Significant job growth continues to elude the American workforce, as companies hold back from expanding and rehiring in the face of weak demand for their goods and services. In a Wall Street Journal article last month, “Dearth of Demand Seen Behind Weak Hiring,” CEOs and economists repeatedly emphasized that without customers lining up to buy products, new jobs will not materialize. “We’re hiring a little here and there—but it’s not what it should be. And it’s because of the lack of demand,” Long-Stanton Manufacturing CEO Daniel Cunningham told The Journal.
Unfortunately, the prospect of rising demand has suffered further setbacks in the past month. On August 2, the Commerce Department reported that consumer spending had dropped in June, the first time in nearly two years. That was, of course, the same day the debt-ceiling deal became law, mandating spending cuts and a process for further deficit reductions that will suck billions of dollars out of the economy. These cuts are estimated to reduce next year’s GDP by 0.1 to 0.3 percentage points.
Another cause for concern is the latest evidence that the jobs that are coming back are low-paying positions with declining wages. A new analysis by the National Employment Law Project finds that while the majority of jobs lost during and after the recession were in mid-wage occupations, roughly three-quarters of the jobs added since job growth resumed are in low-wage occupations like cashiers and food preparation. To add injury to injury, workers in lower-wage occupations (with median wages under $13.52) have seen a 2.3 percent decline in real wages. The increase in low-wage jobs is in particular sharp relief in Texas, where minimum wage jobs have shot up in the state since 2008.
This post-recession drop in wages for the lowest earners fits a trend of long-term bad news for the American worker. As highlighted by Harold Meyerson , J.P. Morgan Chase reported to its banking clients in July that profit margins of the S&P 500 companies are at their highest levels in almost 50 years—due to cuts in pay and benefits. “Reductions in wages and benefits explain the majority of the net improvement in margins,” wrote the J.P. Morgan CIO. “US labor compensation is now at a 50-year low relative to both company sales and US GDP.”
Given these obstacles, how can we jump-start demand and create the impetus for rehiring that businesses need? With millions of workers looking for jobs that still don’t exist, we must extend unemployment insurance to keep families afloat and keep demand from falling off a cliff. But in order to boost demand, we need meaningful proposals that can help put a little more money in the pockets of millions of Americans who are working but are still financially struggling.
Raise the Minimum Wage
The federal minimum wage is currently $7.25 an hour, or $15,000 per year for a full-time worker. Congress has acted only three times in the past decade to raise wages for the lowest paid workers in our economy, but if the minimum wage had kept up with inflation over the past 40 years, it would be over $10 an hour. Instead, our painfully outdated minimum wage is depressing the pay scales for the entire low-wage economy.
When President Obama campaigned in 2008, he pledged to raise the minimum wage to $9.50 by 2011. According to an analysis by the Economic Policy Institute, this increase would generate more than $60 billion in new consumer spending. Eighteen states and the District of Columbia have recognized the federal minimum wage level is insufficient and have raised their state minimum wage rate. Raising the minimum wage is thus both feasible and an important strategy for boosting consumer demand.
Eliminate Wage Theft
Along with strengthening the minimum wage, we need to ensure our wage standards are enforced. A survey of more than 4,000 low-wage workers conducted by the National Employment Law Project and its partners in 2008 found that a quarter of workers had been paid less than the minimum wage in the preceding week, and three quarters who worked overtime were denied overtime pay. The average losses due to wage theft were about $2,600 from annual earnings of roughly $17,000. In New York, Los Angeles and Chicago alone, working families were estimated to lose $56.4 million a week to wage theft. That’s money that isn’t being recycled into local businesses and the local economy.
Unmonitored, unscrupulous corporations are all too quick to exploit their workforces, and given the terrible state of the economy, workers are in even greater fear of speaking up and defending themselves. In order to stop wage theft, states and cities must strengthen wage laws, and all levels of government must boost enforcement of these laws and penalties for breaking them. NELP’s Winning Wage Justice guide provides 28 policy proposals for state and city policies to fight wage theft, such as informing workers of their wage rates, increasing the damages workers can win if they have been denied pay, increasing the number of wage theft investigators at state labor departments, and lengthening the statute of limitations for a worker to file a complaint. And the blueprint for enforcement reform compiled by NELP and its partners in the Just Pay Working Group points the way to smart, strategic and cost-effective enforcement at the federal level.
Protect Workers’ Rights to Organize and Bargain Collectively
Workers in unions earn more and are more likely to have such benefits as health care and retirement than their nonunion counterparts. Low-wage workers who are able to join a union experience particularly robust improvements in compensation. Unionized workers in the bottom 10 percent of the earnings scale make 21 percent more than their nonunion counterparts. Yet, the share of workers benefiting from union representation has been on decline, sliding to under 11.9 percent of workers from more than a third in the 1960s.
Workers trying to organize too often face severe obstacles when exercising their right to organize, including being threatened by their employer or even fired. But too often these violations go unpunished. The right to organize must be better protected so that workers who want to join a union can do so without threats and intervention from employers.
Our nation’s families and our overall economy are in a deep hole. Millions of jobs disappeared along with our housing value and retirement savings. Much of the growth that led up to this crisis was fueled by increased consumption while incomes stagnated. In order to rebuild a stable economy fueled by sustainable growth, we must make work pay again.
Anne Thompson is a policy analyst at the National Employment Law Project.