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It’s OK If a Living Wage Costs Jobs

Fibonacci Blue

During his first half-term, President Obama abandoned his campaign promise to raise the federal minimum wage to $9.50 per hour. Cautious and influenced by Wall Street elites, Obama feared that raising the minimum wage during a recession would shed jobs. Quickly regretting his inaction, Obama then spent years trying, in vain, to raise the wage. But since then, a thought revolution on the minimum wage has occurred, such that Democrats have proposed, in their “Better Deal,” to raise it to $15 per hour.* Even if such a hike costs jobs, it will change the economy to benefit tens of millions of workers, and is therefore worth pursuing.

Right wing fictions about job losses

Decades ago, Milton Friedman established an extremist orthodoxy in Republicans’ thought on the minimum wage by arguing that workers earn what they are worth in a free market, and that to require that they are paid any more would make them “unemployable.” Friedman claimed that every worker was always-already earning the maximum wage that his productivity could fetch. He thereby implied that if Wal-Mart, for example, paid someone $7.50, this was because the company could not possibly pay him more and still earn profits. In Friedman’s world, Wendy’s and McDonald’s were competing fiercely to raise burger-flippers’ wages as close to their level of productivity as possible.  And each company was, in turn, earning minimal profits. 

Residents of the real world know that McDonald’s does not earn minimal profits, that it tacitly cooperates with its competitors to keep wages low, and that low-wage workers produce much more wealth than they are compensated for. According to the Center For Economic and Policy Research, the average U.S. worker’s productivity increased by 85% from 1979 to 2012, while his wage only increased by 6%. The CEPR has also found that if the 1968 minimum wage had been adjusted according to workers’ productivity, today it would be approximately $22 per hour

Common sense and all of the data, therefore, discredit Friedman. But since Friedman is a Republican deity, most powerful Republicans** have agreed with his argument (or pretended to) for decades. They have not allowed a federal minimum wage increase to pass since 2007.

Friedman’s argument, however ridiculous, suggests important conclusions: 1) Republicans are functionally stupid on the minimum wage issue; 2) The right will always predict, per Friedman, that any minimum wage hike will cost many jobs; 3) To be cowed or swayed by Republican arguments against the minimum wage, as Obama may have been, is foolish and bad politics.

A living wage can cost jobs

Though rarely descending to Friedman-level delusions, some progressives are naïve on minimum wage hikes, and flatly argue that they will never result in job losses. This is dangerous, too, because it is wrong, and because it sets the popular expectation that if a minimum wage hike costs jobs, it is ill-advised.

It is true that in U.S. history, federal minimum wage hikes have never resulted in net job losses. But this fact, though notable, does not mean that a $15 minimum wage will not cost jobs. Why? Because the federal minimum wage has never been anywhere near $15 per hour, in inflation-adjusted dollars. In the late 1960s, it reached a high of $11 per hour in today’s dollars, but has never been raised (controlled for inflation) since. In the U.S., therefore, the minimum wage has always been so low as to not affect employment. But a $15 wage, which would enter a new frontier, could.

Recall that in 2014, the Congressional Budget Office forecast that a minimum wage hike from $7.25 to $10.10 per hour would cost 500,000 workers their jobs while lifting 900,000 out of poverty, and helping millions more. Since a Republican-controlled House rendered such a proposed hike dead-on-arrival controversy over this CBO report was fairly limited. But rest assured that projected job losses for a $15 wage will be much higher. This is why living wage advocates must be prepared to articulate the policy’s many advantages.

New context for workers

Thanks to such factors as automation, off-shoring, and a weak welfare state, the U.S. has a giant low-wage work force with less power than ever. Our low-wage workers know that joblessness can result in homelessness, and that even working forty-hours per week or more may not be enough to pay rent or even eat without government help. In turn, many must take any job at any wage, and often with sub-full-time hours and irregular schedules. Their chances of ever living comfortably, saving for retirement, or even exiting welfare are tiny.

But imagine a context in which all jobs pay a living wage. Here, a “psychological safety net” could empower workers to win such benefits as 40-hour work-weeks, sick days, paid vacation, health care, and unions. For if a worker knows that his next job will definitely pay a living wage – perhaps double what he made before – he will feel comfortable searching twice as long and selectively for his next position, while he is unemployed. And once he finds a $15-or-higher job, he will feel twice as empowered to stand up for himself at the workplace – since even if he alienates his boss and gets fired, he will never earn less than $15/hour.

