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Raising the Federal Minimum Wage to $10.10 Would Save Safety Net Programs Billions and Help Ensure Businesses Are Doing Their Fair Share

October 17, 2014 Comments off

Raising the Federal Minimum Wage to $10.10 Would Save Safety Net Programs Billions and Help Ensure Businesses Are Doing Their Fair Share
Source: Economic Policy Institute

More than five years have passed since the federal minimum wage was raised to its current level of $7.25 per hour. Over that time, the value of a minimum-wage income has fallen nearly 10 percent due to rising prices. Yet this decline is small in comparison to the drop in value of the minimum wage over the past four decades. After rising in line with economy-wide productivity in the three decades following its inception in 1938, the federal minimum wage has been raised so inadequately and so infrequently since the late 1960s that today’s minimum-wage workers make roughly 25 percent less in inflation-adjusted terms than their counterparts 45 years ago. Indeed, a full-time, full-year minimum-wage worker with one child is paid so little that income from her paycheck alone leaves her below the federal poverty line.

This failure to adequately raise the wage floor has contributed strongly to the stagnation of wage growth at the bottom of the wage distribution. This wage stagnation has, in turn, been the single greatest impediment to making rapid progress in poverty reduction in recent decades. Indeed, all of the decline in poverty reduction in recent decades can be accounted for by safety net and income-support programs (Bivens et al. 2014). In fact, managers at some of the largest and most profitable corporations in the United States today actively encourage their employees to seek public assistance to supplement meager paychecks (Eidelson 2013). All of this has led many to conclude that American employers are too often dodging their responsibilities as partners in the social contract—the understanding that Americans who work hard should be paid enough to make ends meet. Instead, too many low-wage employers are leaving both taxpayers and, more importantly, low-wage workers themselves to pick up the slack.

Recent protests calling for higher wages at many of these companies have highlighted this widening rift between what businesses are paying and what workers need to survive. Among the protesters’ demands is that employers begin paying workers adequately, instead of relying upon public funds to give their workers a decent standard of living even as corporate profits reach record highs.

This issue brief examines the use of public assistance programs by low-wage workers and assesses how raising the federal minimum wage to $10.10 over three years—as proposed by the Fair Minimum Wage Act of 2014, a bill introduced by Sen. Tom Harkin (D-Iowa) and Rep. George Miller (D-Calif.)—could affect utilization rates, benefit amounts, and government spending on these programs.

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Why America’s Workers Need Faster Wage Growth—And What We Can Do About It

September 10, 2014 Comments off

Why America’s Workers Need Faster Wage Growth—And What We Can Do About It
Source: Economic Policy Institute

The last year has been a poor one for American workers’ wages. Comparing the first half of 2014 with the first half of 2013, real (inflation-adjusted) hourly wages fell for workers in nearly every decile—even for those with a bachelor’s or advanced degree.

Of course, this is not a new story. Comparing the first half of 2014 with the first half of 2007 (the last period of reasonable labor market health before the Great Recession), hourly wages for the vast majority of American workers have been flat or falling. And even since 1979, the vast majority of American workers have seen their hourly wages stagnate or decline—even though decades of consistent gains in economy-wide productivity have provided ample room for wage growth.

The poor performance of American workers’ wages in recent decades—particularly their failure to grow at anywhere near the pace of overall productivity—is the country’s central economic challenge. Indeed, it’s hard to think of a more important economic development in recent decades. It is at the root of the large rise in overall income inequality that has attracted so much attention in recent years. A range of other economic challenges—reducing poverty, increasing mobility, and spurring a more complete recovery from the Great Recession—also rely largely on boosting hourly wage growth for the vast majority.

