America’s Miserly Minimum Wage Needs an Upgrade
America’s highest-paid CEO last year, John Hammergren of McKesson Corp., received compensation of over $131 million. That is the equivalent of about $63,000 per hour, or $10,000 more than the annual median household income in the United States. Meanwhile, some of this country’s lowest-paid workers—those on minimum wage—made just $15,080 annually at $7.25 per hour. Mr. Hammergren had surpassed that amount by 9:15 a.m. on his first workday of the year.
It is long past time for minimum-wage workers to receive a raise. Had the federal minimum wage just kept pace with inflation since 1968, it would stand today at $10.67 per hour, not $7.25.
President Obama finally broke his four-year silence on this issue by calling for a minimum-wage increase in this year’s State of the Union address. But he advocated a federal rate of $9.00 per hour by 2016—well short of the $9.50 by 2011 he promised while campaigning in 2008, and far from catching up with 1968. Rep. Alan Grayson (D., Fla.) rightfully went a step further this month by introducing a bill to increase the minimum wage to $10.50 per hour.
Mr. Hammergren’s compensation represents just one example of corporate avarice. The top 100 highest-compensated American CEOs all made more than $15 million last year. Over the last 45 years, the minimum wage has lost nearly one-third of its inflation-adjusted value, while CEO compensation has skyrocketed 900%.
At a Senate Labor Committee hearing last month, Sen. Elizabeth Warren (D., Mass.) noted that had the minimum wage increased in proportion to worker productivity since 1960, it would stand today at $22 per hour.
Critics argue that increasing the minimum wage will harm the economy. In fact, when low-wage workers receive a wage increase, they spend that money back into the economy to pay for the necessities of life. In 2011, a Chicago Federal Reserve study showed that for every dollar increase in the hourly pay of a minimum-wage worker, the result was $2,800 in new consumer spending from that worker’s household over the year. Studies from the Economic Policy Institute indicate that a $10.50 hourly minimum wage would increase economic activity by at least $30 billion over each of the first two years and add 140,000 jobs.
Opponents claim that a $10.50 wage would burden consumers with price increases. Yet Costco starts its workers at $11.50 per hour plus benefits, which assures lower turnover and higher productivity. Andy Shallal, owner of the successful Busboys and Poets restaurant chain, starts his workers at $10.25 per hour.
The last refuge of critics is the oft-repeated refrain that raising wages might harm small businesses (which already have received 18 tax breaks under Mr. Obama). The reality is that, according to a report from the National Employment Law Project, two-thirds of low-wage workers are employed not by small businesses but by large, multinational and highly profitable corporations such as Wal-Mart and McDonald’s.
The low wages provided by large, profitable corporations don’t harm only minimum-wage workers. They also harm taxpayers and many small-business owners who are already paying more than minimum wage in one simple way: through our taxes.
Corporations pay their workers such low wages that the workers can’t afford to buy the food, pay the rent, or get the health care they need. Consequently, these employees increasingly turn to the taxpayer-funded government safety net via food stamps, Medicaid, the earned income tax credit and housing-assistance programs. Taxpayers end up footing the bill for the unconscionably low wages paid by profitable corporations.
Wal-Mart, which grossed $318 billion in the U.S. last year, provides its workers with technical advice about how to apply for this public assistance. For responsible businesses to subsidize the low wages of their larger competitors is a complete perversion of capitalism.
Corporations like Wal-Mart have no problem making profits while paying the higher $10.25 minimum wage in Ontario, Canada, just across the border from Buffalo, N.Y. Australia’s minimum wage is almost $16 per hour. Of the 10 countries with minimum wages higher than America’s, eight have unemployment rates that are the same or even lower.
Poll after poll has shown overwhelming American support—70%—for increasing the minimum wage. All that is standing in the way is Congress. Thirty-nine House Republicans and 24 Republican senators voted to increase the minimum wage in 2007. The moral and economic reasons to increase the lagging minimum wage haven’t changed.
Do members of Congress want to serve the interests of their corporate pay masters? Or do they want to support a hard-pressed working class of 30 million Americans whose depreciating wages result in deprivations and tragedies? It’s time for our country to catch up to 1968 wages.
A version of this article appeared April 16, 2013, on page A15 in the U.S. edition of The Wall Street Journal, with the headline: America’s Miserly Minimum Wage Needs an Upgrade.
Ralph Nader is a consumer advocate, lawyer and author of Only the Super-Rich Can Save Us! He is a contributor to Hopeless: Barack Obama and the Politics of Illusion, published by AK Press. Hopeless is also available in a Kindle edition.