Workers’ power should, in turn, snowball as more forty-hour work schedules confer, by law, “full-time benefits” to more workers. Overtime compensation should also grow.  Consider that today, large companies pay little overtime, since they can usually find desperate, part-time workers to cover every shift. But with more workers in full-time positions, and fewer willing to work “flexible schedules” given a $15 wage floor, companies will need to pay more overtime to cover every time-slot. For similar reasons, employers will need to pay workers more to work on holidays, weekends, and “black Friday.”

The family life contexts for low-wage workers could also alter radically.  A married couple with two $15/hour full-time jobs would earn over $62,000 combined, which is greater than the U.S.’s current median household income. Consider, also, the millions of young people in low-income families who are entering the workforce for the first time. Today, their relatives can offer them little financial support.  But in a $15/hour world, families’ new-found dignity and financial security would empower the young to search more patiently, confidently, and selectively for jobs. Families’ improved financial security could thereby provide a “material safety net” with similar benefits to workers’ bargaining power as the “psychological safety net,” described above.

The middle-class benefits too

A $15 wage floor would also have rippling positive effects on earners of higher hourly salaries. The teaching profession (mine) is illustrative here. Today, adjunct instructors, substitute teachers, and test-prep instructors earn well over the minimum wage, and most earn over $15 per hour.  But because they are not paid by the hour for forty hours per week, these teachers’ compensation is closer to that of low-wage workers than college-educated professionals. 

Consider a substitute teacher who earns $150 per day for his work. Even if he works every single day in a 180-day year, he earns $27,000 per year. This is substantially less than the $31,000 that a full-time $15 worker would earn. Consider the test-prep instructor who earns $25 per hour, but can only teach enough courses to bill for twenty hours per week. He would earn $500 per week, and $21,000 in a year, for his efforts. Most adjuncts are similarly abject, as they typically earn between $20,000 and $25,000 per year.

Once a $15 wage floor is established, before long, enough substitutes, adjuncts and test-prep instructors will refuse to continue teaching for less than what a full-time KFC worker earns.  Employing these teachers for less than, say, $35,000 per year, would thus become more difficult and rare. This could, in turn, enhance full-time teachers’ bargaining power such that they would command a $45,000 starting salary in most states, which is near the average teacher’s salary today. Per the same logic, the average teacher’s salary would rise. School administrators’ pay could increase, too, as most principals would demand to be paid more than their highest-earning teachers.

Thus, in the education field alone, workers at for-profit (test prep companies), public (public school teachers), and private-non-profit (adjuncts at private universities and Catholic and private school teachers) organizations would see pay increases. A glimpse into other fields predicts similar raises.  From paramedics to pilots to active duty soldiers, a wide range of workers and professionals with high skills and demanding jobs earn $31K per year or far less. As long as they, too, can demand higher compensation or threaten to quit and flip burgers, their wages should increase as well.

My consideration of the minimum wage issue is of course incomplete. I am not arguing over what precise timeline a living wage should be implemented, or even at what point a high minimum wage could do more harm than good to low-wage workers and the overall economy. Perhaps $14.50 or $17, rather than $15 exactly, is the ideal minimum wage. The CBO and other economists will help to answer these questions as time and the controversy evolves.

More important than these details is the imperative for progressives to be intellectually well armed on this issue. Yes, we should recognize Republicans’ Friedman-inspired lunacy when we see it. But we should also be wiser than Obama was, and not let projected job losses deter an otherwise good policy. For a $15 wage floor will not only empower, dignify and enrich the lower class.  It will reverberate through the economy in ways that will benefit untold millions of middle-class workers and professionals.

*Congressional Democrats have not said when they would implement the $15 floor.  Liberal Minneapolis is waiting until 2024, and Congress’s timeline would almost definitely be longer. 

**Fifty seven percent of ordinary Republicans resist Friedmanite ideology, and support minimum wage hikes.

 

Written by Erik Mears

Teacher and veteran who lives in Queens, New York. His work has appeared in truth-out.org, socialistworker.org, and popfront.us.

Erik is a Guest Contributor to Progressive Army.

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It’s OK If a Living Wage Costs Jobs