It’s the holiday season and most American households are struggling, many desperately, as the economy continues it’s dismal performance. Yes, unemployment is down to 8.6% from 9% and higher (where it had been stuck since 2008) but that modest “improvement” was mainly due to discouraged workers dropping out of the labor market. The employment and hiring rates remain at historically low levels.
But while there’s been lots of attention paid to unemployment and to the income gains of the top 1%, there has been far too little focus on the need to combat poverty level wages. We are enmeshed in a toxic brew of joblessness, low hours (involuntary part-time employment), and low pay (1/3 of all workers earn below 2/3 of the median wage – see below).
It is said that Charles Dickens intended A Christmas Carol as a “sledgehammer blow on behalf of the poor and unfortunate” (“Father Christmas,” New York Times, December 7, 2011). One of the great lessons of Dickens’ accounts of 19th century London is that poverty for families with working-age adults is rooted less in joblessness than in low pay. But they’re connected: the threat of job loss undermines the ability of workers to demand decent pay and working conditions.
In the first pages of the A Christmas Carol, Dickens writes:
“The door of Scrooge’s counting-house was open that he might keep his eye upon his clerk, who in a dismal little cell beyond, a sort of tank, was copying letters. Scrooge had a very small fire, but the clerk’s fire was so very much smaller that it looked like one coal. But he couldn’t replenish it, for Scrooge kept the coal-box in his own room…”
And when Scrooge overhears his pathetic clerk mutter Merry Christmas to Scrooge’s nephew, his response is “… my clerk, with fifteen shillings a week, and a wife and family, talking about a merry Christmas. I’ll retire to Bedlam.”
Yes, keeping a veneer of Christmas cheer while maintaining a family on 15 shillings a week in the employ of Ebernezer Scrooge does seem to qualify as a bit insane. But in 1843 London, with no employment protection or minimum wage laws, what was the alternative?
Fast forward to America at Christmas, 2011. No employment protection here either. And a Federal minimum wage that fails to come close to a living wage. It is a holiday season in which “Super Saturday” was a bust for big retailers, who have had to resort to endless promotions and offers of “layaway” plans. And even that’s often insufficient, as Fox News.com (of all sources!) has reported:
The young father stood in line at the Kmart layaway counter, wearing dirty clothes and worn-out boots. With him were three small children.
He asked to pay something on his bill because he knew he wouldn’t be able to afford it all before Christmas. Then a mysterious woman stepped up to the counter.
“She told him, ‘No, I’m paying for it,’” recalled Edna Deppe, assistant manager at the store in Indianapolis. “He just stood there and looked at her and then looked at me and asked if it was a joke. I told him it wasn’t, and that she was going to pay for him. And he just busted out in tears.”
At Kmart stores across the country, Santa seems to be getting some help: anonymous donors are paying off stranger’s layaway accounts, buying the Christmas gifts other families couldn’t afford, especially toys and children’s clothes set aside by impoverished parents.”
Just as Scrooge, in the end, saw the light and delivered a gigantic Christmas turkey to the Cratchit family, we can read about charitable holiday season gestures by some of the 1%.
But there’s another approach that can actually make a difference. It’s called social protection. We can choose to organize work and distribution of resources in a way that doesn’t leave clerks earning 15 shillings a week and grown men sobbing at Kmart counters in front of their children.
The truth is that 21st century America has inherited the free market fundamentalism and extreme inequality of Dickensian England. A recent research project funded by the Russell Sage Foundation has found that the US is not only the most unequal of the rich countries, but its workers experience the highest rates of low pay and job insecurity (Gautie and Schmitt, Low-Wage Work in the Wealthy World, 2010). The reason is quite simple: the absence of protective labor market institutions.
