While the wage gap is a major
issue, there is a secondary issue that needs addressed as well – minimum
wage. Much has been made of the current
minimum wage and the need to adjust it.
Current federal wage is $7.25/hr and there is a major push to raise it
to $15/hr. However, such an increase is
not something that can reasonably happen quickly. A move to $15/hr is more than twice the
current rate. Doing that in one massive
jump would seriously harm many small businesses and in turn harm many low
income Americans. At the same time, we
do need to raise the minimum wage. The
current wage is way too low, especially for working class American adults.
A single mom shouldn’t have to work
3 jobs to put food on the table for herself and her kids. A family of 4 shouldn’t have to send dad to
two jobs and mom to one to live a decent life.
I know I’m simplifying a bit, but the reality is we don’t have to look
too hard or too far to find a situation similar to those above. Yes, there are some people who just don’t
want to work hard, or at all. But, there
are a lot of Americans who would love the opportunity to work hard for 40 hours
each week and be able to provide for their family. They’ll do anything to provide for their
family, including working multiple jobs.
Maybe we should change the minimum wage so that a hard-working family of
4 can afford a home, clothes, and food on the income from just two parents
working one job each without needing government assistance. It’s not a crazy idea.
For a prime example of how a
business should run, look at Gravity Payments in Seattle, Washington. Several years ago the CEO, Dan Price, decided
to cut his salary to $70000 and increase the minimum salary to $70000. The Today Show ran this
piece last year highlighting the changes in the company. Among the key takeaways – happier employees
who don’t leave the company, employees buying more expensive homes closer to
work to shorten the drive time (more time with family just might = happier
employee), and employees having the child they didn’t think they could
afford. Price’s move to $70k wasn’t
pulled out of whole cloth. That figure
represents the average cost of living for a middle class family in
Seattle. After some initial blowback
(his brother sued him) and a few prominent departures, the company is actually
succeeding beyond Price’s expectations.
Profits didn’t take the hit he thought they would. The company has attracted key employees from
other companies, including Yahoo. Slate
had a great
article on why Price made his choice and the sound rationale behind it.
Now, obviously Gravity Payments
requires people with certain skill sets and training. That training does command a certain level of
income in return. Maybe not the $70000
the Price is paying, but definitely more than minimum wage. The thing is, Price is making an important
commitment to his employees – one that many companies refuse to make
today. Price is basically telling every
single employee one thing – you work hard for me and you deserve a middle class
lifestyle for it.
I know some of you are going to
argue that minimum wage shouldn’t be a guarantee of a middle class
lifestyle. If it is, where’s the
motivation to better oneself, to develop skills to get the middle class paying
job. I agree. But, minimum wage should be able to provide a
basic, albeit low, standard of living.
On top of that minimum wage should be enough that doing the things
necessary to develop new skills (going back to school, taking additional
training classes) doesn’t completely break the family budget. Part of the problem right now is that too
many families can’t afford for mom or dad to go to school. It’s not because they can’t pay for the
schooling since they could probably qualify for grants to pay for it. It’s because they can’t afford to leave their
2 jobs to have time to do classes. We
need to do more than just help pay for the schooling – we need to help pay for
life while going to school.
There’s one other massive way to
fix the wage problem in America but the C-suite isn’t going to like it. We need more executives like Dan Price. We need more executives who are willing to
take a smaller salary so that more employees can enjoy a bigger piece of the pie. Republicans as far back and Ronald Reagan
(and possibly farther) have tried to sell American’s on the notion of “trickle-down
economics.” NEWSFLASH: IT DOESN’T WORK! The reason is quite simple – American culture
is rife with materialism and greed.
Trickle-down economics wants us to believe that there is a point at
which the C-Suite, major shareholders, and the Board of Directors will have
enough money. Their cups will be full
and the overflow will cascade down to fill all of our cups like a perfectly
built pyramid of champagne glasses.
There’s just one problem – the glasses at the top of the pile
continually get bigger. Sure, there
might be the occasional slosh of champagne that trickles down to fill the cups
2-3 levels down, but nothing is making it all the way to the bottom. Dan Price decided to make his glass smaller
and allowed every glass in his pyramid to be filled.
There’s also some basic economic
math to support this. Take a decent
sized company, say 500 employees, plus a CEO, COO, and CFO. Assume an average salary for each C_O of $1.5M. The company had a very good year and it is
now time to discuss annual raises. Everyone
outside the C-Suite is getting a small raise (around 3%) and each C_O is looking
at a $250k raise (25%). They already
made $1.5M, so there isn’t much economic activity that they are going to
generate by boosting their salary to $1.75M.
Most likely that extra income is going to be invested. Not bad, but also not a great way to boost
overall economic activity. What if we
change the distribution of that $750k and give every employee an additional
$1500 and the C_O’s remain at $1.5M.
There’s a lot that can happen with an extra $1500 in the pockets of most
Americans. That money is going to get spent
on goods and services. People are going
to replace that old TV or update the living room furniture (finally!). That’s going to boost revenue for thousands
of companies where that extra $1500 is spent.
Sounds like a much healthier economy than seeing 3 people invest another
$750k. Go back and read that Slate article on Gravity Payments - this is almost exactly Price's rationale.
This is the key point with regards
to minimum wage. We need to raise it,
period. And the cost for raising that
wage cannot be higher prices on goods and services. It doesn’t do us any good to raise the
minimum wage of a WalMart greeter if WalMart responds by raising prices. The greeter can’t buy anything more than
before the raise. Wages need a real
boost, meaning an increase greater than inflation. That can happen when the 1% at the top of the
economic food chain decide that their glasses are big enough and it’s time for
everyone else to get to drink some champagne as well.
