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The case for more money
SoVaNow.com / December 12, 2013Dan Shaw — one of the community’s frequent contributors of letters to the editor, God bless you, sir, keep ‘em coming — has penned a Viewpoint this week that lays into a guest column that appeared in this space last week. Entitled “Better Pay For A Better Economy,” the piece advocated raising the minimum wage to offset its eroding value over time. Clearly Mr. Shaw doesn’t see things in quite the same way.The minimum wage, he writes, only drives up the cost of hiring for businesses, which in turn depresses job growth. As for the notion that a higher minimum wage could actually help the economy, Mr. Shaw proposes a phrase for that: “a lie.”
Well, there’s certainly no point in mincing words if you believe what you believe. So bully for Mr. Shaw.
But contrary to what our esteemed letter writer says, there’s actually a good, pro-growth case to be made for a higher minimum wage — on the basis that people with more money in their pockets to spend will fuel consumer demand, which is still much, much too low a full five years after the Great Recession hit. Yet because Mr. Shaw is surely correct that the money has to come from somewhere, the debate over the minimum wage inevitably leads to a much bigger, more controversial discussion: the rise of economic inequality in America, what it means and what we can or should do about it.
Most business owners view the minimum wage with feelings that range from resigned acceptance to out-and-out detestation. (Let’s just put Mr. Shaw in the latter camp). The world of business has come a long way from the days of Henry Ford, who famously paid above-market wages to his workers so they’d have the income to purchase his cars. Indeed, this logic comes into play whenever there’s a resurgence of interest in raising the minimum wage. For opponents, the question is simple: Why should the average business owner be expected, much less required, to behave like Henry Ford? After all, paying above-market prices for anything is a sure-fire way for businesses to sooner or later go bust.
While most employers pay their workers more than the minimum anyway, for any number of reasons, they don’t do so in the hope of juicing their sales numbers. That would be pretty stupid, from the narrow logic of the individual player in the broad economy. But what if everyone is paying (or making) higher wages? Then the money gets spent, with a good share of those dollars flowing back into the cash registers of shops and firms. In times of slack demand, especially, you want more money coursing through the economy, not less.
In other words, something like an increase in the minimum wage can be beneficial in a collective sense even if it’s a zero-sum, you-get-more-therefore-I-must-have-less proposition when viewed from the perspective of a company that has to decide whether to give a raise to its workers. This is all basic Econ 101 stuff, in the same way that Mr. Shaw throws out the point that the more something costs, the less you’ll have of it. All of these things can be true, if not necessarily all at the same time. Situations vary; circumstances change. When, however, someone dismisses an idea out-of-hand as nothing but “a lie,” you can be pretty sure it’s ideology, not actual evidence, that’s doing the talking.
Raising the minimum wage isn’t an academic discussion. The Obama White House has said it will support a bill by Congressional Democrats to raise the federal minimum from $7.25 an hour all the way up to $10.10 by 2015. (The minimum wage peaked in 1968, at $1.60, which adjusted for inflation comes out to around $10.56 today). There’s little chance the legislation will get through the Republican-dominated House, but you can bet your paycheck that this is an issue we’ll be hearing about in future campaigns. Politics notwithstanding, there’s another good reason to be talking about raising the minimum wage: The nature of work is changing, not necessarily for the better, and it’s becoming harder than ever to write off the minimum wage as something than applies only to fast-food jobs when fast-food jobs are most of what’s out there.
In his letter, Mr. Shaw makes reference to a recent controversy over demands for a “living wage” between the city government of Washington, D.C. and Wal-Mart. He chooses an interesting example: Wal-Mart is America’s largest private sector employer, and the company is routinely accused of being a retail predator, but for these same reasons and more Wal-Mart carries a big target on its back. D.C. Council passed a bill, vetoed by the mayor, that would have required Wal-Mart and other big-box retailers to pay $12.50 an hour in combined wages and benefits if they want to open stores in the city. The battle carried a whiff of the People’s Republic of DeeCee to it, but the inevitable pushback by free-market absolutists doesn’t have the pop it once did. In large part this is due to the growing realization that race-to-the-bottom economics has been ruinous for many communities, even as Wal-Mart has profited enormously from the transformation.
The blogger and business economist Barry Ritholtz put the matter succinctly in a Bloomberg column in November, about which the headline pretty much said it all: “How McDonald’s and Wal-Mart Became Welfare Queens.” Writes Ritholtz: “Wal-Mart, the nation’s largest private sector employer, is also the biggest consumer of taxpayer supported aid.” Estimates of indirect subsidies flowing to Wal-Mart, in the form of safety net program payments to its employees, run in the hundreds of millions of dollars. Workers at one Wisconsin Wal-Mart store earn so little, a study by Congressional Democrats found, that they qualified for up to $900,000 in food stamps and other government benefits. This is a company that earned $15.8 billion in profit last year. The six heirs of Sam Walton alone hold more wealth than the bottom 40 percent of the entire U.S. population put together. So why is it that we’re supposed to care that Wal-Mart might be required to pay its workers $10.10 an hour, rather than the eight bucks or so it forks out now?”
Wal-Mart, McDonald’s, the various fast-food brands under the PepsiCo umbrella (since spun off) — such companies invite criticism because they’re big and powerful, but also because McJobs make up a growing share of the labor market in today’s economy. It wasn’t always this way. Sometimes you never realize what you’ve lost until it’s gone away, but I was reminded recently of something I heard all the time as a kid: Plenty folks around here work in the mills, but you don’t necessarily want to be one of them. It’s an ironic sentiment, given all that’s happened since. Just for kicks, I dug up an old Bureau of Labor Statistics study on wages in the South that listed the average pay for workers in non-durable industries such as textiles: in 1973, it was $2.67 an hour. Doesn’t sound like much, huh? Well, that’s the equivalent of $14 an hour today. Mill work may not have been anyone’s idea of Easy Street, but it’s pretty hard to earn fourteen bucks flipping hamburgers, the kind of job that all too often is the only one people can find.
A couple of weeks ago I wrote a story for this newspaper about the descendants of Robert and Bea Clark, a South Boston couple who raised 11 children in a four-room home, roughly over a span from the 1950s to early ‘80s. Nowadays the Clark children and their offspring get together every year to celebrate Thanksgiving in the company of the extended family, which means cooking the holiday feast for up to 100 people. (Growing up in a family of 11 kids, I guess you’d inevitably learn a few superhuman powers. Our family hosted a group of 14 people at our house this Thanksgiving, and that was enough to raise the specter of utter collapse.) The Clark Thanksgiving reunion is a wonderful story about family togetherness that contrasts nicely with the holiday’s increasingly sordid side — the practice by Wal-Mart and many other big corporate retailers of moving of their big sales on Thanksgiving night. A celebration of family values, it ain’t.
Yet before anyone condemns the people who flock to Wal-Mart on Thanksgiving Thursday, it’s worth keeping in mind how much 80 and 90 percent price discounts from the big-box stores can mean to people living on knife’s edge. I’m sure that Mr. Clark, he of the 11 children, could have identified — he worked most his life for Halifax Cotton Mills, a job that will never be mistaken for the corner window office at a Manhattan hedge fund. Yet assuming its wage levels were in line with the rest the southern textile manufacturing sector, Halifax Cotton Mill would have paid its employees twice what the person working behind the cash register at Wal-Mart can expect to earn today. People and families that embody the world’s better qualities make for great stories, and they deserve whatever praise and attention comes their way. But let’s not make the mistake of thinking that hard times exist only in the rear view mirror. Plenty of people struggle today to eke out an existence on wages that are less than mill workers earned back in the day. It doesn’t have to be this way.