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Posts Tagged ‘minimum wage’

The Pew Research Center recently published a report called “The American Middle Class is losing ground.” They cite data from the U.S. Census Bureau and the Federal Reserve Board of Governors to determine household incomes to suggest the Americans who once made up the majority of hardworking, moderate income Americans comprise now less than half the adult population.

Share of adults living in middle-income households is falling

Approximately 120.8 million American adults are considered “middle class”, which Pew defines as their income is 50-66% the media income based on household size.

Who is “middle income” and “upper income”?

 

These findings emerge from a new Pew Research Center analysis of data from the U.S. Census Bureau and the Federal Reserve Board of Governors. In this study, which examines the changing size, demographic composition and economic fortunes of the American middle class, “middle-income” Americans are defined as adults whose annual household income is two-thirds to double the national median, about $42,000 to $126,000 annually in 2014 dollars for a household of three.3 Under this definition, the middle class made up 50% of the U.S. adult population in 2015, down from 61% in 1971.

Basically what’s happened is that those who once comprised the solid middle class of Americans- people who made enough to live comfortably but not enough to live luxuriously- had eroded. An increasing number of people either move into the top 10% (often known as the ‘professional’ class due to the high number of post-graduate degrees this group has earned) or into the bottom 30%, the ‘working poor’, families struggling to pay for even the most basic of expenses.

Older people, married couples and black adults improved their income status more than other groups from 1971 to 2015

 

 

 

 

 

 

 

 

Black adults, many of whom start with little or nothing, have gained because the number who were well-to-do in 1971 was very small. Those with less than a bachelor’s degree have been hurt economically, as have younger adults and the unmarried (many of whom are young). Older, married White couples are the most likely to do well, though not having children has helped some married couples.

Predicting the future is tough, but the data suggests America already is a class-based system, and will become even more so as the earnings between college graduates (particularly those with a master’s or doctorate or equivelant) increase much faster than those near the bottom (fast-food workers, construction workers, those whose jobs can be more easily replaced via computer or immigration) can keep up, which will widen income inequality. The Minimum Wage argument will actually serve to hasten this gap, as business owners obtain the means and desire to replace so-called ‘low-skilled’ workers with automation.

The positive is that the number of ‘upper middle’ and ‘highest’ has grown as a percentage, which suggests that for some there is economic mobility that was not present in 1971.

What do you think? What does the data suggest about American earnings and our future?

 

 

 

 

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As is common in most years, domestic policy trumps all other issues. While the Republicans believe immigration is the top issue to run a winning campaign, Democrats believe the minimum wage issue is a winner for their candidates.

Democratic strategist Donna Brazile wrote an op-ed where she believes millions of low-wage employees could form a very powerful voting bloc:

Shawanda Wilson, who works at Taco Bell in Tampa, Fla. and makes $8.25 an hour, has never voted before. Neither has Tonya Harrington, a 42-year-old home care worker from Durham, NC, who makes $7.25 an hour. Both say they’ve steered clear of voting booths not because they don’t care, but because they’ve felt politicians don’t speak for them.

That’s changing. Buoyed by $15 victories across the country, including in New York, Los Angeles and Seattle, fast-food cooks and cashiers, home care workers and child care workers like Shawanda and Tonya recognize that by joining together in a movement, they can make politicians care. Now they are vowing to head to the polls, and they’re hoping to bring with them the more than 60 million Americans movement organizers say are paid less than $15.

It’s not such a crazy thought. While recent ballot initiatives for $15 failed in Tacoma, Wash., and Portland, Maine, a recent poll of workers paid less than $15 an hour commissioned by the National Employment Law Project showed that 69% of unregistered voters would register to vote if there was a candidate who supported $15 and a union; and 65% of registered voters paid less than $15 an hour would be more likely to vote if there was a candidate who supported $15 and union rights.

We know the economic recovery has not been uniform, and nearly all the gains have gone to the top 1%, or the top 0.1%, as Bernie Sanders likes to remind us. The median income for an American worker is about $28,000, and overall household income has decline almost $2,000 since 2008. Meanwhile, millions of children live in poverty and cannot get enough food to eat or access to a great education. From an emotional standpoint, raising the minimum wage would lift millions out of poverty. While $15 an hour won’t do much in New York City, $15 an hour in most part of the country would be a big boost.

The minimum wage comes down to basic math. The argument for one is true if businesses were sitting on a pile of unspent money and were hoarding it instead of investing in their company. Since few, if any, businesses (particularly small- and medium-sized businesses) are run by heartless pigs who just want to hoard cash, the fact that they may not pay $15 an hour is more a symptom of: a favorable job market for employers; and that paying $15 an hour to all employees would require prices on good and services to go up, or to layoff some employees to pay for the others to have a higher wage. Not sure how the laid-off employees will feel about being sacrificed for the “greater good”.

Today is #GivingTuesday, a break from the spending we do for the holiday season. Consider supporting  CRI this holiday season to support out 2016 objectives for Education Savings Accounts and a Paycheck Protection law for all workers in Delaware. Visit https://www.caesarrodney.org/index.cfm?ref=90905 to help us meet our end of the year fundraising goals.

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Objective Truths Regarding Minimum Wage

Lenzini Photo portrait

Guest post by Matthew Lenzini, chairman of the Colonial Region Republicans.

I can’t recall a time when both of my parents didn’t work. My father for most of my childhood worked nights and weekends managing a Diner in South Philadelphia. My mother waited tables as a night shift waitress at the Philadelphia Airport Marriott. My first job in High School paid $4.75 an hour and truth be told, given my skill set at the time, I was probably overpaid. My parents instilled a sense of hard work and frugality in me that exists to this day. We never had much money and though I have been able to find some success in my life, I am a firm believer in adding value to society and living below my means. I believe that personal growth and success are core American Values. I believe that we live in the land of opportunity and that with hard work and a little luck, everyone has the ability to better their circumstances. This by no means, guarantees success but unlike many countries in the world, we all have a shot at the American Dream.

There has been a tremendous amount of discourse on the national stage regarding the federal minimum wage. Economically speaking, raising the minimum wage is actually bad for growth and harms those that we are most seeking to help, entry level workers and the working poor. I believe that much of what has been cast in the media is misleading. It is either intentionally misleading for political reasons or misguided due to misinformation and a lack of understanding. Unfortunately, feel good economic policies, catch the attention of the press and politicians oft present what appear to be efforts geared at helping the public but, are in fact bad policies based on popular demand, rather than sound judgement. I’d like to take a more objective and analytical look at unwinding four popular myths surrounding minimum wage in America that when analyzed, are in fact wrong and misleading:

  1. Minimum wage has not kept up with inflationary pressures
  2. Increases to minimum wage will improve the economy and decrease unemployment
  3. Minimum wage earners are on average 35 years old
  4. Raising the minimum wage helps working families

Myth 1: Minimum Wage has not kept up with Inflationary Pressures

The first minimum wage was enacted in the United States in 1938. At the time, the rate was set to $0.25 cents an hour.  There is a popular myth that the minimum wage rate has not kept up with inflation.

Objective Truth 1: Minimum Wage has kept up with inflation and the Consumer Price Index

If the 1938 wage were adjusted for annual inflation through 2015, the minimum wage rate would currently be around $4.90 give or take a few pennies. The federal government has reset minimum wage a number of times; typically during or after periods of rapid inflation. The table below highlights a few of the federal adjustments to minimum wage and the inflation adjusted wage today if there were no additional adjustments to the wage by the federal government.

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I’d like to note a few things regarding the table above. Inflation adjusted, the minimum wage has fluctuated some but typically stays within one or two standard deviations of the average, which is approximately $8.20. We have had an inflation adjusted range high of $10.07 in 1981 and a low of $4.97 in 1939. All in all, the current rate of $7.25 is well within one standard deviation, which is about +/- $1.25 of the average (this is well within tolerance limits for statistical measurements).

Now, there is an argument that rather than using inflation, one should use the Consumer Price Index. After all, the cost of goods and services changes over time. CPI uses a baseline year (1984) as an index. As such, 1984 has an index of 100 and all other years are adjusted using a percentage of the index. For instance, 1939 has an index of 13.9. If we take the 1981 wage of $3.35 and multiply it by 13.9 percent, we have a 1939 equivalent rate of $0.47. If we were to use similar dates to our inflation based analysis, we would get the following CPI adjusted rates. Again, we find that the federal rates are within a reasonable level of tolerance of the average. The greatest deviation occurring in 1939, one of the first years that a minimum wage ever existed which also happens to occur in the midst of the great depression.

Lenzini 4

Myth 2: Increases to minimum wage will improve the economy and decrease unemployment

The U.S. labor participation rate is currently sitting below 63 percent. The last time the rate was this low, was in the late 1970s when we had according to President Carter, a crisis of confidence. The reason I use the labor participation rate instead of the more popular unemployment rate is that the unemployment rate only represents people that are actively seeking work. Anyone that has given up the hope of finding work, does not show up in the U.S. unemployment figures. The “real” rate of unemployment is closer to 10 or 11 percent. The unemployment rate has improved for the wrong reason; people have stopped looking for jobs. A number of legislators have pushed for an increase in the minimum wage. Their thought process is that a higher minimum wage will improve the economy and get people back to work. Unfortunately, that is very far from the economic reality.

Objective Truth 2: Increasing the Minimum Wage will actually increase unemployment rates

The labor market reacts similarly to any other market. It is primarily driven by the laws of supply and demand. Without a minimum wage (which is effectively an artificial floor on the price of labor), the market would settle at a rate where the demand for labor and the supply for labor meet. In other words, without an artificial floor, we would reach the maximum economic output and we would have the lowest level of unemployment (excluding externalities such as a disincentive to work because one could “make” more on government subsidies aka welfare).

Artificial floors create economic loss. Essentially, supply will be higher than demand and the gap, essentially becomes unemployment. The higher the wage, the more people will be willing to work so there is more supply. However, given the higher wage, a business with limited resources will be able to hire fewer people. The graphic below highlights the conceptual increase in unemployment when the artificial floor is raised. This is not unique to labor, it is an economic reality for all goods and services. The unemployment rate is the gap that exists between the supply of labor and the demand for labor.

Lenzini 5

Howard Schultz the CEO of Starbucks was asked about the $15 minimum wage in Seattle. He said that Starbucks would adapt. They can leverage technology and automation allowing them to hire fewer people but smaller companies don’t have that option – “I wouldn’t want to see the unintended consequences of job loss as a result of going that high. That would not be the case at Starbucks, but I suspect that most companies, especially small- and mid-sized companies, would not be able to afford it.” The net effect will be one of a few scenarios: a) the company uses more technology to maintain its margins b) the company raises prices c) the company goes out of business. None of these bode well for the employees or the consumer.

Myth 3: Minimum wage earners are on average are 35 years old

There is a myth that the average age of a minimum wage earner is 35 years old. I believe that this is a purposely misleading statistic, put forth by certain politicians seeking populist support for re-election.

Objective Truth 3: The distribution of minimum wage earners is skewed

If you have four 17 year olds and two 68 year old retirees (who are most likely working to have a second income above any retirement benefits), you have an average of about 35. When we look at the underlying data, we do in fact see that the distribution is skewed towards young people who are working in their first job and older Americans who may be working to supplement their income. So let’s also be clear that only about 4.3% of all working Americans earn the minimum wage. Most other workers earn more than the current rate. That number is down significantly from the 1980 high, where 15% of working Americans earned the minimum wage. 50% of minimum wage earners are under the age of 24 and 25% of minimum wage earners are teenagers.

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The vast majority 64% are part time employees who mostly occupy low skill jobs in the food services or retail spaces. Only about 20% of those that receive minimum wage are married and only 13% of minimum wage earners are married and over the age of 25. The vast majority, nearly 80% do not have a college education and most do not have a high school diploma. So the argument that too many Americans are trying to support their families on minimum wage is just not true. The percent of family head of household minimum wage earners is actually the lowest it has been since the metrics have been tracked, and the path to higher wages is and always should be improving your skill set.

Myth 4: Raising the minimum wage helps working families

A common element that is often missed in the debate surrounding minimum wage is the role of the earned income tax credits. Many supporters of raising the minimum wage will state that the intent is to help young working heads of household, support their family.

Objective Truth 4: Raising the minimum wage hurts those we intend to help

Unfortunately, by raising the minimum wage, we do the exact opposite, as mentioned above, when we raise the wage uniformly, we actually create higher levels of unemployment. A better targeted approach to helping families, is to continue to leverage the earned income tax credit. The earned income tax credit provides a financial benefit to those that are heads of their household and those with children. In essence, it is a much better way to pinpoint those working adults while still allowing businesses to employ as many people as possible (for instance high school students in their first job who have minimal skills and few responsibilities). The graphic below, is from the United States Treasury Department.

In 2014, a married minimum wage earner with two children, receives an additional $5,460 dollars of tax credits.   Assuming that the average work year consists of 2080 hours at 40 hours a week, this would equate to an additional $2.63 an hour above the minimum wage. If we were to add the two, the hourly wage would be $9.88 an hour. This figure does not include any other state benefits, housing assistance, education assistance or other government program support.

Lenzini 9

Summary: I have only touched on a few of the more common misconceptions that surround the minimum wage debate in America. The truth of the matter is, that many politicians will push for an increased minimum wage rate either because they know it will get votes or because they are ill-informed. The minimum wage has been raised in the past. It will be raised again. We cannot however afford to do so arbitrarily and without thoughtful and informed decision making. Plenty of ideas feel good but they have to make sense in the longer run. We need to do away with feel good economics and political ideologies that are crafted on ideals that are not grounded in economic truths. Policies that pander to populist ideas that will only hurt those that we intend to help.

Matthew can be reached at Lenzinml@yahoo.com

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Since 2008 America has seen a greater number of businesses close than open. According to Gallup, roughly 6 million businesses out of 26 legally recognized actually function; the rest are inactive or exist only on paper. Of these 6 million “real” businesses, 3.8 million employ 1-4 employees. Only about 108,000 businesses in America (2% of “real businesses”) employ 100+ people. If we continue to kill off small business with over-regulation and over-taxation, how will the government be able to pay its bills, short of more printing, borrowing, and cancelling debts?

From Gallup: (article truncated for space)

“The U.S. now ranks not first, not second, not third, but 12th among developed nations in terms of business startup activity. Countries such as Hungary, Denmark, Finland, New Zealand, Sweden, Israel and Italy all have higher startup rates than America does.

We are behind in starting new firms per capita, and this is our single most serious economic problem. Yet it seems like a secret. You never see it mentioned in the media, nor hear from a politician that, for the first time in 35 years, American business deaths now outnumber business births.

The U.S. Census Bureau reports that the total number of new business startups and business closures per year — the birth and death rates of American companies — have crossed for the first time since the measurement began. I am referring to employer businesses, those with one or more employees, the real engines of economic growth. Four hundred thousand new businesses are being born annually nationwide, while 470,000 per year are dying.

You may not have seen this graph before.

Until 2008, startups outpaced business failures by about 100,000 per year. But in the past six years, that number suddenly turned upside down. There has been an underground earthquake. As you read this, we are at minus 70,000 in terms of business survival. The data are very slow coming out of the U.S. Department of Census, via the Small Business Administration, so it lags real time by two years.

Here’s why: Entrepreneurship is not systematically built into our culture the way innovation or intellectual development is. You might say, “Well, I see a lot of entrepreneurial activity in the country.” Yes, that’s true, but entrepreneurship is now in decline for the first time since the U.S. government started measuring it.

Because we have misdiagnosed the cause and effect of economic growth, we have misdiagnosed the cause and effect of job creation. To get back on track, we need to quit pinning everything on innovation, and we need to start focusing on the almighty entrepreneurs and business builders. And that means we have to find them.”

No matter how much some people will try to convince you the Roaring Twenties are back, the reality is that we have far too many businesses closing and not enough replacing them.Businesses do open and close all the time, but a lot of business closings are small businesses getting shut down because of government policy via regulation and taxation. A lot of these policies are Cronyist policies pushed by big business to weaken their competition, which is smaller stores. Thus for example, a big chain like Costco can safely come out in favor of the minimum wage increase knowing it will end up hurting the roughly 80 percent of businesses which employ nine or fewer people, while at the same time reaping the benefits of “caring” for their employees (note: we don’t object to Costco paying its employees well; we applaud it. But just because Costco might be able to afford a wage increase doesn’t mean every business can).

Crony business policies, government bureaucrats who make new regulations to justify their jobs, politicians who want to “do something” to get votes, and a well-intentioned but misinformed public which votes for things like minimum wage hikes  all result in a decline in new business startups and jobs lost and never created in the first place. We at CRI support economic policies which make it easier for people to start businesses and create new (hopefully well-paying) job opportunities without sacrificing necessary regulations and basic standards of decency. But unless we fundamentally change the way our country is operating, that 70,000 per year decrease in total businesses operating in America will increase in number.

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