Low Wage Jobs Are Bad for the Country

Living in the Future Tense #04 January, 2015

When First Is Last

Edward Renner

For 5,000 years, humans lived in the past tense: “Yesterday was the same as tomorrow. “ For the next 500 years people lived in the present tense: “Today can be whatever we want it to be.” But now, for the next 50 years we must start living in the future tense: “Tomorrow’s social, economic and political constraints must become today’s reality.”

My wife just walked through the door declaring “I may never again shop at T J Maxx!”

She had just seen the store’s advertisement for clerks and supervisors at $7.93/hour.

The large number of low wage jobs is one reason why the World Bank, in its business Environment Ranking 2014, ranked the US fourth out of the 185 nations of the world in which it is best to do business.

Some of the other criterion are permitting indefinite out-sourcing of permanent jobs, not requiring paid vacation time nor giving notice or severance pay for redundancy dismissal, to list a few examples of what makes a country good to do business in.

Other countries that are similar to the US, but are less easy to do business in, have government regulations that provide workers with higher levels of economic security and benefits.  One such comparative set of nations are the members of the Organization for Economic Cooperation and Development (OECD), which account for 85% of the world’s economy.

A report by the OECD, Employment Outlook 2014, sheds some light on what it means to be one of the best countries in which to do business, and whether that is something the US should want to be.

Source: OECD Employment Outlook 2014, Table N, page 288.
Data for Norway 2009, France 2008, the Netherlands, 2005

Of all of the OECD countries, the US has the largest percentage (25.3%)of its workforce in a low-wage job (less than two-thirds the median wage) and pays its low-wage workers the least amount of money (46.7% of the median wage).

Source: OECD Employment Outlook 2014, Table N, page 288
Computed from OECD data on 1st to 5th decile earnings ratios

It is important to understand that this data is compiled by experts from the member countries and are the agreed upon benchmark for these comparisons. They are not “just statistics,” but an occasion for civic discussions about the proper balance between the ease of doing business and the social price of the US becoming a low-wage economy – a country with a shrinking middle class and a large gap between the rich at the top and all the others at the bottom.

Should the US strive for first place -- to be more like Singapore and Hong Kong, which topped the World Bank ranking – or rather to be more like the European Union countries with whom we share a democratic political process?

  

One reason why the US is in last place among the OECD nations is that we have allowed corporate money to corrupt the political process toward favoring business over individual wellbeing. As voters we have accepted their purely theoretical message that little government regulation and low taxes are best for the country.

In contrast, the actual reality is the exact opposite.

Historically, lack of regulations has led to corporate excess. Theodore Roosevelt in the early 1900’s introduced anti-trust legislation as the corrective action to end abusive labor practices by the large industrial monopolies. The regulations of Franklin Roosevelt’s New Deal in the 1930’s corrected the unsanitary conditions in the meat packing and food industry, established industrial safety standards, and constrained the financial sector from the speculations responsible for the great recession.

In this Century we have experience the cumulative negative results of de-regulating the progressive legislation of the Roosevelt eras. First there was Enron, then the mortage bubble of 2008, and now there are more financial troubles on the horizon, such as the pending student loan defaults.

Likewise with taxes. Sufficient tax rates are essential for general well-being. People need to be healthy. Public parks, community centers, art and recreation make life livable for everyone. Schools have to prepare students for success. A living wage is the basis for equality of opportunity, social stability and personal happiness.

Over the decade preceding the OEDC report (2002 to 2012) the average measure of inequality in the member nations declined from a score of 3.44 to 3.38. In contrast, the magnitude of inequality for the US actually increased from 4.66 to 5.22, the highest of all OECD nations. While the rest of the developed world held steady through the great recession, it became an opportunity in the US for the wealthy to increase their ability to restrict government regulation and to increase their share of the income.

The prescription for swinging the balance back from corporate excess to greater individual well-being is to move toward greater similarity with the OECD countries which share our democratic political processes: A steeper income tax on the very wealthy, a living wage for low-wage workers, more public entitlements such as universal healthcare, and sufficient government regulations to insure that workers are not treated as disposable components of a global economy.

What is difficult to understand is why this pending end of the American Dream – once the envy of the world -- could be possible in a country with freedom of the press, democratically elected leaders and a political philosophy of equality of opportunity.

The essential role for government is same today as it was in 2008, 1929 and 1908. Theodore Roosevelt had it right, an essential role of government is to protect individuals against the abuses of corporate power.

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Edward Renner has been a Professor of Psychology at the University of Pennsylvania and the University of Illinois in the US, and at Dalhousie University in Canada. He is now retired and teaches one course, Forums for a Future, as an Adjunct Professor in the Honors College at the University of South Florida. He may be reached at kerenner@usf.edu, and blogs at http://forumsforafuture.blogspot.com on the modern human challenge of how to live sustainably and peacefully on a crowded planet in the 21st Century.

