So, we’ve talked (this is the 3rd part in the daily series about current economics) about who is funding the US treasury. Mostly workers, which surprised most of you. Mostly the poor and the middle class, which clearly confounded you. (Remember- it’s payroll taxes that provide about 45% of the federal take, and the income taxes of the non-rich provide another 15% of the federal take. The rich (top 10%) provide 30% of the annual federal receipts via income taxes and corporations finish off the totals by contributing about 10%.)
We’ve discovered that manufacturing firms- the means by which most of America reached middle class- are making record profits. And, by cutting wages AND their employee census. While company CEO’s have had 30+% gains in their wages during that same 5 year period.
What about the minimum wage jobs? As I’ve showed you (before this series began, Wage Follies), too many employees are being paid at or near the minimum wage rate. It used to be those were the wages paid to teenagers with part time jobs. Now, it’s covering a large swath of the US population.
Oh, we’ve heard the arguments. Staring with Martin Feldstein. (Sorry- this link is no longer available on the Wall Street Journal!) Who wants us to believe that if low-skilled workers are paid more, that work gets outsourced or mechanized. He goes on to say that wage increases can only be the result of greater productivity.
By the way, it was Dr. Milton Friedman is the one who created this problem in the first place. You see, way back in 1970, he propounded that the paramount duty – almost the exclusive duty- of the CEO was to maximize shareholder value. Prior to that idea, there was the concept that a social contract existed between a company and its employees and its local community. That framework shift is also why wages stopped increasing- to the great benefit of the CEO and the executive officers. You know what else? That shift is also when corporations began demanding lower tax rates for their entities, since their responsibility to community was no longer part of their concern.)
Hmm. Let’s think for a second. That bastion of liberalism, USA Today (this is no longer available on the web, having been published on 4 April 2011) wrote (among others) that it’s tough for the unemployed to get jobs now because our productivity is too high. As you can see from the graph, productivity is, indeed, way up- and wages are stagnant. So, Dr. Feldstein, what other excuse do you have in your bag of tricks?
Don’t worry, Dr. Feldstein has another answer. He adds that David Neumark (UC Irvine) finds argument with the data showing that the studies showing rising wages don’t affect employment. Dr. Neumark claims those studies miss the point. But, there’s a little problem with quoting Neumark.
You see, Dr. Neumark is routinely funded by Rick Berman and his Employment Policies Institute. A funny thing about this institute. It resides wholly within Berman’s other offices. The ones that serve as lobbyists for the minimum wage industries- the restaurants, the hotels, the alcoholic beverage establishments (and the tobacco industries, to boot). Berman’s other institutes have similar benign-sounding names like the “Center for Consumer Freedom” and the “Center for Union Facts”. Yup. This entire process is kind of like having the pharmaceutical industry pay doctors to publish articles extoling the quality of their drugs…
I do agree with Dr. Feldstein that the minimum wage problem is clouded by the fact that we must discriminate between a teenager supplementing his “fun money” while living at home- and the working mother or father who is the sole support for the family. But, then Dr. Feldstein goes beyond the pale by justifying his argument saying that it’s not that important. After all, don’t we provide food stamps, housing subsidies, and the earned income tax credit? Right, we do. But should business not be paying fair wages so that you and I (the US citizens) can subsidize their profits? They really expect the US citizenry to paying more taxes so that businesses are not required to properly pay their employees!
You see, teens account for about 25% of the total census of those paid minimum wages. Those just starting out in the labor force (folks aged 20-25) comprise almost another ¼ of those earning minimum wage- with the rest being paid to those feeding the families of some 0.9 million workers.
What many don’t realize is that the federal minimum wage for restaurants (not fast food, where there are no tips) is all of $ 2.13 an hour- and it’s your tips that bring their wages up to normal minimum wage standards.
Maybe now you’ll understand that there really is a big misconception about who gets federal assistance? 43% of those receiving assistance are working! 21% are elderly, while only 9% were homeless. The latter group is probably low because it is tough to get assistance if you have no fixed address.
Dr. Feldstein counters this entire issue by saying that raising the minimum wage is really a tax increase. One imposed on business. So, let’s see- business is only paying 10% of the federal tab- but they want us to pick up their slack, so that whether or not we want to, we provide their profits.
