It is at least as much of an ethical question as one of economics: Should a business exist if it can’t pay its entry level workers wages that they can actually live decently on?
If not, then the corporation’s owners need to design a more realistic and durable business model. Case closed? Let’s look at the economic side of the debate too.
Many critics of proposals to raise the minimum wage over the past many decades have repeatedly said that if these changes were implemented multiple aspects of the economy would seriously suffer as a result. Among the majority of professional economists, it is not solidly established that such adjustments in monetary policy necessarily tend to bring considerably higher prices for consumer goods and services. It’s especially unlikely that the effect would be devastating on the work force or profits. There are many years of data that demonstrate this view. The U.S. Department of Labor explains:
“Myth: Increasing the minimum wage is bad for the economy. Not true: Since 1938, the federal minimum wage has been increased 22 times. For more than 75 years, real GDP per capita has steadily increased, even when the minimum wage has been raised…Myth: Increasing the minimum wage is bad for businesses. Not true: Academic research has shown that higher wages sharply reduce employee turnover which can reduce employment and training costs…Myth: Increasing the minimum wage will cause people to lose their jobs. Not true: A review of 64 studies on minimum wage increases found no discernable effect on employment. Additionally, more than 600 economists, seven of them Nobel Prize winners in economics, have signed onto a letter in support of raising the minimum wage to $10.10 by 2016…Myth: Small business owners can’t afford to pay their workers more, and therefore don’t support an increase in the minimum wage. Not true: A June 2014 survey found that more than 3 out of 5 small business owners support increasing the minimum wage to $10.10. Small business owners believe that a higher minimum wage would benefit business in important ways: 58% say raising the minimum wage would increase consumer purchasing power. 56% say raising the minimum wage would help the economy. In addition, 53% agree that with a higher minimum wage, businesses would benefit from lower employee turnover, increased productivity and customer satisfaction…Myth: Raising the federal tipped minimum wage ($2.13 per hour since 1991) would hurt restaurants. Not true: In California, employers are required to pay servers the full minimum wage of $9 per hour – before tips. Even with a recent increase in the minimum wage, the National Restaurant Association projects California restaurant sales will outpace the U.S. average in 2014…Myth: Increasing the minimum wage will result in job losses for newly hired and unskilled workers in what some call a ‘last-one-hired-equals-first-one-fired’ scenario. Not true: Minimum wage increases have little to no negative effect on employment as shown in independent studies from economists across the country. Academic research also has shown that higher wages sharply reduce employee turnover which can reduce employment and training costs.” Elsewhere on the page, the DOL highlights how many other interesting and often widely believed ideas on the minimum wage issue are not factual.
A famous example of the impact major wage increases may have on the employees, corporations, industry and economy as a whole regards Henry Ford. He chose in 1914 to boost his assembly line workers’ daily pay from $2.34 for 9 hours to $5.00 for 8. In 2015 money, that would equal almost $120 for each shift or $15 per hour. His colleagues in the executive world scoffed and said it would surely invite economic disarray for his company if not the entire automotive industry. That did not happen.
Ford Motor Company had previously been regularly losing a very large portion of the workers it hired for the line due to the strenuous and monotonous nature of the job. These new workers would quit within a matter of weeks. Their turnover rate in 1913 was approximately 370 percent, so that the company retained less than 14,000 employees after originally signing on and training 52,000. Once Mr. Ford’s choice to raise the pay had been implemented, the staff retention rate stabilized and his employees began to purchase many more consumer products in their communities, including the Model T vehicles they made each day. Production levels at the manufacturing plant climbed higher again in 1919 when Ford uplifted the income to $6.00 per day. NPR commented on this:
“That actually helped America’s 20th century middle class take off…January 1914 was a frigid month in Detroit — much like January 2014 has been, but nonetheless thousands lined up in the bitter cold outside to take Henry Ford up on an extraordinary offer: $5 a day, for eight hours of work in a bustling factory….That was more than double the average factory wage at that time, and for U.S. workers it was one of the defining moments of the 20th century. Five dollars in 1914 translates to roughly $120 in today’s money. While many economists say today’s employers could take some pointers from Ford, they also say 2014 is a totally different world for U.S. businesses and workers.”
