The Fair Wage Plan
As I have reflected on the Live 8 effort to end poverty, I've come to the conclusion that we must fight poverty on three levels:
1) Wealthy, industrialized nations (particularly the G8 nations that were targeted this weekend) must craft economic policies that benefit developing nations. These policies would include fair trade, debt relief, and so forth.
2) Every nation must evaluate how its domestic policy affects the poor within its borders.
3) Community organizations (particularly religious congregations) must continue and increase their efforts to serve the poor and fight the causes of poverty on a local level.
I want to focus on #2 as it pertains to the minimum wage in this country. The federal minimum wage in the United States is currently $5.15 per hour. If you have ever tried to maintain a household on minimum wage in this country, you know that doing so is impossible. Some cities have passed living wage laws that require the city government, companies that are contracted by the city government, and/or all employers within the city limits to pay all of their full-time employees a wage that will cover their basic living expenses (usually around $10 per hour). I support these efforts.
Opponents of raising the minimum wage fear that higher wages will hinder businesses' ability to grow and create new jobs. Some also contend that many low-wage employees are teenagers and unskilled workers who need to gain experience to break into the labor force.
I am proposing the following plan to raise wages in the U.S. that, I think, takes seriously the concerns of those who oppose increasing the minimum wage.
Establish a wage ratio. The wage ratio is the cornerstone of the Fair Wage Plan. The ratio of a company's largest annual salary to its smallest annual salary for a full-time worker would be fixed. I will need to do further research to determine what a reasonable wage ratio might be, but say it's 10. If a company's least-paid full-time worker earns $15,000 per year, the best-paid executive would only be allowed to make $150,000 per year. Thus a company's labor costs and capacity to create new jobs would have less to do with how much the company is required to pay its entry-level workers and more to do with how much the company chooses to pay its executive staff. My hope is that the wage ratio would have one of two results: a) workers' salaries would increase drastically so that a company could satisfy its executive staff; or b) executive salaries would come down, giving the company money to create more jobs. Sure, the wage ratio is not a perfect idea,and several problems could arise, but the ratio would shift the focus of the wage debate from the least-paid Americans to the best-paid Americans and would give all employees a stake in their company's success or failure.
Set a minimum wage for employees abroad. Given differences in cost of living, the wage ratio could not reasonably apply to workers outside of the United States. However, the Fair Wage Plan would require companies that are based in the U.S. or that do significant business in the U.S. to pay their employees abroad a fair wage. This wage may vary from country to country. Employers may still be able to save money by outsourcing jobs, but: a) Outsourcing would become less lucrative, keeping more jobs in the United States; and b) companies could no longer benefit by paying international laborers inhumanly low wages.
Current minimum wage laws would act as a safety net, protecting employees of small businesses whose best-paid employees would still make modest salaries. In the interst of these workers, I would advocate at least a small raise in the current federal minimum wage.
An exception to the wage ratio could be made for seasonal workers under the age of 18, though this exception would have to be strictly defined and enforced.
I am not an economist and do not know if this Fair Wage Plan truly has merit. But I do hope that it raises important questions and introduces some fresh ideas into the debate over wages.
1) Wealthy, industrialized nations (particularly the G8 nations that were targeted this weekend) must craft economic policies that benefit developing nations. These policies would include fair trade, debt relief, and so forth.
2) Every nation must evaluate how its domestic policy affects the poor within its borders.
3) Community organizations (particularly religious congregations) must continue and increase their efforts to serve the poor and fight the causes of poverty on a local level.
I want to focus on #2 as it pertains to the minimum wage in this country. The federal minimum wage in the United States is currently $5.15 per hour. If you have ever tried to maintain a household on minimum wage in this country, you know that doing so is impossible. Some cities have passed living wage laws that require the city government, companies that are contracted by the city government, and/or all employers within the city limits to pay all of their full-time employees a wage that will cover their basic living expenses (usually around $10 per hour). I support these efforts.
Opponents of raising the minimum wage fear that higher wages will hinder businesses' ability to grow and create new jobs. Some also contend that many low-wage employees are teenagers and unskilled workers who need to gain experience to break into the labor force.
I am proposing the following plan to raise wages in the U.S. that, I think, takes seriously the concerns of those who oppose increasing the minimum wage.
I am not an economist and do not know if this Fair Wage Plan truly has merit. But I do hope that it raises important questions and introduces some fresh ideas into the debate over wages.
posted by Tinley | 5:48 AM
1 Comments:
Sorry, I'm picking on you today.
I think your last question about the merit of the idea from an economic point of view has an answer and that is "no". Not to be mean or combative, simply to state why economist in general are reluctant to endorse wage standards: consumers are the ones who pay wages, not employers. Costs of doing busines are always passed on to the consumer and it is the consumer's discretionary spending that determines what a company can afford to pay. I wish companies were more conservative with the executive salaries they dole out, but to the extent that an executive position makes or breaks a company they will be coveted and paid top dollar. The firm that is regulated in such a way as to restrict by ratio the pay of their top executives would come to terminal disadvantage quickly. Either they couldn't attract the all important talent needed or they cannot generate enough product revenue to cover their payroll. In this context it isn't a moral issue.
Trade deficits come into play about this time in the argument because the only way to increase the base wages(payroll) of workers in a given country is to sell enough product outside of its own consumer base to cover the increase without taking it back in the cost of consumer goods.
There is a solution in a general sense, though. All workers have to become more invested in overall productivity in order to secure that the products they help produce are the most economical to purchase within the global market. They can work harder or smarter to achieve this, but either way they have to prove their productivity in an economic context. There is an obvious danger in this from a theological point of view, of course. We risk becoming obsessed with production to the exclusion of all other activities important in our life.
I have reached a point personally where I think one solution is to encourage companies to let go of the tight grip on labor that they traditionally possess and risk letting users become free agents of productivity. Government can serve a vital function in that process, too. One start would be to eliminate as many full-time positions as possible and move to higher paid part-time positions. Some workers might be able to juggle two or three part time jobs and make more money for the same time committment. For some it may be preferable to work a single part time job that is sustaining at a minimum level while they devote more time to family or other valued pursuits. The advantage to many companies is that they can employ labor in a more granular way and avoid inefficiencies. It also would give the multi-job worker more security from layoffs. It is far better to have half a paycheck than none at all. In time they will find additional "contracts" to work. In the end the impetus remains with each individual to choose their economic destiny.
Okay, I've rattled on enough. This was an old post anyway, right? ;)
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