Nope. Business needs to pay it’s fair share of taxes and fair wages. It’s not for us to have the burden of their failure to pay reasonable wages. I do find it interesting that many of these same folks making these arguments are the one who complain that too many workers don’t pay enough income taxes- when the reality is that they actually input more money than the amount paid by companies- or many of the richer folks.
Tomorrow, we’ll look at some further studies about wages and what businesses really do.
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Wow. Very interesting, Roy, and very complicated. It sounds like a mess to me! I think I’ll go back to my seed catalogs . . . I will say that my son worked as a waiter for a big restaurant for quite some time, and after hearing about his experiences, I do leave much higher tips now. I had no idea that waiters are paid so little, and rely on your tips for their wages.
Amy recently posted..5 Things you can do NOW to prepare for your spring garden!
Some states (NY and CA come to mind immediately) have higher state minimum wages for servers, Amy. But, it’s the dirty secret of the restaurant business. And, now, many of those same firms [as required by the IRS] deduct social security on the imputed wages (based upon company pay and tips), so the server receives only a pay stub. All the wages are zapped to cover income tax withholding and payroll taxes.
That’s also why many great servers seek out the more expensive restaurants for employment, to get that 20 or 25% tip of a higher number. Working at Pizza Hut, where the average check is $ 7 to $ 15 won’t keep you off Medicaid, Food Stamps, or Welfare.
Hope you find a way to make money from those seeds- even using the crops for your own food is a way to profit!
I live in New Mexico (a place with an average cost of living and VERY low wages). My co-working space colleagues were shocked that I didn’t want to pay my team minimum wage (for semi-skilled online marketing work, putting up web pages, writing blog posts, etc.) Even though what I pay DOES affect my bottom line (there are just three of us in my company) – I want my team to WANT to work with me and paying them fairly is part of that. For major corporations where a couple of hours an hour per employee would make NO real difference in their bottom line – underpaying people is criminal. (which is why I do what I do to help people get out of that trap and start businesses based on their skills and passions…)
Meredith Eisenberg recently posted..Come Play in Traffic: Claim Your Content
Meredith:
I am with you!
When we had a manufacturing company, we paid our staff more than the minimum wage to start. And, gave them bonuses (quarterly) based upon the profits of the firm. (25% to them, 25% for taxes, 25% for R&D, and 25% to the owners.) And, we provided health care for each of them- and subsidized their family costs (we paid 1/2 for those making less than the 40% US income median and 25% for those making more than the 40% median.)
And, our profits, productivity, and customer satisfaction was through the roof- because of THEIR attitude and work, with some leadership by us.
When you look at it this way, parts of society are so unfair. The vulnerable should be the ones to receive the most help.
Francene Stanley recently posted..New Year human suffering and planet disasters.
Thanks for the visit, Francene.
I think the proposal. as I (barely) outlined it in my answer to Sonya, is one solution. To have the company transfer funds to the treasury to reimburse it for the costs necessary to keep the working poor working- out of the company’s own treasury.
Dear Roy,
As a business and finance major in college and as a business owner, I tend to have my perspective from that viewpoint.
But as an Universal Law Life Coach, I have even broader viewpoints about the Cause and Effect of all things.
As a minimum wage worker at one time, I worked hard until I got raises.
As a member of management and then eventually, a business owner, I always paid my employees based on performance.
If it were up to me, all employees pay would be based on performance.
But in the end, just as Jesus said, “the poor will be with us always.”
And from an Universal Law point of view, it is all vibrational.
So no matter what the minimum wage is or how much the governments of the world get involved, those who align with poverty, will be poor.
That is just the way it is.
The solution, as I see it, is to help raise the vibration of the entire planet.
And you begin with yourself.
I wrote a response to a comment on my own post today about my own life experience with coming out of poverty.
🙂
And as you say, “my .02 cents”.
🙂
Kathy
Kathy Hadley recently posted..Thoughts Become Your Destiny – Day 9 of 31 Days of A New Life
“If it were up to me, all employees pay would be based on performance.”
Your words, Kathy, not mine. That’s the whole argument. Before Friedman advocating destroying the social compact that obtained between the business and its workers, the rule was productivity up, wages up. Now, it’s productivity up, wages flat, and executive pay way up. Like they are the only ones responsible for the widgets the company makes and for the productivity gains. That’s the crux of the issue.
My folks would have been considered working poor, if such a term existed when I was a child. It took them forever to reach the lower middle class- with outstanding educations.