This paper, hand-in-hand with the overview paper (Bivens et al. 2014) for EPI’s Raising America’s Pay initiative, explains in detail why we need to raise wages in order to achieve real gains in the living standards of the vast majority of Americans. This paper begins by documenting the pronounced rise in income inequality in recent decades and then examines the implications of this rise in inequality for living standards growth for the vast majority. It then examines the link between wage growth and these wider income trends before undertaking a thorough analysis of wage trends since 1979. It concludes with an examination of the policy changes that have helped spur these wage trends by shifting bargaining power from the vast majority of workers to corporations and CEOs. The paper highlights an underappreciated subset of these policies: changes in labor market policies and business practices.

Twenty-Three Years and Still Waiting for Change — Why It’s Time to Give Tipped Workers the Regular Minimum Wage

July 15, 2014 Comments off

Twenty-Three Years and Still Waiting for Change — Why It’s Time to Give Tipped Workers the Regular Minimum Wage
Source: Economic Policy Institute

Last year marked the 75th anniversary of the Fair Labor Standards Act (FLSA), the legislation that established many of the basic labor protections workers enjoy today, such as a 40-hour workweek, overtime protection, and a national minimum wage. There have been periodic amendments to the FLSA over the years, but the 1966 amendments were especially significant. They extended protections to hotel, restaurant, and other service workers who had previously been excluded from the FLSA, but also introduced a new “subminimum wage” for workers who customarily and regularly receive tips. Unlike temporary subminimum wages (such as those for students, youths, and workers in training), the “tip credit” provision afforded to employers uniquely established a permanent sub-wage for tipped workers, under the assumption that these workers’ tips, when added to the sub-wage, would ensure that these workers’ hourly earnings were at least equal to the regular minimum wage. The creation of the tip credit—the difference, paid for by customers’ tips, between the regular minimum wage and the sub-wage for tipped workers—fundamentally changed the practice of tipping. Whereas tips had once been simply a token of gratitude from the served to the server, they became, at least in part, a subsidy from consumers to the employers of tipped workers. In other words, part of the employer wage bill is now paid by customers via their tips.

Today, this two-tiered wage system continues to exist, yet the subsidy to employers provided by customers in restaurants, salons, casinos, and other businesses that employ tipped workers is larger than it has ever been. At the federal level, it currently stands at $5.12 per hour, as employers are required to pay their tipped staff a “tipped minimum wage” of only $2.13 per hour, and the federal regular minimum wage is currently $7.252 Remarkably, the federal tipped minimum wage has been stuck at $2.13 since 1991—a 23-year stretch, over which time inflation has lowered the purchasing power of the federal tipped minimum wage to its lowest point ever.

Proposed federal minimum-wage legislation, the Fair Minimum Wage Act of 2014—also known as the Harkin–Miller bill—would not only increase the federal regular minimum wage to $10.10, but for the first time in decades would also reconnect the subminimum wage for tipped workers back to the regular minimum wage by requiring the former be equal to 70 percent of the latter. This would be a strong step in the right direction; however, we present evidence that tipped workers would be better off still if we simply eliminated the tipped minimum wage, and paid these workers the full regular minimum wage.

Raising America’s Pay: Why It’s Our Central Economic Policy Challenge

June 24, 2014 Comments off

Raising America’s Pay: Why It’s Our Central Economic Policy Challenge
Source: Economic Policy Institute

Our country has suffered from rising income inequality and chronically slow growth in the living standards of low- and moderate-income Americans. This disappointing living-standards growth—which was in fact caused by rising income inequality—even preceded the Great Recession. Fortunately, income inequality and middle-class living standards are now squarely on the political agenda. But despite their increasing salience, these issues are too often discussed in abstract terms. This paper—and the Raising America’s Pay project that it launches—exposes the easy-to-understand root of rising income inequality, slow living-standards growth, and a host of other key economic challenges: the near stagnation of hourly wage growth for the vast majority of American workers over the past generation.

