Skip to content
February 15, 2013 / needhamgrassroots

Minimum Wage Conversation? Start with corporate profits.

From Ezra Klein — This is the chart that should begin all discussions of the minimum wage, and whether we need to increase it:

corporate profits labor share

That red line is corporate profits since 1970. The blue line is labor’s share of income. As you can see, corporate profits are skyrocketing while labor’s share of those profits is falling. This is a big part of the reason that median wages are stagnating even as the economy grows and the wealthy become ever more fabulously rich.

There are many explanations for why labor’s share of income is falling. Globalization, automation, skills-based technological change and the decline of unions all play a part. But in the end, all these explanations end up saying the same thing: Most workers have less power to negotiate raises than they did a generation ago. And that’s truest for those who making the least money and holding the fewest skills.

Economists argue over whether a small increase in the minimum wage would have no effect on employment or a slightly negative one. There’s no doubt that, at some margin, making low-wage workers more expensive will lead small businesses to hire fewer of them, and lead big businesses to automate more tasks (think about the computerized checkout services that have begun popping up at CVS).

But what no one argues is that increasing the minimum wage leads, in most cases, to a higher minimum wage. If we lift the minimum wage to $9 per hour, as President Obama has proposed, then most of the workers getting paid $7.25 per hour now now will see their pay increase to $9 per hour. So these workers, who have essentially no power to bargain for higher wages, will get higher wages. That, at its base, is the case for a minimum wage hike.

There are better ways to accomplish this same goal, most of which run through the tax code. The Obama administration’s first attempt was the Making Work Pay tax cut, which provided a refundable tax credit of up to $400 for working individuals and up to $800 for married taxpayers. But Republicans refused to renew it in 2011. So then the Obama administration moved to the payroll tax cut, which cuts payroll taxes by two percentage points in 2011 and 2012. But Republicans — and some Democrats — refused to extend it into 2013. They also expanded a variety of refundable tax credits for low-income workers — notably the Earned Income Tax Credit and the Child Tax Credit — in the stimulus, and those have survived.

These policies have the advantage of benefiting more than just minimum or near-minimum wage workers, and they spread their costs broadly rather than concentrating them on businesses, some of which can’t afford them. In theory, an efficient way to respond to the problem of falling labor income would be to tax corporations and richer Americans and then use the money for something like the Making Work Pay tax cut. But Republicans have killed those ideas. And so the Obama administration is pushing a higher minimum wage, which isn’t quite as good policy, but is much better politics.

From: Washington Post/Wonkblog – Ezra Klein – This graph is the best argument for raising the minimum wage -(2/14/2013)


Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: