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Why the Minimum Wage Shrinks

It’s not easy to find a voter who believes that the United States Congress provides much value for the money. Were any of the rest of us to perform as poorly as our Member(s) of Congress, we’d be looking for new jobs. Congress has joined the oil industry and the banks as an institution that’s routinized epic failure. Take the case of the federal minimum wage of $7.25. Put in forty hours per week fifty-two weeks per year and you’ll gross a whopping $15,080. Should you have to support more than your worn out self, you’re officially poor.

How can this be? The difficulty in raising the minimum wage has zero to do with public acceptance. An October 2010 poll found that two-thirds of respondents favored raising the wage to at least $10. Seventy-six percent of Missourians voted to increase and index their minimum in a 2006 ballot initiative. Instead, we may identify two main reasons: (1) Congress’ failure to maintain the minimum wage as a living wage; and (2) low wage employers’ unwillingness (as opposed to inability) to pay (much if any) more.

Congress raised the minimum wage but three times in the last three decades, an abdication of responsibility that parallels its myriad other failures to protect and enhance the economic security of working people over the past generation. Created by the New Deal in 1938, the federal minimum rose more or less steadily until it hit its peak buying power in 1968. That magical year’s wage of $1.60 would be $10.55 today had it kept pace with inflation (thirty percent higher than $7.25).

The collapse in purchasing power has real and dire consequences for the working poor. Some fifteen percent of Americans live in poverty (a figure that’d be considerably higher had the technical definition of poverty, set in 1969, kept up with economic reality; the federal government intentionally undercounts quantities it’d prefer to minimize like the poor and unemployed).

More than one in seven women in the US are poor. More than twenty percent of children live in poverty (including a third of black and Hispanic children). In not a single state of the Union can a full-time minimum wage worker afford a two-bedroom apartment at “fair market” prices. In New York, on average, that worker would need to clock some 130 hours per week to keep a two-bedroom roof over her head.

Low wage Americans are, of course, not alone. Most if not all of us are in this together. Median household income (adjusted for inflation) fell 1.5% from the already stagnant levels of 2010. Economic inequality (as measured by the Gini index) is at an all-time high. Only 58% of adults have a job of any sort (full or part-time), the lowest figure in thirty years. Only 64% of men have jobs of any kind, a new low.

The genuine suffering these bloodless figures represent is avoidable. The federal Bureau of Economic Analysis reports that economic output per capita more than doubled since 1969 (adjusted for inflation). This is not about insufficient funds.

This is, instead and again, about Congressional failure and the stinginess and greed of America’s low wage employers. Business may have pleaded penury during the Great Meltdown, but profits had already caught up to their pre-recession levels by early 2010, and before last year was out had hit a new record of nearly two trillion dollars.

One of the enduring myths of the minimum wage debate is that the Mom and Pops that employ cheap labor simply don’t have the wherewithal to raise wages. The fact is that two-thirds of minimum wage labor takes place at larger establishments (with 100 or more employees), including the giant firms that dominate retail, hospitality and food services. Yes, I mean you Wal-Mart, Target, Staples, Dunkin’ Donuts, Subway, and McDonald’s.

These corporate behemoths, the 50 largest employers of low-wage workers, have by and large recovered from the recession and most are doing just fine. A recent study by the National Employment Law Project reports that 92 percent were profitable last year; 78 percent have been profitable for the last three years; 75 percent have higher revenues now than before the recession; 73 percent have higher cash holdings; and 63 percent have higher operating margins.

If these firms are not sharing the wealth with those that worked hard for low wages to generate it, what’s become of it? No mystery here: chief executive compensation averaged $9.4 million last year at these companies. The same firms returned $174.8 billion to shareholders in dividends or share buybacks over the past five years.

It’s clearly laughable to expect the “free market” to solve the problem. Instead, strong government action on behalf of the working poor—bemoaned by Republicans everywhere—is the solution. Some states already do the right thing. Nineteen (including DC) have minimums higher than the federal rate. Ten states annually increase their minimums to keep pace with inflation. But without prompt Congressional action to sharply raise and index the federal minimum wage, our present shameful national failure to reward hard work with fair wages will continue.

Steve Breyman teaches political economy at Rensselaer Polytechnic Institute. Reach him at breyms@rpi.edu

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Steve Breyman was a William C. Foster Visiting Scholar Fellow in the Clinton State Department, and serves as an advisor to Jill Stein, candidate for the Green Party presidential nomination. Reach him at breyms@rpi.edu

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