Unlike nearly all other wealthy countries, hardly any American workers are covered by collectively bargained contracts. The data: France, 95%; Netherlands and Denmark, 82%; Germany, 63%; and the UK, 35%… the U.S. holds down last place, at just 14% (2007; figure 3.1, Gautie and Schmitt). In other rich countries, nearly all low-skill workers are covered by collective bargaining agreements, which results in wages that are kept closer to the median. Bargaining power and social norms disallow low pay, so there is less need for a statutory minimum wage.
With collective bargaining benefiting only small pockets of workers, does the national minimum wage step into the breach? Hardly. The national minimum wage was fixed at $5.15 from 1997 until 2007, when it rose to $5.85.
That’s the bad news: since there was some inflation over this decade, the real value of the wage (in 2009 dollars) fell from $6.77 in 1998 to $5.48 in 2006. The good news is that legislators raised the wage in a series of steps to $7.25 in 2009, where it is today (some states have higher minimums). That means the real minimum wage was $6.84 in 2009 – back to almost exactly what it was in 1998. Some progress.
To provide some international perspective, Figure 1 compares the US and French minimum wage (MW) in terms of purchasing power. In the 1960s-70s, the US minimum ranged from $7-$9.00 (in 2005 dollars), far higher than the comparable French wage ($2.25 to $6).
Purchasing Power of the U.S. and French Minimum Wage, 1960-2010 (in 2005 dollars)
Source: The inflation adjusted real minimum wage values are from OECD.stat and are denominated in US PPP units. 2009 is the latest year for France.
But the decade of the 2000s presents an entirely different picture. The French minimum wage has steadily increased from around $7.50 to almost $9 while the US minimum has fluctuated between just $5 and $6.
A higher minimum wage reduces wage inequality for those with low wages. Figure 2 shows that the US minimum wage was around 50% of the median wage (half of all workers earn less, half more) in the 1960s, but now it’s only about 35%. In sharp contrast, over this period the French MW has risen from 35% to 60%. There could hardly be a more striking example of two countries taking diametrically opposing paths in social protection policy.
The Ratio of the Minimum Wage to the Median Wage (Kaitz Index) for Full-time Workers, France and the U.S., 1960-2010
And the consequence for those earning low wages? Figure 3 shows that the low wage share of employment (those paid less than 2/3 of the median wage for full-time workers) has been around 30% for decades. The French incidence of low pay has declined from 15% in the mid-1990s to just 10% today. The story for 20-34 year old workers is far worse (that’s for another post). Some will argue that France pays a big price in joblessness, as workers are “priced out of jobs”. As it turns out, that is not the case (also for another post).
Incidence of Low Wages for U.S. (1979-2010) and French (1993-2009) Workers
But there is some good news! First, as noted above, Congress actually (finally) increased the national minimum wage in 2007-9.
Second, it appears that some 2 million home health aides will (finally) be covered by the minimum wage and overtime protections of the Federal Fair Labor Standards Act (they had been exempted under the “companionship exemption” – as if they were teenage babysitters!). (see Michele Host, Huffington Post, 12/20/11)
And third, the prospects for the proposed NYC Living Wage Bill are looking good. Siding with some local business interests, the Bloomberg administration’s Economic Development Corporation hired an outside consulting firm, Charles River Associates (CRA) to assess the economic impacts of the proposed bill, and CRA in turn, not surprisingly, selected outside consultants widely known to be hostile to minimum wage and living wage legislation.
But the CRA’s report has been roundly criticized by George Sweeting, the Deputy Director of the New York City Independent Budget Office. (testimony, November 22). And there is other good news: New York City’s Public Advocate, Bill De Blasio, has just come out in favor of the bill.
Scrooge’s personal enlightenment and charitable giving (the turkey) in 1843 London makes for a heartwarming tale. Fox News can also, on occasion, deliver heartwarming tales – of charitable giving that helps struggling families with their layaway plans.
But making a real difference requires meaningful progressive public policies, like the establishment of wage legislation that moves all full-time workers to middle class living standards, as France has done. Recent small steps in this direction offer some reasons to be (guardedly) optimistic on the eve of this holiday season.