By Gary Bennett
As seen in the Frederick News-Post Monday, September 2, 2019
Labor Day has been the poor step-sister of federal holidays for a while now. Most people know it as the defacto last day of summer – one last chance for a picnic and pool party. But it wasn’t always that way. The creation of Labor Day in the late 1800’s was a big deal and the logical result of the labor movement that paralleled the industrial revolution. It paid homage to the men and women who built this country.
There is no doubt that the country needed labor to be more assertive in the early days. The labor movement of the late 1800s addressed vexing issues such as extremely low pay, unsafe working conditions, 12- and 15-hour workdays, 7-day workweeks, and most harrowing of all, child labor. Because so much labor was needed to power the industrial revolution, workers soon gained the upper hand with management and did not shy away from demanding more money, less hours, and an end to child labor. The first strike was called by workers of the Pullman Palace Car Company in 1894 and was an unmitigated success for labor. Soon, strikes all over the country led to the end of child labor, increased wages, a 40-hour work week, and the advent of overtime pay. The old saying is absolutely true that if you enjoy your weekends, you have labor unions to thank.
But today, only about 10% of all workers are covered by unions. Most of us are “at will” employees, meaning we can be fired for any reason or no reason at all. There are many reasons for this shift including deregulation of many industries, technological advances, restructuring and plant closings, and the availability of more and better foreign goods. So, what would the founders of Labor Day and Grover Cleveland, the democratic president who signed it into law, think about the current state of relations between labor and management? I think they would be surprised that the pendulum has swung so far in the favor of management.
Nothing drives this point home as much as the debate over an increase in the federal minimum wage. With the passage of The Fair Labor Standards Act in 1938, the U.S. minimum wage was initially set at 25 cents per hour for covered workers. Since then, it has been raised 22 separate times, most recently in July 2009 to $7.25 an hour. The U.S. minimum wage has not been raised since 2009, the longest time the U.S. has gone without a minimum wage increase. It took a democrat in the White House and a democratic Congress in both houses to get this accomplished in 2009. It is also true that the federal minimum wage has not kept pace with inflation. Its peak was in 1968 when the minimum wage was $1.60 per hour. That is worth $11.39 in 2017 dollars. Since then, the minimum wage’s real value has been in decline.
On July 18 of this year, the Raise the Wage Act passed the U.S House of Representatives, a bill that would double the federal minimum wage to $15 per hour in increments by 2025. President Trump does not support this measure, and with the dynamics of the republican-led Senate being what they are, it is extremely unlikely it will be considered any time soon. But the measure is important politically as a precursor as to what could happen with a democratic president and Congress in 2021.
It is difficult to argue that all Americans should not be paid at least a living wage that will pull them out of poverty. The main argument against raising the federal minimum wage is the threat of job loss as labor becomes too expensive especially for small business. Putting aside the fact that federal minimum wage laws have always included exemptions for small business (I remember I made 90 cents per hour at a small local theater chain in 1979 when the federal minimum swage was $2.30), job loss has just not happened in an appreciable way over the long history of the minimum wage. A large body of research that looked at 138 minimum wage increases at the federal and state levels between 1979 and 2016 found they basically had no effect on low-wage jobs. More and more nonpartisan economists and business owners have increasingly accepted that some level of minimum wage can work well, coming at a minimal cost to jobs. Most importantly, most Americans, including republicans, support an increase in the minimum wage.
When you combine these facts with the estimation of the nonpartisan Congressional Budget Office that 1.3 million people will be lifted above the federal poverty level by 2025 with the $15 minimum wage, it is difficult to understand why we haven’t moved in this direction already. Political scorekeeping is one reason, of course, but another is the possibility that the same number – 1.3 million people – could lose their jobs. Past research is one thing, but the U.S. has never contemplated doubling the minimum wage is such a short period of time. The CBO acknowledges they are not sure what will happen, also saying that job loss could be zero. Nowhere in their analysis, however, do they talk about businesses failing because of paying an increased minimum wage. That position thrown about by politicians and pundits is pure hyperbole, has not happened in the past, and should not be believed by educated citizens.
Of course, most states have their own minimum wage laws. There is a strong argument to make that states are better equipped to set these wage floors because labor and job conditions from state to state vary so much. Five southern states have felt it unnecessary to set a state minimum wage at all – Louisiana, Mississippi, Alabama, Tennessee and South Carolina – and have fought vociferously to end federal minimum wages protections. Two states – Wyoming and Georgia – have minimum wage rates below federal levels so they must adhere to the federal rate. Fourteen states have laws that set the minimum wage at the federal level. Twenty-nine states and the District of Columbia set their rates higher than the federal rate. Currently, Massachusetts and Washington state have the highest minimum wage rate at $11.00 per hour.
What about progressive Maryland? Earlier this year, Maryland became just the sixth state to raise the minimum wage to $15 per hour. Maryland’s current minimum wage is $10.10, and the new policy will gradually raise the wage floor to $15 by 2025. The law was passed by the General Assembly overriding the veto of Governor Hogan. The new law will benefit about 573,000 workers in Maryland who currently earn less than $15 – about 22% of the state’s workforce, according to the National Employment Law Project.
In my view an increase in the federal minimum wage is long overdue. An economy that has been growing steadily since our recovery from the Great Recession of 2008 should benefit everyone. When the economy grows and unemployment is low and labor is tight, wages should increase. That has not been the case. Hence, the debate rages over the wealth gap between rich and poor, white and black, immigrants and longer-term Americans, and management and labor.
A handy measuring stick for the wealth gap in 2019 is the CEO pay ratio, which many corporations now have to disclose as a public-owned company. It measures the compensation earned by “average workers” to their chief executive officer. Since it is so new, historical comparisons can’t be made. But the ratios are striking, ranging from 100-to-1 to sometimes topping 1,000-to-1 at companies like Walmart and McDonalds. You may argue that entry level-type jobs at these companies were meant to be just that – entry level – and not meant to last long term. I would argue these types of jobs are fast becoming the only types of jobs that can be found in a certain segment of our population in this outsourced, gig economy we find ourselves in.
The Peter Principal states that employees will rise in the hierarchy of a company or the economy in general until they reach a level of incompetence. Like it or not, we have to accept that for some people a job at Walmart or McDonald’s is the best they will do. Don’t they deserve a decent living wage? Free market capitalism just doesn’t do the job sometimes and needs a little help. I’ll go one step farther and say that companies that say they can’t afford to pay a living wage perhaps should not exist. And I say this as a small employer from earlier in my career who paid the federal minimum wage. Employers who pay low wages force their workers to turn to governmental safety programs at significant cost to taxpayers. Gradually phasing in a $15 minimum wage by 2025 would lift the pay of tens of millions of workers, reverse decades of growing pay inequity, bring new customers into markets they couldn’t afford until now, reduce costs associated with employee turnover, and lessen dependence on social safety nets. It’s time the Senate and president act.