On Aug. 29, across the country, thousands of workers in low-paying jobs stood up to demand $15 an hour. Most were at fast-food restaurants. There are many people who support the need for these workers to be paid more.
They understand the unfairness of multinational corporations’ profiting off the wages of low-wage work. And, on Labor Day, they probably reflected on the value of work and honoring the people who built this country.
To many people, it is almost obscene that the CEO of McDonald’s, for instance, gets a compensation package worth $13.8 million a year, a giant raise from his 2011 pay of $4.1 million, a pay level that equals that of 915 full-time, full-year minimum wage workers at McDonald’s. If pay truly reflected the productivity of workers, then, presumably, if 915 McDonald’s workers went on strike, he would be able to fill in and do their work.
Still, understanding that the price of the hamburger was probably much more affected by giving the CEO a $9 million raise than the meager demands of the people serving them their food, many people scratched their heads at the notion that the workers’ wages could be set at $15 an hour, a level they now equate with more “skilled” workers.
In the shadows
But that reflects the breakdown in our nation’s understanding of the value of work and the productivity of America’s workers. So, it is important to give an understanding of $15 an hour and why it is necessary for us to embrace this movement.
The day before the strike, Aug. 28, the nation paused to recall the 50th anniversary of the March for Jobs and Freedom in Washington, D.C. It was a big celebration that masked the divisions of the country at that time and surrounded the movement to gain dignity for Americans held in the shadows from the light of America’s middle-class freedoms.
We will, no doubt, see smaller notice given to the bombing that followed weeks later in the Rev. Fred Shuttleworth’s church in Birmingham that killed four little girls. Nor should we forget the final endgame of Dr. Martin Luther King Jr.’s journey for justice five years after the march, when he was assassinated in Memphis continuing his struggle for dignity and freedom for sanitation workers.
In 1966, in line with the demands of the March for Jobs and Freedom, the minimum wage was increased and its coverage extended to include certain state and local government employees, those who worked in hospitals, nursing homes and schools. It did not include sanitation workers. But it did boost the minimum wage to $1.60 an hour in 1968.
People on welfare
The Center for Economic Research and Policy has compared that minimum wage to changes in wages, prices and productivity. To put it in context, adjusting for inflation, today that would be $10.52 an hour.
In 1968, 40 percent of the sanitation workers in Memphis qualified for welfare payments because their wages were too low to pull their families out of poverty.
We have, as a nation, moved a long distance from that time. Indeed, we have come to accept low wages and there are many who argue that, if we are concerned with the poor, then we should simply subsidize low wages; in short, put working people on welfare, as was the case in Memphis in 1968. They want to ignore Dr. King and undo the success of that strike.
But subsidizing low wages is inefficient. It actually subsidizes what low-wage companies produce. When employers pay wages too low to support workers, it is society that must pay for the Supplemental Nutrition Assistance Program so the workers can eat, housing assistance so they have a roof over their heads, childcare block grants so someone can watch over their children, Medicaid so they have access to health care, and grant them tax relief with Earned Income Tax Credits to prevent the government from further impoverishing them.
That means we are subsidizing many billion-dollar multinational corporations – a weird form of corporate welfare. General subsidies are inefficient because they mean we will artificially lower the price of those goods, making them cheap to rich and poor alike. It lacks targeting. Further, it can lead to favoring low-wage industries that may not produce outcomes society values so high.
Many people believe that the American diet of fatty fast foods has made us a nation that is obese and is contributing to new projections that our children will lead shorter, not longer, lives. If there are goods we think would be priced too high for segments of the economy if workers’ earned decent wages, then the most efficient thing is to subsidize those individuals who would be priced out of the market, as might be the decision of society with childcare or the care of the elderly, two areas where the median wage is less than $10 an hour.
It makes far more sense that these huge corporations pay wages that reflect the productivity of their workers. Since the late 1970s, America has gone on a crooked path. The productivity of America’s workers has gone up but the pay of America’s workers has gone flat.
That difference, between what Americans can produce and what Americans earn, creates a gaping problem: if people can’t buy what is being made, then increasing their productivity can only lead to lower levels of employment. From 1980 to 2007, the solution was to let workers borrow enough money to make up for that gap so demand would meet the rise in productivity and we could keep employment up.
Obviously, such a scheme falls under Herb Stein’s Law: “If something cannot go on forever, it will stop.” And, in 2008, the notion that household debt could rise, with incomes staying flat, to fill the gap came to a stop. Now, we must return to paying workers for their productivity to fill the gap between increased productivity and earnings.
So, reminded of the moral call from Dr. King, and basic economics of ECON 101, we come to the current situation.
Even if we believed that low-wage workers have not kept up with average productivity advances – a McDonald’s worker today produces far more sales per square foot and hour than a McDonald’s worker in 1968 – and we set the minimum wage to reflect only half the gain in average productivity since 1968, then today the minimum wage would have to be $15.34 an hour so the worker serving you food at that wage would not themselves need help with food stamps to buy food.
And, more importantly, we would be moving back toward paying workers so they can afford to buy the goods coming from increased productivity, rather than getting rid of workers when productivity goes up for the lack of buyers. There should be a related clause to Stein’s law: “If something is common sense, eventually it will be common.”
William Spriggs is chief economist with the AFL-CIO and is a professor in, and former chairman of, the Department of Economics at Howard University. He is also former assistant secretary in the Office of Policy at the U.S. Department of Labor. You may follow him on Twitter: @WSpriggs