It should not be surprising that trends in hourly wage growth have profound consequences for American living standards. After all, the vast majority of Americans rely on their paychecks to make ends meet. For these families, wages and employer-provided benefits comprise the bulk of income, followed by other income sources linked to labor market performance, such as wage-based tax credits, pensions, and social insurance. Even for the bottom fifth of households, wage-related income accounts for the majority of total income. Indeed, wage-related income has been a growing share of total bottom-fifth income over time, as the safety net shifts toward wage-related income supports (such as the earned income tax credit) while non-wage-related supports (such as Temporary Assistance for Needy Families) decline.

Understanding Cuts to Public Pensions

June 12, 2014 Comments off

Understanding Cuts to Public Pensions
Source: Economic Policy Institute

In the past several years, fears that underfunded public pensions are a growing burden on taxpayers have led to calls to cut employer-provided pension benefits through increased employee contributions, increased retirement ages, reduced cost-of-living adjustments (COLAs), or other changes. But too often news reports on proposed or enacted pension cuts either overplay the rationale behind them, or minimize the impacts on affected workers. The latter is especially true with changes that do not decrease take-home pay but reduce future retirement benefits and thus may be harder to quantify.

This primer is intended to help organizations understand both the rationales behind and the details of proposed cuts to public pensions. It provides tools for assessing and understanding the true underlying health of public pension plans, the history behind any actuarial shortfalls, and the impacts on workers and taxpayers of proposed or enacted legislation that reduces pension benefits. The primer is organized as a series of 10 steps, although all may not be relevant in every situation. While it ends with a specific example of the percentage change in lifetime benefits, measured in real terms, received by a prototypical worker under four different pension plan changes, it provides guidance on using alternative measures as well.

The Class of 2014 — The Weak Economy Is Idling Too Many Young Graduates

May 29, 2014 Comments off

The Class of 2014 — The Weak Economy Is Idling Too Many Young Graduates
Source: Economic Policy Institute

The Great Recession officially ended in June 2009, nearly five years ago. However, the labor market has made agonizingly slow progress toward a full recovery, and the slack that remains continues to be devastating for workers of all ages. The U.S. labor market still has a deficit of more than 7 million jobs, and the unemployment rate has been at 6.6 percent or higher for five-and-a-half years. (In comparison, the highest unemployment rate in the early 2000s downturn was 6.3 percent, for one month in 2003.) The weak labor market has been, and continues to be, very tough on young workers: At 14.5 percent, the March 2014 unemployment rate of workers under age 25 was slightly over twice as high as the overall unemployment rate, 6.7 percent. Though the labor market is headed in the right direction, it is improving very slowly, and the job prospects for young high school and college graduates remain dim

A key finding of this paper is that there is little evidence that young adults have been able to “shelter in school” from the labor market effects of the Great Recession. Increases in college and university enrollment rates between 2007 and 2012 were no greater than before the recession began—and since 2012, college enrollment rates have dropped substantially. This means there has been a large increase in the share of young high school and college graduates who are idled—neither employed nor enrolled in school—by the weak economy. This represents an enormous loss of opportunities for this cohort that will have lasting consequences.

The Legislative Attack on American Wages and Labor Standards, 2011–2012

November 1, 2013 Comments off

The Legislative Attack on American Wages and Labor Standards, 2011–2012
Source: Economic Policy Institute

Over the past two years, state legislators across the country have launched an unprecedented series of initiatives aimed at lowering labor standards, weakening unions, and eroding workplace protections for both union and non-union workers. This policy agenda undercuts the ability of low- and middle-wage workers, both union and non-union, to earn a decent wage.

This report provides a broad overview of the attack on wages, labor standards, and workplace protections as it has been advanced in state legislatures across the country. Specifically, the report seeks to illuminate the agenda to undermine wages and labor standards being advanced for non-union Americans in order to understand how this fits with the far better-publicized assaults on the rights of unionized employees. By documenting the similarities in how analogous bills have been advanced in multiple states, the report establishes the extent to which legislation emanates not from state officials responding to local economic conditions, but from an economic and policy agenda fueled by national corporate lobbies that aim to lower wages and labor standards across the country.

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