Picking Up the Tab for Low Wages
It is hard to overstate the extent to which work no longer results in a decent paycheck and a rising standard of living in this country. The portion of the economic pie that goes to working people is currently near the smallest on record, in data going back to 1947. Similarly, the gap between worker pay and labor productivity has widened since the 1970s. In a healthy economy, wages and productivity would rise in tandem, but in recent decades, productivity gains have flowed increasingly to executive compensation and shareholder returns, rather than wages.
These dynamics are not inevitable. Low-wage employers, in particular, pay low wages because they can and the main reason they can is that Congress has failed, over decades, to adequately update the minimum wage and other labor standards, including rules for overtime pay, employee benefits and union organizing.
That failure has had deep and perverse repercussions, extending beyond harming low-wage workers. As a recent report in The Times by Patricia Cohen explained, when work does not pay workers enough to get by, they are forced to rely on public assistance programs, mainly Medicaid, food stamps and low-earner tax credits.
Nearly three-fourths of the people helped by public aid for the poor are members of families headed by someone who works, according to a new study by the Berkeley Center for Labor Research and Education at the University of California. It estimates that state and federal governments spend more than $150 billion a year on such aid.
In one respect, this shows that the safety net, though strained and inadequate, is functioning. Low-earner tax credits, for instance, create an incentive to work by tying cash assistance to earnings. Other programs enable people to work by subsidizing health care, child care and transportation.
The problem is that as labor standards have eroded, allowing profitable corporations to pay chronically low wages, taxpayers are not only supporting the working poor, as intended, but also providing a huge subsidy for employers by picking up the difference between what workers earn and what they need to meet basic living costs. The low-wage business model has essentially turned public aid into a form of corporate welfare.
The best corrective is to raise the federal minimum wage. A new bill introduced on Thursday by congressional Democrats would lift the minimum from its current level of $7.25 an hour to $12 an hour by 2020. At that level, there would still be a need for public aid to ensure that some working families are kept out of poverty. But that aid would decline as take-home pay increases, leaving workers — and taxpayers — better off. If a higher minimum wage were coupled with increased tax credits for low earners, the poverty fighting effects of the higher minimum would be amplified, further reducing the need for workers to use public aid for food and health care.
A handful of states are considering ways to recover public funds from low-wage employers, say, by requiring payment of a fee to the state for each worker who makes less than $15 an hour. In 2016, California will start publishing the names of employers that have more than 100 employees on Medicaid and how much these companies cost the state in public aid.
Depressed wages are the result of outdated policies and lack of public awareness, that may, at long last, be changing for the better.