I would think that an American economy where the CEO to average worker pay hovers around 180 to 1 or abundantly higher (depending on the study), versus every other Western nation at much lower levels of half that or far smaller, could attempt to rearrange its monetary values if such a change seemed important. According to the Washington Post in 2014, “An analysis from last year estimated that it takes the typical worker at both McDonald’s and Starbucks more than six months to earn what each company’s CEO makes in a single hour.” They said the ratio was 354:1, then 148:1 for Switzerland, 147:1 in Germany, 127:1 for Spain and on downward among the other nations. A Forbes article from that same year is titled, “CEOs Earn 331 Times As Much As Average Workers, 774 Times As Much As Minimum Wage Earners”. The Economic Policy Institute pointed out that the “ratio in 2012 of 273 was far above that of the late 1990s and 14 times the ratio of 20.1 in 1965”.
A friend spoke with me on this topic by remarking, “if that compensation is 300 times what the Facilities Manager or an accounting clerk makes, then so be it.” I responded, “Why not 299 to 1? Or 2000 to 1? Is there a level at which an alarm should go off in our minds?” Conservatives say they’re very concerned about government excesses, but the passive and lazy logic that says the market necessarily must be the only factor that dictates which CEO salaries are sane and which are obscene needs to transform into a real aspect of “waste management”. Shareholders, consumers and CEOs can choose differently in gradations or large leaps if they want to. They can redefine what the terms “business”, “capitalism” and “economics” mean. These terms certainly don’t mean today what they did hundreds of years ago, though there are similarities. Other countries have experimented with this and many have found greater achievement than the U.S. in various aspects. (I think that both liberals and conservatives can find help, insight and even agreement or acceptable compromise in Paul Hawken’s books The Ecology of Commerce: How Business Can Save the Planet and Natural Capitalism: Creating the Next Industrial Revolution.)
Though I’m not advocating for CEOs or other leaders to be forced by law to lower their salaries so that other employees efforts can be relatively and proportionally better rewarded, I want to encourage Americans to reconsider the firmly entrenched doctrines that many have of the market being justified in controlling virtually every economic decision we make. No, we have the ability to make choices within a sensible range of fiscal options regardless of what Wall Street says the situation dictates. I’m especially saying that the lowest level workers and those in-between them and the highest managers and shareholders should be paid closer to what their contribution to that company demonstratively merits within its levels of productivity and success. Market forces ought to be recognized and respected, but not granted near magical or infallible status that rules all categories of life from on high. The field of economics simply doesn’t explain or encapsulate the whole breath of human behavior or experience.
American libertarianism and the myth of the completely self-made man and woman are the among the central and powerful impulses that keep pushing against any kind of counterweight to unbridled capitalism. For all of its insights into the benefits of free markets and upward mobility due to hard work and determined spirit, this mentality too often errs on the side of extreme idealism. It reaches the point of abstraction and dreamy narratives on freedom of action and individualism. All of this is assumed to be self-evident and advocated without a humble acceptance of the real world boundaries related to how societies, ecosystems, psychology and economics actually work as a whole. Therefore, without a choice made to integrate the best values and insights of libertarianism with moderate forms of conservatism and liberalism, a nearsighted philosophy will keep dominating the public square and the considerations of the themes discussed in the paragraphs above will continue to be hindered.
The reply to this that I often hear from the right is that other industrialized nations are socialist and those citizens in America with better wisdom, economic skill and historical understanding know better so we must push for as much laissez-faire capitalism as possible. The reality is that the United States has functioned incredibly well overall as a intertwined system of socialism and capitalism since at least as far back as the FDR administration. Today every country in the world is an amalgamation of the two systems and approaches to a broad scope of degrees and societal health. Socialism shouldn’t be a scary or dirty word. It’s not synonymous with communism. Sometimes I think that the spirit of Senator Joseph McCarthy, the Second Red Scare’s central character during the early 1950s, has special powers enough to haunt our news media studios and house and senate floors across all 50 states. Fear-based propagandizing from either political party will not help us at all, so we must act to deflate it whenever possible by the use of research, education, conviction, cooperation, accessible presentations of data, compromise and civility.
