculty and home healthcare nurses, are now joining in.

“This is not a problem that the market is going to correct on its own,” Jacobs said. “There is a role for public policy in addressing a rise in low-wage work.”

Arizonans attempted to do this with the “Raise the Minimum Wage for Working Arizonans Act”, Prop. 202 (2006). At the time, proponents set the basis amount for the minimum wage at $6.75 hour, a level that increases with an annual cost of living adjustment (COLA). The Arizona minimum wage is now $8.05 hour as of January 1, 2015.

The basis amount chosen by proponents of the minimum wage initiative was what they believed to be politically viable for passage — they proved to be correct — it was not based on a formula to  restore the minimum wage to its peak buying power in 1968.

The organization Raise The Minimum Wage calculates that the minimum wage in 1968, adjusted for inflation, would be $10.90 per hour today. That is $2.85 hour more than Arizona’s statutory minimum wage. (Inflation adjusted is not the same as a COLA adjustment, which would be even higher).

The Living Wage Calculator from MIT for Arizona as a whole uses a variable rate based upon the number of dependents/size of household:

Screenshot from 2015-04-16 14:34:34

In either case, Arizona’s statutory minimum wage currently is too low. The “Raise the Minimum Wage for Working Arizonans Act”, Prop. 202 (2006), allows the Arizona legislature to raise the minimum wage over and above the amount called for in this law. Yeah, that’s never going to happen with our current Tea-Publican Arizona legislature.

It will have to be done by another citizens initiative to correct the basis amount, either adjusted to restore the peak buying power of the minimum wage in 1968 to what the annual cost of living adjustment (COLA) would make it today, consistent with the remainder of the law, or pick any basis amount that appears to be politically viable, as Fight for $15 has done.

Of course, none of this would be necessary if the federal government would simply do as Arizona citizens did in 2006: raise the minimum wage to $15 hour, for example, and include the automatic annual cost of living adjustment (COLA) so that Congress can no longer hold the minimum wage hostage to partisan politics.

If Congress can finally agree to resolve the “doc fix,” it sure as hell can end its political gamesmanship over the minimum wage.

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