For too many, working more means making less

Living in the Future Tense # 03, September 14, 2014

Reprinted in the Tampa Bay Times, Tuesday, Sept. 16, 2014

Restoring Dignity to Work 

Edward Renner

For 5,000 years, humans lived in the past tense: “Yesterday was the same as tomorrow. “ For the next 500 years people lived in the present tense: “Today can be whatever we want it to be.” But now, for the next 50 years we must start living in the future tense: “Tomorrow’s social, economic and political constraints must become today’s reality.”

 In my leisure time, I do woodworking.

My signature piece is mirror made of two interlocking circles. It sells for $175, of which 15 percent ($26.25) goes to the store less $90 for materials, which leaves me with $58.75 net for 8 hours of work. That is about the minimum wage of $7.25/hr.

I could sell more mirrors if I charged less, say $140 each. In that case $42 would go to the store, less $180 for material, which would also leave me with $58.00 net, but for 16 hours of work.

Why would anyone work longer hours for the same amount of money?

Yet, my situation is similar to the one faced by most low wage workers who are often criticized for making the same choice as mine.

Today, someone working at minimum wages (discounting any overtime differential) would need to work slightly more than 63 hours a week for 52 weeks to earn the $23,850/year required to support a family of four at the poverty line.

But, a family of four cannot live on that amount of money. Some of the short-fall is made up through subsides such as food stamps, Medicaid, and the free school lunch program – which last year served over 30 million children.

To qualify for these subsides a family’s income must be below an eligibility criterion. For the school lunch program it is 130% of the poverty line. Even if it was possible to work more than 63 hours, it would simply remove the eligibility and leave the person no better off in the end.

That is exactly the reason I charge $175, work 8 hours and make one mirror. If the goal of the American Dream is that everyone should be rewarded for hard work, what minimum hourly wage rate is required? A minimum wage of $10.10/hour is currently being proposed. At that rate, if two adults continued to work 63 hours per week between them, the family would then lose their eligibility and not be any better off financially than they are now with the subsides. That is not the American way. But even retaining the subsidies would not solve the problem simply because the qualifying line is too low to cover the actual cost of living.

The poverty line is an official government statistic calculated each year to provide a consistent indicator of poverty. Because the official poverty line under estimates real needs, eligibility for assistance is frequent set as at some larger percentage of the poverty line. The eligibility line show in the graph is 130% which is the 2014 criterion for the free school lunch program, established by Congress in 1966. The Living Wage value of 210% of the poverty line was determined for 2014 by using the MIT living wage calculator based on official regional economic data.

Historically, the criterion for a living wage has been a matter of debate. The best current indicator is the MIT living wage calculator. It is based on the actual living cost in different regions of the US. The results show that a couple would need to work 136 hours at current minimum wage to cover the average cost of providing a low-wage family of four with food, clothing, housing and medical care.

Of course, it is impossible for two adults to work a total of 136 hours each week for 52 weeks each year and take proper care of their children. But, it is no longer just the fast food industry and retail stores, such Wal-Mart, that do not pay a living wage. It has become a national standard. A recent study by the Labor Center of the University of California found that “nearly one-third of the country’s half-million bank tellers rely on some form of public assistance to get by.” This is at a cost of $900 million dollars per year in the form of food stamps, tax credits, Medicaid and the Children’s Health Insurance Program.

However, if the minimum wage was increased to about $15.00/hour, then two adults working 63 hours per week between them would make a living wage for a family of four. At this pay rate there would be a positive incentive to do so. That is what the striking fast food workers are asking for.

But, this should not be the end of the story.

My lifetime of work provided me the dignity of a pension, now to be topped-up by earning minimum wage for continuing my leisure time hobby.

In contrast, for the low wage worker there is no pension or leisure time. The 63 hours are most often composed of juggling several part-time jobs that intentionally do not include health insurance nor provide for retirement.

The families of 30 million children who need a subsidy for their child’s lunch is a national embarrassment. It isn’t that we can’t afford to pay higher wages. The profits at the nation’s banks topped $141.3 billion dollars last year. The public subsidies, the indirect costs of poverty, and excessive corporate profits and executive pay, such as the $552,000 median salary of the CEOs for whom the tellers work, are the real expenses.  

Transferring some of these actual costs into living wages for workers would be good for the economy. Fewer people working long hours, but earning a living wage, would result in more jobs for others, little unchosen unemployment, and a heathier and more equitable society.  

The US has one of the lowest levels of minimum wages and highest levels of poverty of all the developed countries in the world. Most similar countries avoid the high financial and social costs of extreme poverty simply by requiring a respectable minimum wage for work, and by providing some universal entitlements, such as health care and mandatory retirement benefits, that effectively supplement everyone’s wages an equivalent amount.

Sure, a hamburger might cost a little more, but other public and personal expenses would be far less. In the end, the total cost to the economy, by most calculations, is actually less expensive than what we have now.

 Where has the dignity and shared prosperity gone which 40 hours of work at a living wage should provide?