When one talks about “freedom”, I think it’s important to keep in mind how vague that term can be. As we’re all aware, freedom might or might not include things like assisted suicide, dumping trash on the sidewalk, selling alcohol to children, including toxins in manufacturing that make people sick or free markets of military-grade automatic weapons to the general public. These are gray areas for a segment of the population, whereas others are confident that moral or legal boundaries end exactly at a particular place. It’s obviously hard to find consensus between such differences. Although this is a great challenge for our society, I think it’s vital to focus as much as possible on reliable hard data and plausible conceptual frameworks that don’t depend on belief systems devoid of substantial, time-tested and well rounded evidence. So, which nations and local communities have a better quality of life, when the multitude of factors are combined, such as financial prosperity, safety, human rights, ecological health, economic mobility, etc.?
While between 1938 and today the minimum wage has climbed from $0.25 to $7.25, when adjusted for inflation it has only moved $3.80. The buying power of the US dollar has not risen at the same pace as the federally mandated hourly pay rate:
As a former conservative, I’m open to and familiar with the viewpoints of their movements from extremes to moderates. I’ve ended up seeing things from a moderate position. It seems to me that the sociological and historical data overwhelmingly supports a position in this general range and that it has the best chance to bring the most flourishing to human activity. Extreme political and religious systems have long been shown to be incapable of producing balanced and richly productive communities and economies. In the past several decades, the conservative side of politics in the United States has moved farther rightward even to an extreme degree. Today among Western nations and individual states within the U.S., it’s quite often true that those which are the most conservative and religious are the most violent and plagued with far greater social problems such as those related to murder, infant mortality, environmental abuse, teen pregnancy, incarceration, life expectancy, abortion, obesity, income inequality and minimal worker’s benefits.
Since so many well developed countries often have a better quality of life than the United States in many areas, we need to re-examine our value systems and patterns of behavior. Some “patriots” feel it’s imperative to boldly and repeatedly claim that America is the greatest nation in the world, if not the most magnificent in the history of humankind. I think it’s far more accurate and productive to say we are a great country with a track record containing many impressive accomplishments. Our heritage is loaded with a dark side as well that must be engaged just as we celebrate the ways our people have helped the global community for many generations. Honesty about our severe lagging behind other Western nations’ performance in so many quantifiable measures of societal health should inspire humility and hesitancy to loudly praise ourselves as many do in a grandiose manner.
When one says that CEOs have a heck of a lot of responsibility and they should be rewarded commensurately, they’re standing in unison with the majority of Americans, liberals and conservatives. But, like the discussion over the military budget, conservatives routinely avoid digging into the details of how much is enough. How can otherwise intelligent people spend vast amounts of time evaluating needed changes and cuts in monetary policies and budgets in virtually every other field, yet believe there is basically no need to revamp or at least critically reevaluate our systems and practices for commerce and the military? A large portion of the American citizenry admire capitalism in such a glorified way that it even surpasses they’re near worship of sports and appeals to the authority of Jesus to support their positions in the culture war (or at least the rationalization of their values to somehow find grounding in the Bible). During the time we fall into the gaze and trance of devotional adoration toward something, active and flexible philosophical and academic thought are inevitably relegated off to the side – dormant, unwanted because the centerpiece of their worldview is in place just the way their ideology tells them to position it – giving them comfort and security just like a god would offer, regardless of how inefficient, damaging or stocked with half-truths the process undoubtedly becomes year after year.
