ECONOMY OCTOBER 7, 2013
The problem of income inequality in the United States is really three different problems. One is the concentration of income and wealth at the very top—the notorious 1 percent making more than about $250,000 a year. A second problem is the stagnating incomes of the middle class, in particular the lower–middle class: those with family income of about $32,000 to $50,000 a year. The third problem is poverty: the 15 percent of Americans—or about 46 million people—earning less than the poverty line of about $23,500 a year, which is the government’s estimate of the minimum amount needed to feed, clothe, and house a family of four.
In terms of importance, it seems to me, the problem of poverty comes first. When people actually don’t have enough to eat, you’ve got an emergency on your hands. Next comes the middle class, where no one is starving, but the American promise of steady improvement (the expectation that your children will live better than you did) is being betrayed.
Not trivial but least important is the problem of the rich getting richer. Many would say that’s hardly a problem. That it’s an achievement. And in some cases that’s true: Some people get rich in ways that add more to general prosperity than they take out. But others climb into the 1 percent in ways that don’t add to general prosperity. And if they don’t add enough to general prosperity to cover the amount they take away from it, then their share is coming out of everybody else’s.
Solving the problems of the poor and middle class will require a substantial contribution from the affluent—not just the top 1 percent, or even the top 10 percent, but the top 15 or 20 percent. But there’s no need to be vindictive about it. Affluent people should fork out a bit because they’ve been lucky, not because they’ve been evil. It only takes $50,000 a year or so to put you in the top half of income distribution in this country, so the upper–middle class can expect any serious readjustment of income distribution to cost them initially rather than benefit them.
The federal minimum wage is $7.25 an hour. (In some states, and the District of Columbia, it’s a bit higher.) For a 40-hour week, 50 weeks a year, that’s $14,500, which is just over three-fifths of the minimum amount the government says you need to survive.
Besides being brutally unfair, this is illogical. Shouldn’t people who are working full-time earn enough to live at least at the poverty line? They’re working as hard as they can. What else can they do? The entire language of the old debate about the War on Poverty is outmoded. These are not, for the most part, “welfare queens” driving their Cadillacs to the welfare office to collect large checks, which they use to buy drugs and liquor for their boyfriends. These are hard-working people, doing everything that we as a society ask of them. Surely we can afford to say: If you work a full-time job, you may be hard-up, but you won’t be poor.
The most straightforward way to make sure that every job pays at least poverty-level wages would be to simply require it. The current minimum wage doesn’t quite do that. A minimum wage of $12.50 an hour would be $25,000 a year—just a hair above the poverty line.
Employers would scream, this will destroy jobs. In fact, they are already screaming in Washington, where the city council passed a “living-wage” law requiring big-box stores to pay their employees at least $12.50 an hour. The bill was aimed at Walmart, which is planning to open six stores in and around Washington. Walmart made clear that three of the stores, and possibly all six, would not be built if the living-wage law were enacted. The mayor, Vincent Gray, vetoed the bill on the grounds that it was unfair to discriminate against one type of store, and because it would cost jobs. The council failed to override the veto.
It seems beyond dispute that raising the minimum wage will cost jobs. Except in rare circumstances, when the price of something (in this case, labor) goes up, demand for it goes down. There was a school of thought that sometimes raising the price of labor actually increases employment. This is hard to believe. But you don’t need to believe it in order to favor a higher minimum wage.
The minimum wage costs jobs. It makes our economy less efficient. Opponents of raising the minimum wage act as if this is the end of the story. But it isn’t. Many government policies reduce economic efficiency and make our society a bit poorer than it otherwise would be. But we’ve made a decision that other social goals make it worth the cost. So it is with the minimum wage.
The minimum wage has been around since the New Deal. If it’s so clear that raising it costs jobs, why do we not hear more poor people complaining about it? (I’ve never heard any poor person complain that the minimum wage is too high.) The reason? For a low-income individual, the minimum wage is a gamble. You might lose your job. But you might get a raise. The average wage of a Walmart “associate” is $8.81 an hour. A raise to $12.50 would be 41 percent. If you make only the federal minimum wage of $7.25 (as many Walmart associates do, though the exact number is subject to dispute), your raise to a “living wage” would be 72 percent! That is a deal worth considering.
Trouble is, Walmart is not offering that deal. Walmart sells as cheaply as it can, and that requires hiring people as cheaply as it can. Forcing Walmart to pay higher wages than its competitors is unfair, and forcing it to pay people more than it has to is unfair to its customers, many of them poor themselves, who would have to pay higher prices.
A confession: I love shopping at Walmart. In fact, I love just wandering around Walmart, admiring the cornucopia of stuff for sale and the miraculously low prices. I can hardly wait for six new Walmarts in the Washington area. (Right now there are none except in distant suburbs.)
However, I don’t want to exploit my fellow Americans by underpaying them. I would happily pay a bit more for the knowledge that nobody involved in the making and selling of whatever I purchase has been paid less than $12.50 an hour. How much is “a bit”? According to a study two years ago by scholars at the University of California at Berkley and City University of New York, the average Walmart customer spends about $1,200 a year there. (Good news for me: I am below average—but I can rectify that!) Even if the entire cost of a wage increase (to $12, not $12.50) were passed on to customers, the cost to an average customer would be just more than 1 percent, or $12.50 a year.
Who wouldn’t pay 12 bucks and change for the right to roam the Walmart aisles without guilt? Well poor people might not be able to. But, depending on how it’s done, they may not have to.
There’s no need to force Walmart into raising its wages and prices. Let the market work! These days almost everything you buy carries a label making the claim that in some way it is morally superior. It is “organic.” It is “gluten free.” It is “cruelty free”—cruelty to animals, that is. Everything from dishwasher detergent to entire office buildings gets certified by how “green” it is.
Why not create a label symbol indicating that the product you are about to buy is “poverty-free”—i.e., no American involved in making it or getting it to you makes less than $12.50 an hour?
Obviously, this should not be limited to Walmart, but Walmart could lead the way. On some items, they might want to try putting poverty-free and non-poverty-free items side by side on the shelf and see how many people go for each.
Yes, yes, I know there are problems. Imports, for one. A reason for Walmart’s low prices is that much of the labor that goes into its products is that of foreigners in distant lands who are lucky to get 12 cents an hour, let alone $12. Furthermore, that’s a good thing, the bottom rung on the ladder to the middle class.
As long as it’s voluntary, the extra cost of a living wage can be passed along to the customers, and any competitive disadvantage should disappear. Or here’s an idea: Hidden cameras could photograph the greedheads who wouldn’t pay 11 cents more for poverty-free peanut butter and bought the cheaper stuff instead. Their pictures could be posted at checkout.
No? Well, maybe that goes too far.
Michael Kinsley is editor-at-large of The New Republic.