January 11, 2022

Federal labor officials are giving Amazon employees in Alabama a second shot at forming a union, and their coworkers in Staten Island are seeking clearance to hold a vote. Americans, more confident of their employment prospects, are leaving their jobs in record numbers, with much of the activity in low-wage industries like hospitality.

Employers, having taken note, are combatting high quit rates and staff shortages by raising pay at the bottom of the wage scale. Also fueling the hikes has been a series of increases in state minimum wages, including automatic annual cost-of-living increases in a growing number of states.

Various economists, using different data sources, have reached a similar conclusion about these recent developments: pay for low-income workers – the same people who suffered the highest unemployment rates during the pandemic – is currently outpacing inflation.

It’s unclear whether that trend will continue in 2022, if, as some economists now predict, inflation becomes more persistent. The government will report December’s inflation rate tomorrow.

But between the third quarters of 2020 and 2021, Arindrajit Dube, at the University of Massachusetts at Amherst, estimated that wage increases for workers in the bottom 30 percent of the pay scale outpaced inflation. Another economist, Geoffrey Sanzenbacher at Boston College, reached a similar finding: inflation-adjusted pay for people with earnings in the bottom 25 percent of all earnings rose last year while workers in the top 10 percent saw a decline.

When inflation first started picking up, economists said it would be a temporary blip that would ease when the goods piled up at West Coast ports started moving onto store shelves. But some economists are changing their tune and worry that high inflation will last longer than they’d predicted.

This would especially be a problem for low-wage workers, who spend most of their income on necessities. Rental housing is a good example. In a recent Federal Reserve survey, consumers estimated their rents would rise by 10 percent over the next year. An increase of this size would mark a new high for low-wage workers’ largest single expense – rent consumes more than half of their monthly income. …Learn More

March 4, 2021

Largely missing from the debate about raising the federal minimum wage is how much its value has eroded over the past 50 years.

The current federal minimum is $7.25 an hour. If the 1968 wage were converted to today’s dollars, it would be worth about $12 an hour.

At $7.25 an hour, a full-time worker earns just over $15,000 a year before taxes, which is less than the federal poverty standard for a family of two. The Biden administration has proposed more than doubling the federal minimum to $15 by 2025, and one proposal in Congress would begin indexing the minimum wage to general wages so it keeps up with inflation.

A $15 an hour minimum isn’t enough, said one sympathetic Florida contractor who voted in November to gradually increase the state’s mandatory minimum wage to $15. “I’d like to see some of the American people go out there and try to make a living and put a roof over their head and raise a family,” he told a reporter. “It’s literally impossible.”

But small businesses say raising the minimum wage would increase their financial pressures at the worst time – during a pandemic. At least 100,000 U.S. small businesses closed last year as governments restricted public gatherings to suppress the virus, and the Congressional Budget Office (CBO) estimates a higher federal minimum could eliminate 1.4 million jobs.

This evidence ignores the complexity of low-wage workers’ situations. Employee turnover is extremely common in low-wage jobs in fast food establishments, for example, and workers frequently have bouts of unemployment that further reduce their already low earning power. Raising the minimum wage could somewhat compensate for their spotty employment and provide more money for essential items. And while the CBO warns of job losses, it also predicts that a higher federal minimum wage would lift 900,000 million workers out of poverty.

Many states have approved incremental automatic annual increases, and a $15 minimum wage has been approved in eight states, including Florida. Voters – over the objections of the Florida Chamber of Commerce – approved raising the state’s minimum wage from $8.65 this year to $15 in 2026.

“We won’t get fifteen for another five years. We need that now,” an Orlando McDonald’s worker, Cristian Cardona, told The New Yorker.

Once again, inflation is a problem. “By the time we get fifteen, it’s going to be even less,” he said. …Learn More

Field Work

January 12, 2021

Something remarkable is happening in the economics profession. Top researchers in the field have begun arguing for policies to alleviate growing U.S. income and wealth inequality.

For decades, inequality wasn’t taken very seriously by economists. But that view “has changed dramatically,” said James K. Galbraith of the University of Texas at Austin, who moderated a Zoom panel at the annual meeting of the Allied Social Science Associations last week.

Inequality, Galbraith said, has “become one of the most important questions economists face.”

And COVID-19, argued Nobel laureate Joseph Stiglitz, a panelist, “has brought out very forcefully the nature of the inequalities in our society” and has “exacerbated those inequalities.”

The pandemic’s effects include larger increases in unemployment for low-wage workers, who are disproportionately Black and Latino and often work for small businesses devastated by efforts to suppress the virus. In addition, front-line workers like home health aides and meat-packing workers are being exposed to the virus but don’t always have paid sick time. There are also growing concerns about the longevity gap and about a widening educational gap between students from poor and high-income neighborhoods resulting from online learning.

The economists, having agreed inequality is a problem, identified the myriad forces driving it. They range from the persistent segregation of Black and white neighborhoods to the ability of the wealthy to invest and accumulate more wealth, while wage workers can barely get by. In a cutthroat global economy, the decline of unions has also stripped workers of their ability to bargain with employers for higher wages, they said.

Another panelist, Teresa Ghilarducci, brought attention to the inequality that exists among retirees. This can be seen in the downward mobility many people experience after they retire and can no longer support the standard of living they had while they were working.

To address these complex problems, the economists said a comprehensive policy agenda is needed that includes beefing up Social Security benefits – the great equalizer – for disadvantaged retirees, more taxation of inheritances, educational equality at the preschool through college levels, sturdier social safety nets, and new labor rules that give workers back some of the power they have lost.

Another panelist, Jason Furman, former chair of President Obama’s Council of Economic Advisers, agrees that an array of policies will be required to combat inequality. But he also argued that the two major relief bills Congress passed last year – a total of $2.9 trillion – probably reduce inequality. …Learn More