The apparently supernatural trust that many Americans have in the free market needs to be matured and educated. Wall Street is not a group of priests who have messages from the great beyond and carry a map to the promised land in their briefcases. Instead, the investment class of America has a very important role, one that strives to make profits for itself but also, hopefully, seeks to earn their way ethically. I know that much of our population mistrusts our financial leaders, but there is always hope that a sizable group within their ranks will choose a decent enough path to keep the economy afloat and not misguide it through fake projections or sleight of hand. In the monetary realm – they must lead. Really. As do politicians in Washington and in the state legislatures. When I hear in the tone of many conservatives’ speech that they have vastly more faith in the free market than in government, I try to see if it’s justified and reflect on particularly where that might originate psychologically, sociologically and historically. With a few hours to spare and internet access, any diligent researcher could easily make a list of grand violations by both government and big business in American history in each generation. Most people with long-term interests in politics and economics are able, just from memory, to make an extensive list of the sins belonging to both groups.
Why trust one so much more than another? The basic logic to have this relationship function healthily, in my opinion, is that both need environments where they can flourish and be kept in check. One argument often put forth about the validity of a completely unbridled free market is that of the benefits of competition. Really? Like good ‘ole American sports? That analogy breaks down quickly. Libertarians today generally don’t want referees and this reduces the motivation among “players” to practice good sportsmanship. Many times, this lack of oversight has led competitors to focus on permanently eliminating their competition instead of striving to offer the best products and services to their common target market. This differs remarkably from modern sports where the goal is to be better than one’s opponent for that day and expect to play another match in the future. I’m not saying that corporations that are failing should necessarily be helped financially by the government. Instead, I’m advocating for business leaders to accept the need for rules of conduct than can be analogous to sporting ethics or even the school classroom. We all benefit when each party is required to make responsible choices that affect their coworkers, wider human communities and ecosystems. The extreme right political and business groups are actually promoting something like an older, more brutal type of winner-takes-all bloodsport. The late 1800s to early 1900s saw many executives demonstrate a dramatic version of this tendency to exploit workers and aggressively devour other companies in what has recurrently described as the age of the Robber Barons and Social Darwinism. They, like their philosophical cousins today, wanted commerce without regulation, exhibited survival of the fittest attitudes through callousness, and sought to effectively eliminate all competition by means of a scorched earth campaign.
Because of many social movements to improve working conditions and other complex factors, American society has softened many of its harsher edges of civic behavior over the past several generations. The 21st century’s investment class is likely to be somewhat more humane to some degree than their colleagues of one hundred years ago, but they’re still in a precarious moral position as long as extreme libertarianism remains a popular idea for a powerful segment of the nation.
Why is it that America’s favorite professional sports organization, the National Football League, so popular and successful that its income dwarfs that of Major League Baseball, the National Basketball Association and the National Hockey League combined, on paper looks much like a socialist organization in the way the teams compete? Whereas MLB teams are in cutthroat competition financially so that a team like the Arizona Diamondbacks has almost no chance of winning the league title over the Los Angeles Dodgers because the latter’s salary budget is more than three times the former, the NFL teams share their annual billions in profits equally and give the best of the first round draft picks to the last place teams from the previous year. Competition (capitalism) and cooperation (socialism) can and do work very well together. Why not embrace the fact that both are needed and both are dangerous if not carefully and seriously regulated? Healthy capitalism’s maintenance plan is not as simple as just letting it run its course, that is if one cares about having a sustainable economy and reasonably safe living and working environments. There are virtually endless examples of how radical deregulation hurts most businesses in multiple ways, though a few lucky or strategically placed corporations may gain huge profits before and even during the financial mess that follows years of minimal government oversight towards commerce, alongside the rest of the society which suffers tremendously. As the same time, government should be continually regulated by other institutions and individuals to make sure it doesn’t hinder fair economic opportunities or basic freedoms. I’m not trying to uplift or criticize either government or business more than they deserve. I’m tired, however, of conservatives describing government as a terrible boogieman that can do almost nothing other than steal from its citizens. That’s just not even close to true. Then, liberals must be careful to not overstate what may be accurate critiques of capitalism. It’s a very powerful engine for prosperity (often for more than just the already super-rich section of the American populace), even though it can harm people and the environment very quickly if not monitored and resisted when it heads toward destructive behavior. Regarding these topics, anyone who cares about truth and facts has to be open to the possibility that they’re wrong about this or that point or even the overarching construct of their political and economic philosophy.
