If you want to tackle poverty; but first lets discuss what raising the minimum wage would do. Low income workers spend the majority of their income, in fact judging by the statistic by the Federal Reserve Board Survey of Consumer finances in 2014 the bottom half of American families owned 0.8% of all financial assets which means they spend almost all of their income.
For those that are making the minimum wage this figure is worse. But this shouldn’t actually surprise anyone. It is foolish to believe that it is possible for a single full time minimum wage worker to save any sum of money. Not to mention support a family. At $7.25 an hour, 40 hours a week with not a single vacation over the course of one year the pretax income for that citizen is $15,080. Take away payroll taxes, state and federal income taxes and you are looking at a very low income and a very low savings rate which means very little wealth and not much discretionary income.
So what would a raise of the minimum wage to $15 an hour do? We know that because most minimum wage and low salary jobs are centered in the service sector they cannot be outsourced, unless you really think you need to fly to Vietnam every couple of weeks for a haircut and a Big Mac. Some Firms that are inefficient and have low productivity may close down, but since low income workers spend most of their incomes- and capitalism runs on sales not tax breaks- for most small businesses this would be mitigated by the fact that their customers now have more money to spend. Considering the unused capacity of the US economy it is more likely that higher wages would improve the balance sheets of small businesses, as citizens regain the ability to buy their goods and services.
In an interview with the Real News Network Dr. James K. Galbraith, the Lloyd M. Bentsen Jr. Chair in Government and Business at the University of Texas at Austin, said of raising the minimum wage to just $12 an hour, “one of the effects a higher minimum wage is that people do not quit their existing jobs so easily. They hang on to them. They’re more valuable… and so firms save training costs and transition costs that they would otherwise incur.”
The fact of the matter is that if you pay someone a decent wage he or she will see the work they do as valuable to society and will find dignity in their labor. If you pay them shit they will want to leave.
In his book The End of Normal, Dr. Galbraith also shows that the paltry minimum wage forces many Americans to rely on the Earned Income Tax Credit “thus the federal government effectively subsidizes predatory labor practices, especially in the American South.” It also creates tensions between white and Hispanic citizens as “employers find it advantageous to recruit low-skilled immigrants, often illegally, to fill low-wage jobs that Americans are unwilling to take.”
Looking at the NELP calculations from current population survey between 2012-2014 42.4% of all workers in the United States made less than $15 an hour; 36% of white workers, 48% of female works, 54.1% of African American workers and 59.5% of Hispanic workers made less than $15 an hour. Raising the minimum wage is a matter of justice for these people. But it will also equalize the pay rates at the lower end of the spectrum increasing the equality of pay between men and women, especially in the care services sector where the workers are lowly paid and disproportionately female.
More able to survive on one job rather than several, working families will be able to participate in their communities, in politics, cultural events and they will be able to reconstitute the political power they gained through middle and working class political organizations in the 1930’s and 40’s. This is evermore prescient when it comes to unionization since, going back to The End of Normal, “the premium accruing to union membership would be less; employers would therefore also have less of an incentive to resist unions,” as would workers who have been brainwashed into despising these working class organizations over the last four decades.
Concerning family life we have seen that coupled with the deterioration in minimum wages, which peaked in 1970, a steady increase in anxiety within households that can no longer rely on one breadwinner. In order to survive spouses and children across this country are being forced to enter the labor market when they would rather focus on homework or raising young children. And as we learned from the central thesis of Elizabeth Warren’s book The Two Income Trap, it also places them in a more precarious position if one of the family members loses their jobs, gets sick, or is injured at work since there is no one left to replace the lost earnings.
The balance sheets of individual states and of the Social Security trust fund would benefit as more wages means more tax revenue all levels of deficits would be reduced. Also households which are deleveraging will be able to do so with less impact on their ability to spend into the economy, which is extremely important since capitalism runs on sales.
Note: when it comes to the federal deficit and the affordability of programs such as Social Security there is no actual crisis as will be explained in an upcoming series on Modern Monetary theory. For more information check out this link of Stephanie Kelton who was appointed by Bernie Sanders as the Chief Economist for the Democratic minority staff on the Senate Budget Committee and of Warren Mosler to understand how a modern sovereign currency functions.
With stronger Unions, communities and families what should the fight be after raising the minimum wage, specifically in the fight against poverty? We will have to turn to the eradication of unemployment. This means a Job Guarantee program, also known as an Employer of Last Resort or ELR, where the government is willing to provide a job to anyone who is able and willing to work.
Hyman Minsky showed in 1974, and Stephanie Kelton with L. Randal Wray showed again in 2000 that by providing one minimum wage job to anyone able and willing to work we could reduce poverty by two thirds! In 2000 the minimum wage was $5.15, adjusted for inflation this is about $7.14 today. A real world case study of a program similar to an ELR was done by L. Randall Wray and Pavlina Tchernova on the Jefes de Hogar Program implemented in Argentina to employ the heads of households during their depression in the early 2000’s. Though not a true ELR “after only 4 months after implementation of Jefes in April 2002, the indigence rates among participating households had fallen by nearly 25% and among individuals by over 18%.” Between May 2002 and May 2003 unemployment had fallen by almost 50%, from 21.5% to 15.6%. Also the minimum wage paid by the ELR program effectively becomes the national minimum wage. Because implementation of Job guarantee discards the need for unemployment insurance, poverty programs, and ineffective job training programs the cost would be around 1% of GDP, with the net cost being closer to zero. A study has yet to be done on what the impact would be of providing a job to anyone able and willing to work at $15 an hour but at more than twice the current Federal minimum wage of $7.25 one can be sure that we would be a far healthier society.
So as labor wakes up from its long dormancy the first step is to raise the minimum wage to $15 an hour. But if we want to win the war on poverty we must turn next to eradicate unemployment altogether.
By David Leo Glotzer