So, yes, I worked as a child- but doing socially acceptable items (newspapers, card sales, etc.). When I turned 14, I had a job- and refused to work for the minimum wage of $ 1.25. I informed my bosses I did twice the work of the other employees and my pay should reflect that. To be honest, they were astonished that a 14 year old would start out with such a premise, but they knew I was right- and I made them a fortune over the 5 years of association with their firm. I learned a lot, too- and always consider that experience among my most valuable. (I’ve said so to them when they were alive, to their children, and on my blog.)
But, if I were coming through the ranks now, employers would hire an adult of 20 or 30 and pay them low wages and scare them into submission.
As I showed in yesterday’s post.
Please excuse my gushing, but people like you are SO necessary. The economy is incredibly confusing to me, and it really helps to have someone explain it clearly, step by step. Someone decent who believes that people should be paid a living wage! THANK YOU.
Sonya Mann recently posted..One Wonders
My proposal, Sonya (nice to meet you by the way), is pretty simple. If we don’t want to raise the minimum wage, let’s just compute how much assistance the government has to provide each employee the company pays less than the living wage (that’s called the working poor) and have the company transfer that payment to the US treasury. So, that you, me, and the lamppost are not required to subsidize the company’s employees because they are not fairly compensated. Oh, and it can come out of the executives pay (the compensation that is 100s of times the average compensation of the firm.)
You need to be educated about the issue here, even if it is depressing.Living Wages- Take 3 http://t.co/jgtPqWmJQn
This is very depressing.
Ann Mullen recently posted..How Do You Talk to Your Loved One about ‘In Home’ Care?
It is depressing- but, instead of decaying into lethargy, we should be energized into acting, Ann!
You would have a field day with Idaho, Roy. Idaho ranks 50th for average annual wage, per-capita income & wage increases. It also has the greatest percentage of minimum-wage workers in America.
Cathy Miller recently posted..Stating a Case for Vision Statements
Yes, I debated comparing the states, but decided to keep the discussion national. Cathy. Because if I did the state wages, I would have to do the state productivity ratios- and they were very hard to derive.
This way, it’s clear that it’s not a productivity issue, but the break in the social contract between employees, communities, and the resident businesses.
I like http://t.co/tHLmK1oV93 Excellent series on living wages/minimum wage via@RAAckerman
So if our productivity is up wouldn’t wages go up? Supply and demand?
Carolina HeartStrings recently posted..CAROLINA ROOTS –VICKS VAPORUB
That would be logical and the way the system is supposed to work. Instead, those productivity gains are used to fuel the salaries of executives.
Interesting article, Roy. I didn’t realize that restaurant workers were still being paid such low wages. It seems like it hasn’t changed since I was a waitress twenty something years ago. I agree that businesses should be paying their fair share.
Yes, I, too, was shocked, Suerae.
I only worked for a very short time as a server. Even though I made great tips, I decided that I should work for catering halls (with longer hours and better pay)- and never regretted that change for an instant.
Are businesses paying their fair share? See Living Wages- Take 3 http://t.co/KceE2yzX18
Living Wages- Take 3 | http://t.co/TxmwKDgnWy via @Adjuvancy
I think that one of the solutions is to make each employee a shareholder of the company (or interested in the result of the company). A supermarket called Waitrose has done this in the UK, and I find it a real success story.
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That’s an interesting idea, Muriel. But, I’m not sure the investors in the firm are willing to share (dilute) their ownership. It’s also more of a socialist trend (hence, it’s use in France) than a capitalist view (hence, it’s near absence in the US- except when owners of closely held companies want to retire and they set up ESOP’s).
We use virtual shares. That means our staff has x% ownership (for profit sharing), but no vote on major decisions.
We all had summer jobs. What if you were still earning the same when older? http://t.co/30wL2sOBKc
minimum wages worldwide are beneath contempt
The wages are not- it’s that folks think it is ok to pay them to adults and not teens- or way beyond a short training stint!
Thanks, Caro.
I like http://t.co/Shcw5BEtOy -minimum wage!
#wages – Take heed
Living Wages- Take 3 http://t.co/InWo69CATR
Interestingly, Harold Meyerson discussed a similar issue in today’s Washington Post!
http://www.washingtonpost.com/opinions/harold-meyerson-the-myth-of-maximizing-shareholder-value/2014/02/11/00cdfb14-9336-11e3-84e1-27626c5ef5fb_story.html
Thank you- I had seen that and made a comment on his post, too!