Friday, September 15, 2017

Blueprint for America: Minimum Wage

One of the points highlighted by Bernie Sanders on the campaign trail in 2016 was the idea that someone who is working a full time job should be able to live above the poverty line. This is not a very radical concept, if you think about it, but conservatives (always the master of spin and messaging) have managed to paint this idea with a tar-soaked brush. For some reason, and despite mountains of data to the contrary, they maintain that raising the minimum wage will hurt businesses, that people earning minimum wage just need to be more responsible and they will be able to invest their savings to accumulate wealth, and so on.

One man I know, who happens to be a local elected official where I live, has angrily demanded to know why, if these people are so poor, they have iPhones. He was also one of the strongest proponents of "the poor should just invest their savings" line, despite it being pointed out to him that living below the poverty line means you don't have savings (to be fair, he did concede this point, but it didn't change is position one whit). Evidently, he also subscribes to a notion popular among conservatives that people should not be eligible for any kinds of assistance unless they live in Dickensian squalor.

It is not only criminal and immoral, but downright idiotic that a person can work full time and the only way to avoid being below the poverty line is to have no dependents at all. Consider that, for 2015, the federal poverty line for a single individual is $11,770. If this person works 40 hours a week, 52 weeks a year, with no unpaid leave at all, then he or she will earn $15,080 -- BEFORE taxes. Assuming the standard deductions, etc. and even granting that this person lives in a state with no state income tax (Florida, for example), this works out to a gross amount of $290 a week. Take Federal taxes out and it becomes $251.01 a week, or $13,052.26 a year, under $1,100 a month. Add in Pennsylvania state taxes, say, and this drops to $239.00 a week, or $12,428 a year, or about $1,035.00 a month.

Add a dependent to the mix? The net income in Pennsylvania goes up to $246.79 a week, (12,833.03 a year, or a little over $1,069.00 a month), but the poverty line has now moved to $16,240 per year ... which means that a person with one child, working 40 hours per week with no time off, is now living roughly $3,500.00 a year below the poverty line.

“That’s not a problem,” say corporations like Wal-Mart. “They can get food stamps and other forms of public assistance.” And they are absolutely correct. However, what they don’t like to point out is this is actually one of the biggest ripoffs of the Federal government in history.

Consider: between a minimum wage salary and public assistance, individuals are receiving the equivalent of just under $17 per hour. However, the employer is paying less than half of that, with the federal and state government bearing the cost of the rest. Kind of a sweet deal for the corporations, since they can pay their employees wages that would not have provided any standard of living ten years ago, much less today, without the guilty conscience (stretching that it even exists, I know) or public relations liability (a much more realistic concern) of them actually living that way. In addition, instead of a boost to tax revenue from higher wages coming to state and federal coffers, we are actually drawing those coffers down.

Conservatives like to tout studies that say that increasing wages causes employers to cut jobs. While this may be true in the hypotheticals that were posed to employers by conservative organizations like the American Enterprise Institute and Americans for Prosperity, the reality is that they are only looking at one side of the coin.

The truth of the matter is, if you raise the wages of a person living at or near the poverty line, that extra money doesn’t go under the mattress -- it gets spent. A night out at the local pizza place, a new pair of shoes, new brakes for the 24 year old Toyota ... regardless of what it is, it is actual economic activity that would not have taken place before. Compound this by the number of people receiving this wage increase, and you start to see that the economic benefits are actually pretty significant.

But don’t take my word for it. Look at Henry Ford, never one to be considered an altruistic humanist. Ford was a tycoon in the greatest early 1900s tradition. In 1914, however, he shocked the world by announcing that he was raising the wages of his assembly line workers from $2.34 for a nine hour day to $5 for an eight hour day. In a book published in 1926 called “Today and Tomorrow,” Ford said “The owner, the employees, and the buying public are all one and the same, and unless an industry can so manage itself as to keep wages high and prices low it destroys itself, for otherwise it limits the number of its customers. One’s own employees ought to be one’s own best customers.”

After Henry Ford did this, Ford Motor Company went belly-up, never to be heard from again, right? An interesting historical footnote that simply proved the conservative argument?

Actually, from 1914 until 1942 (when civilian automotive production ceased and shifted to wartime production), Ford was the number one automaker in the country for 19 of those 29 years -- including an unbroken run at the top spot from 1914 through 1926. After that Ford was swapping places with Chevrolet based on a few percentage points until well into the 2000s (there are some who would argue that Chevrolet’s numbers are actually artificially inflated starting in the 70s because of “captive imports” such as the Chevrolet-branded Isuzu pickup trucks and so on, but that is another, much geekier, discussion for another time and an audience composed primarily of nerdy gearheads).

It is also interesting to note that in 1968, when minimum wage was at its highest in relation to the poverty line, the economy was healthy and the amount spent per capita on federal benefits was near record lows. Compare that to 2007, when minimum wage was at it lowest in relation to the poverty line (just edging out 1990 for that title) and federal spending per capita for benefits was near record highs.

But hey, we're talking about the poor, so it doesn't really matter, right?

Increasing the minimum wage to a living wage may cost a few jobs in the short term. However, as was mentioned before, it will be short term pain for long term gain. The people enjoying the living wage are not going to hunker down and start stashing all of this newfound wealth under the floorboards. They are going to spend it. They are going to spend in ways they have never been able to spend before -- not just day-to-day necessities like food, diapers, clothing, and so on, but also bigger ticket items like washing machines, a used car, that sort of thing. This will create increased economic activity, which creates jobs. See how this works?

I gotta lie down.

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