Senator Elizabeth Warren made a relevant statement to this topic a few years ago:
“There is nobody in this country who got rich on their own. Nobody. You built a factory out there – good for you. But I want to be clear. You moved your goods to market on roads the rest of us paid for. You hired workers the rest of us paid to educate. You were safe in your factory because of police forces and fire forces that the rest of us paid for. You didn’t have to worry that marauding bands would come and seize everything at your factory….Now look. You built a factory and it turned into something terrific or a great idea – God bless! Keep a hunk of it. But part of the underlying social contract is you take a hunk of that and pay forward for the next kid who comes along.”
The level of profit margin is a choice. Shareholders, executives, consumers and other employees can decide what they want to advocate for. It’s a value choice. Would the executives rather live in society with very unstable economic patterns and social unrest, while they get paid astronomically more than their fellow citizens? Or are they willing to take something like a 3%, 5% or 10% pay cut, invest that money into the relationships with their workers and the overall American quality of life, thus making businesses less likely to collapse and building trust between employees and CEOs and consumers and shareholders? It’s a trade-off with serious consequences. Unless a better model is offered and developed, I see this type of logic as a necessary approach to create healthy and sustainable monetary and civic environments for as many people as reasonably possible. There are many factors that lead to a vibrant society, but fair worker pay is certainly one of them. If we are honestly trying to find the best and most equitable answers to these issues, we must be open to comparing our state’s and country’s choices on these matters in relation to other nations. We need to analyze and contemplate these issues and humbly recognize where we are failing along with possible reasons why.
Some people’s instinctual belief that paying $12 each hour to someone to flip burgers will cause prices to rise significantly might be correct. Or it could be just a hunch. But, so what? Unless it’s a substantial change, it’s not economically dangerous. Selling a Big Mac Meal for $5.99 versus $6.29 is hardly a fall off of a cliff for a business regarding profits. And the research that I’ve seen shows that raising the minimum wage to $10 or $15 per hour will effect a smaller rise in consumer prices than that. As one example, the Employment Policies Institute referenced a large academic study that revealed “a 10 percent increase in the minimum wage resulted in a 0.4–0.7 percent increase in restaurant prices. Much of the increase occurred within the first month of the wage hike. In the fast food sector, prices rise 1.5 percent in response to a 10 percent increase.” So, if the current $7.25 per hour was doubled to $14.50, the cost of that same Big Mac Meal would be just $6.14.
To end on a relatively positive note, see some of the finding from a 2014 survey conducted by Public Policy Polling:
“[this survey] finds that very few Americans think they could support their household making the minimum wage, and that perhaps as a result there is strong support for increasing it to $10.10 on both the lowest and highest ends of the income spectrum. Just 20% of voters believe they could support their household on the minimum wage to 75% who say they don’t think they would be able to. There is a bipartisan consensus on that front with 80% of Democrats, 74% of independents, and 69% of Republicans saying they don’t think they’d be able to live off the minimum wage….54% of Americans support increasing the minimum wage to $10.10, compared to just 39% opposed. 74% of Democrats are in support of it but what’s more striking is that 37% of Republicans support it to only 53% who are opposed. That’s an unusually high level of support from GOP voters for an Obama backed policy initiative….Also striking is that voters making minimum wage strongly support the increase-63/28-but the single group most supportive of it is actually those making over $100,000 a year who favor it 73/19….The strong support we find for increasing the minimum wage springs out of a conviction 74% of Americans hold that someone who works full time should be paid enough to keep them out of poverty. Only 19% of voters disagree with that sentiment, which 88% of Democrats, 69% of Republicans, and 63% of independents say they agree with.”