Want a Real Recovery? Raise the Minimum Wage.

Scratch the surface of just about any economic debate this election year, and you'll find one issue that goes all the way to the core: the yawning gap between the 1% and the rest of us, as skyrocketing income inequality [1]. A new report from the National Employment Law Project (NELP), "Big Business, Corporate Profits, and the Minimum Wage," [2] shows the extremes of that divide, and makes the case for raising the federal minimum wage as a means of closing that gap, and putting the national economy on the road to a real recovery.

The report explores the connection between stagnant —and falling — wages, and it's central finding explodes the argument that raising the minimum wage will cause employers to stop hiring, and the hurt small businesses that opponents of a minimum wage increase (and of the idea of a minimum wage itself) claim are the primary employers of low-wage workers. 

The central finding of this report is that the majority of America’s lowest‐paid workers are employed by large corporations, not small businesses, and that most of the largest low‐wage employers have recovered from the recession and are in a strong financial position.

The data in the report only strengthens the case.

• The majority (66 percent) of low‐wage workers are not employed by small businesses, but rather by large corporations with over 100 employees;
• The 50 largest employers of low‐wage workers have largely recovered from the recession and most are in strong financial positions: 92 percent were profitable last year; 78 percent have been profitable for the last three years; 75 percent have higher revenues now than before the recession; 73 percent have higher cash holdings; and 63 percent have higher operating margins (a measure of profitability).
• Top executive compensation averaged $9.4 million last year at these firms, and they have returned $174.8 billion to shareholders in dividends or share buybacks over the past five years.

Got that? In "recovery" in which most of the new jobs being created are low-wage jobs [3], the biggest corporations and biggest employers of low-wage workers are enjoying record profits — upwards of $1.97 trillion in the third quarter of 2011, according to the report. Most of them have recovered. Most have been profitable for the last three years, and nearly all were profitable in the past year. Most of them have more money to spend on operations. Executive pay at these companies averaged nearly $10 million last year, and shareholders enjoyed returns of nearly $175 million.

(I'd love to know how many of these same corporations have nothing or next-to-nothing in taxes. But I'll have to find that in another report, or do the research myself. Still, I'm willing to bet that most of these companies aren't any better at paying taxes than they are at paying their employees.)

The losers in all this are the workers [4], the very people who are creating value for these companies. If they're getting paid the federal minimum wage, they're getting paid about $7.25 an hour — hasn't been adjusted for inflation in 40 years [5]. If it had, those workers would be earning about $10.55 per hour. (It's even worse for workers like the waiters and waitresses with whom Mitt Romney recently said he sympathizes [6]. The federal minimum wage for tipped employees like them is $2.13., and in states like Florida — where tipped employees make just over twice the federal minimum wage for their jobs — the restaurant lobby fought to lower the minimum wage.) 

They're working for a wage that put the basic necessities our of their reach [7].  Health care and education are priced far out of their reach —not to mention things like milk and gas, as prices rise but paychecks don't [8]. Most can't afford a two-bedroom apartment [9], even working 40 hours per week.

Meanwhile, as NELP reported around this time last year [10], nearly all the new jobs created in this "recovery" are low wage [11]. In fact, the United States now leads the rest of the wealthy nations in the share of the workforce in low-wage jobs [12]. In places like New York State, low-paying jobs have replaced high-paying jobs [13]. 

As NELP co-director Christine Owens pointed out, these companies can afford to pay fair wages, and give the economy a much needed shot in the arm. 

“Large corporations employ the biggest share of low-wage workers in the U.S., but while those businesses have emerged from the recession with strong profits, their lowest-paid workers are still struggling to make ends meet,” Owens said. “It’s deeply worrisome that the very businesses that can most afford to pay fair wages and boost consumer demand are also driving the stagnant wage growth that is holding the economy back.”

In other words, as income inequality grows as a result of a "recovery" that's mostly replacing high-paying jobs with low paying jobs, the result is also an increase in consumption inequality [14]. In other words, people have less money to spend. Even those who have jobs or find jobs are being paid less, and thus have less to spend. In a consumer economy that means less demand for goods and services, which puts the brakes on what "recovery" there is to speak of [15]. 

Low wage workers aren't' the only losers in this equation. We all lose [4].

It's no exaggeration to say that the business model of America's low-wage employers depends on a generous government safety net, since without that net many of their workers would not be able to survive. So all of us are subsidizing the wealthy owners and executives of Wal-Mart, McDonalds, and Target. Alas, few of us seem to realize this.

All of us are hurt, too, by the way that the low-wage model drags down economic growth. If you give a low-wage worker higher wages, they immediately pump that money back into the economy through more spending. But if you give a CEO another few million dollars in compensation, he'll most likely just plow that money into his stock portfolio or other savings vehicles, which doesn't do much for the economy since capital is cheap right now and customers are scarce.

If we want an economy with robust consumer demand, workers need to a bigger slice of the pie. Business leaders once understood that elementary fact.

In 2010, the many of the most high-profile GOP candidates opposed raising the minimum wage [16], even at though at the time two thirds of Americans supported an increase in the federal minimum wage [17]. Now the "inevitable" Republican candidate for the White House, Mitt Romney actually flip-flopped to the right side of an issue [18], and at least supports automatically raising the minimum wage to keep pace with inflation. Mighty progressive, especially for a Republican. 

It's been three years since the federal minimum wage was increased [19], during which economic realities have made Americans more sympathetic with  low-wage workers (and turned many of them into low wage workers). There are now bills in both the House [20] and the Senate [21] to increase the federal minimum wage.

It's time to give working America a raise, for the good of our families, our communities, and our national economy.