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The History of Wages

chicago dyke's picture
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Tula, Mike and the gang run a great blog, and I need to link to it more often. As the minimum wage bill works its way through the halls of Congress, this post reminded me of a couple of points we need to talk about more:

Opponents of a clean bill to the raise the minimum wage—which is at its lowest buying power in more than 50 years—claim that without a multibillion dollar tax break lifeline, the nation’s business community faces economic disaster. We are not the only ones who say that is balderdash.

50 frakking years! There are many, complicated reasons for why we got to this mess, but that should give you pause. Goddess knows I know it's true from personal experience, but I'm not even suffering like most working class families as they struggle to make ends meet on 3.75 jobs between two working adults, and frequently, a teen with a part time job. Once upon a time, kids didn't have to work for the "luxury" of books and clothes.

I'd like to see more discussion of the past. That is, I'd like more people to be aware that "Once upon a time in America," it wasn't like this. I'm no worshipper of the 'good old days,' mainly because I'm a black lesbian, and the thought of living in the 50s really turns me off. But there is little reason to defend our current economic reality as we compare it to those days. Pick a topic: corporate taxation rates, taxation of the uberwealthy, union jobs, home and consumer product prices- everything was much better and more fair in that period. I think smart Democrats will harken back to those days as they propose legislation to correct economic imbalances. It seems to me that we could break through the corporate propaganda and media BS by asking people to speak with their grandparents and elder neighbors, the history of more fair and equal times is within living memory. Too many younger people believe that America has always been a place where one must stab someone in the back and cheat and lie to make it to the "American dream."

Then there is this:

The Costco chief certainly knows what he’s talking about. His successful venture, launched in 1983, now has 130,000 workers and operates 504 stores, where the average worker makes $17 an hour and the lowest-paid earns $11 an hour. It’s good business sense says Sinegal.

"In my view, some of these industries that pay minimum wage are constantly turning their people over. They spend more on turnover than they would in paying the additional wages."

This is another reason why I get into arguments all the time with my MBA friends. If you've ever been a manager, labor issues are your #1 headache. Turnover is a huge part of that, and turnover is a direct result of the slave employee perception that there is no reason to be loyal, to show up on time regularly, or to be honest to the employer. Again and again when I managed, I had to deal with the less desirable employees, because I couldn't offer wages that would attract, and keep, the good ones. I still recall one restaurant I worked at (the last, in fact), in which everyone was paid a fair wage and had benefits. It was the most popular place in town, because the food and service were great and the corporate places couldn't keep up with the spectacular menu or wonderful atmosphere. Customers lined up around the block, often just for simple burgers and dinner salads, and the owners enjoyed real profit year after year. All because, gasp, the workers were happy. Why they don't teach this simple lesson in business school today is beyond me.

And just to show you I'm not a heartless Marxist- I favor tax cuts for small businesses. Small shops are the ones who are going to be hardest hit by an increase in the minimum wage, and in these shaky economic times, it makes sense to offer them breaks, for at least a couple of years, to offset increased labor costs. I haven't looked closely at the specifics of the tax breaks in the bill, but I'm told by The Wise that only about 40% of them really go to those businesses that need them. To me, that is a sign of the extent of the influence of the big business/corporate lobby in the Beltway. Even our progressive Democrats can't quite ignore their clamor for more breaks and benefits. Which is a shame, because I really don't believe that in this age in which even middle class white collar workers are struggling, a majority of Americans would defend more golden parachutes and off-shoring opportunities for the elite in the Borg.

Update: Bonddad has more:

From the Houston Chronicle:
People once again spent everything they made and then some last year, pushing the personal savings rate to the lowest level since the Great Depression more than seven decades ago.
The Commerce Department reported today that the savings rate for all of 2006 was a negative 1 percent, meaning that not only did people spend all the money they earned but they also dipped into savings or increased borrowing to finance purchases. The 2006 figure was lower than a negative 0.4 percent in 2005 and was the poorest showing since a negative 1.5 percent savings rate in 1933 during the Great Depression.
For December, consumer spending rose a solid 0.7 percent, the best showing in five months, while incomes rose by 0.5 percent, both figures matching Wall Street expectations.

There has been some discussion about how the BEA computes the national savings rate. They use the standard economist calculation, which is total income less all expenses. This calculation assumes that people only save after they spend. In other words, it does not include such things as automatic deductions for 401(k) plans, etc. However, four other sources demonstrate that savings is at critical levels.
An analysis of the retirement fund tables from the Federal Reserves' Flow of Funds report indicates retirement savings is at best 3% of GDP over the last 5 years.
In addition, three studies from 2006 indicate the US is facing a savings crisis. The first is from the FDIC, which concluded:

Although 94 percent of families headed by persons ages 45 to 54 held at least one type of non-real-estate financial asset in 2004, the median holdings of financial assets for this group were only $38,600.12 These data include 58 percent of families that held a median of $55,500 in retirement accounts (which include individual retirement accounts or IRAs), but only 18 percent that held the next largest asset category, pooled investment funds ($50,000). Even fewer--less than 7 percent--held the third and fourth largest asset categories, other managed assets and bonds ($43,000 and $30,000, respectively) (see Table 3, next page).13 For the average person, financial assets would not last long in retirement.

The second study is from Boston College concluded:

Almost one in two American families are headed toward years of financial struggle in retirement, according to a recent report that says workers are unprepared for cuts in pension and Social Security income.
The Boston College study presumes that most people need to replace 65 percent to 85 percent of their annual income in their working years to stay secure in retirement. But 43 percent of U.S. households will fall at least 10 percent short of that range, the study found, using what it said were conservative projections.
The percentage of households at risk of an insecure retirement rises to 66 percent under a less rosy set of assumptions--for example, if workers retire at age 63 instead of at 65.
"Unless Americans change their ways, many will struggle in retirement," said Alicia Munnell, director of the study and a former member of the White House Council of Economic Advisers. "The answer is saving more and working longer."

And finally, there is this study from the Employee Benefit Research Group: It found that 63% of people have less than $100,000 saved for retirement. The paltry savings levels reported in the Flow of Funds report backs-up this fact. $100,000 is clearly insufficient to provide for income for a 20-year period, even with social security.
Basically, the US economy is ripe for a huge problem if a lot of people lost their jobs.

There is still time to avert economic crisis, if the Democrats can show the spine to tackle these issues for real. Again, I ask: why are the corporatists so short sighted? Depressions don't make for good markets.

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