January 2014

Radical ideas to raise wages?

l3wis January 3, 2014 20Comments

Image courtesy of the Center for Economic and Policy Research.

I found this interview with economist Dean Baker very interesting. I agree with him that in some cases, a tighter job market can increase pay, it just hasn’t happened yet in Sioux Falls. I think that the work ethic, people holding multiple jobs, high productivity and the wealthy and corporate interests hoarding their profits has contributed to the fact that wages haven’t increased ‘YET’ in Sioux Falls. Workers are starting to become ‘wise’ to the fact that their employers are doing better after the recession and I think if the minimum wage increase passes in November, you will see other sectors raising their wages also;

Baker: This is one of the main points that Jared and I wanted to emphasize in writing this book. For large segments of the workforce, their ability to get pay increases, to share in the benefits of economic growth, really depends on having a tight labor market. And what really opened our eyes on this was our experience in the late 1990s. Jared and I were both working here in Washington at the Economic Policy Institute. At that point, they thought around six percent unemployment was the best we could do. We got down to four and half percent, and then four percent as a year-round average. And then we saw real wage growth up and down the income ladder — even people at the bottom end of the labor force were actually seeing good real wage growth during that period. And the basic story was that in a tight labor market, there was an increase in demand for people to work as checkout clerks at Wal-Mart, or to work at McDonald’s. When there’s tight demand for those people then they’re in a position to actually get wage increases, and that’s what we saw in the late ’90s.

We’ve done a lot of work on this, and you can’t make that result go away. So in this sense, it’s not just the unemployed, or even the underemployed — underemployment is a big deal as well, because a lot of people at the bottom also don’t get as many hours as they want — but it’s also about people who do have a job getting more pay because they’re in a position to bid up their wages.

When you have tight labor markets, Wal-Mart’s going to have to pay people $15 dollars an hour. It’s not a question of them just being nice guys or anything. If they want workers, they’ll have to pay them $15 bucks an hour.

He also brings up the fact that many people are so happy to just have a job, that they will work for crumbs without complaining for a pay increase;

Holland: A few weeks ago, Ezra Klein wrote that inequality isn’t the defining economic issue of our time. He said underemployment and unemployment were, and that launched a big debate. So was that a false choice, if I understand what you’re saying now?

Baker: On my own blog I said it missed the issue to make them separate points, because a big chunk of the story with inequality is the fact that you have so much unemployment. And, again, the reason why people are working at Wal-Mart for $7.25 an hour is because they don’t have alternative employment.

It’s really kind of a striking — if you go back and look from ’38, when we first created the national minimum wage, the Fair Labor Standard Act, until 1968, the minimum wage actually tracked toward activity growth. It didn’t just increase with inflation. Workers at the bottom were getting their share of productivity growth, so they were sharing in the gains of growth over those three decades. If the minimum wage had continued to keep pace with productivity growth from ’68, when it was at its purchasing power peak, until the present, it’d be about $17 dollars an hour today. And it’s not that I think we could raise the minimum wage to $17 dollars per hour tomorrow and not effect employment. Of course it would. But the point is that we had an economy that could support jobs that paid the equivalent of $17 dollars an hour for the person working as a checkout clerk at Wal-Mart.

So you can have a much higher wage economy, and a big part of that story is having low rates of unemployment.

He also brings up a curious, radical approach, to increasing wages and spending by those wage earners-work less hours;

The last point is hugely important. We can control the number of hours people work. The thing people should realize is that the story of unemployment is actually a story of us being too rich. That sounds strange to people, because we know we have an awful lot of people who aren’t too rich and don’t have enough money. But the point is that we’re producing the things that we’re consuming. People for the most part have housing, they have food, they have medical care, and we still have somewhere around 10 percent of the workforce unemployed, underemployed, [or] out of the labor force altogether.

So, in effect, what’s happened is, because we’re so productive, we end up with a situation where we don’t have enough work for people. Rather than that being a source of poverty for those people who are unemployed or underemployed, wouldn’t it be much better if we all just worked fewer hours?

Now, it’s not that easy to get from here to there, but the comparison that we make in the book — and I think it’s worth people keeping in mind — is that if you look at Western Europe — Germany, France, the Netherlands, Denmark, pick a country in that list — they work about 20 percent fewer hours than we do in the United States on average. And if you just snapped your fingers and said, ‘okay, we all work 20 percent fewer hours, it would result in 20 percent more jobs.

Now, in the real world, it will never be that simple, but that’s more or less what we’re talking about. So, to my view, a great way of dealing with unemployment is encouraging people to work fewer hours. It’s a great way to increase employment, and also make people’s lives better. People value having paid vacation, they value having paid sick days when they’re not feeling well or they have a family member who’s not feeling well. They like paid family leave when they have newborn kids or an elderly family member they have to care for. So that’s a really good way to try to deal with the problem of not having enough jobs.

I like this last suggestion the most. I know after I changed my part-time job last month (I work half the part-time hours I did before, make just as much money at my new part-time job, and have my weekends entirely off) that I am happier, less stressed, not as tired, and way more creative. Imagine that, working less would actually help the economy, or at least make happier Americans.