May 18, 2016

Addressing Income Inequality (v1): Living Wages

Let's admit into evidence that there is an income inequality problem in America.  The really rich are getting really richer, and the minimum wage is not a living wage.

And let us accept those facts as just that - facts. Meaning, let's not argue whether the minimum wage should be a living wage, for example -- let's just pretend we're adults, not Republicans, is what I'm getting at. You know what I'm talking about.

So - we have income inequality RIGHT NOW, today, the worst it's been since maybe even going as far back as when man and dinosaur strolled across Texas together and what do we do about it?

Example #1. 
We run for President and promise to raise the federal minimum wage to an arbitrary $15 per hour ($31,200 annually) - by 2020.  Or, promise to raise the minimum wage to $12 and have the states and localities do more.

These are proposals from Bernie Sanders and Hillary Clinton, respectively. These are the Democrats, who see the issue as a huge deal in the campaign, as opposed to Donald Trump  who might believe we shouldn't have a minimum wage at all, I'm not sure - and I don't think he is either. But these are the Democrats, who might take almost their full first term to address wages for the lowest paid people, who are suffering the most right now. 

Example #2. 
In New York, again Dems taking the lead, we implement different minimum wages - one for fast food workers, one for tipped workers in the hospitality industry, a different one for other tipped workers, and now, new with this year's budget, two for down-staters, and a different one for the rest of the state, regardless of their line of work.

Seriously -- it takes an economics major to figure out how we get there and when.  Take a look:
The timing and scope of the minimum wage increase varies depending on which county in New York State an employee works, and the size of the business. For instance, for employees in New York City who are employed by a company that has 11 or more employees, the minimum wage will increase to $11 per hour at the end of 2016, $13 at the end of 2017, and $15 at the end of 2018. However, for employees in NYC who are employed at a company with 10 or fewer employee, the minimum wages are smaller and implemented over a longer time period with the minimum wage rising to $10.50 at the end of 2016, $12 at the end of 2017, $13.50 at the end of 2018, and $15 at the end of 2019.
Sounds easy enough, right?
For employees who work in the NYC commuter counties of Nassau, Suffolk and Westchester, the minimum wage will increase to $10 at the end of 2016, then will increase in $1 increments at the end of each year until the minimum wage reaches $15 at the end of 2021.
Take a breath, there's more:
For workers in the rest of New York State, the minimum wage will increase to $9.70 at the end of 2016, and then increase in $0.70 increments at the end of each year, until the minimum wage reaches $12.50 at the end of 2020.  After 2020, the minimum wage will increase to $15 in increments determined by the state Director of the Division of Budget in consultation with the state Department of Labor.
Except for:
the law also contains a "safety valve" provision which provides that, beginning in 2019, the state Director of the Division of Budget will conduct an annual analysis of the economy in each region in the state, and the effect of the minimum wage increases, to determine whether a temporary suspension of the scheduled increases is necessary.
Got that?  One state, trying to raise the minimum wage that is currently not a living wage, and taking some three, four, five years (or maybe never) to get it done.

Example #3.
People are working longer hours than ever before and still not making ends meet. So we'll address that too. Except that will happen right now, or at least by the end of this year, the end of Obama's presidency.  In case you missed it, there's a new rule on overtime.
Under a new rule announced by the White House Tuesday, anybody making a salary of less than $47,476 ($913 a week) (which is $22.825 per hour) will automatically qualify for overtime pay when they work more than 40 hours a week. That's roughly double the $23,660 ($455 per week) (which is $11.375 per hour).
Why are we doing this, you ask?

Because there are folks who have some management responsibilities who have been exempt from OT, until this change.  I was not aware, but since 1975, according to the article, the percentage of salaried workers who are eligible for overtime has fallen from 62% to 7%.. That will increase to 35% when the new rule goes into effect.

Bet you're wondering how that threshold was determined, aren't you?  Well, we're told,
The new threshold will be updated every three years to make sure it stays at the 40th percentile of full-time salaries in the lowest income region of the country. Based on wage growth projections, that means it could rise to $51,000 by 2020.
So, here we have three examples of helping solve the wage problem, three different solutions:

  • a one-size fits all (Sanders)
  • a one size fits some, if they're not full-figured (Clinton)
  • a many sizes might fit most eventually, unless the sizes stop being made (Cuomo), or
  • a size from some unknown part of the country that fits everyone (Obama)

Do any of the solutions solve the problem? There's certainly no guarantee.  

Fast food companies, for example, are increasing their self-serve kiosks, in part because we all so hate standing in line to be served by a human (anyone remember bank tellers?) and certainly in part because employers will automate to avoid having to pay arbitrary wages. (Ironically, some of the people making the automated kiosks will likely be earning less than the people in the fast food restaurants the kiosks are designed to replace.)

Some employers will find a way to get rid of one person, I'm sure, to qualify for the lower minimum wage afforded to smaller businesses here in New York.  And, of course, the new overtime rule will likely see some salaried people become hourly people, reducing their flexibility and perhaps their other 'managerial' benefits; others will simply not be offered the extra hours, so they won't benefit from the change at all. In fact, they may lose money, given that straight time for hours over 40 is better than nothing. 

Throw in other regulations that determine benefit levels, or define 'small business' in a totally different way, making it even more costly for small businesses to navigate our state and federal regulatory landscape, and throw in the countless legal experts who will find the loopholes in these regulations (as there always are, and as they always do) to satisfy shareholders and pension funds and 401k funds, and to keep the costs of their products down, and what will the real outcome be?

Finally, what do any of these minimum wage solutions in particular do for the vast majority of workers who are struggling on their current, non-living wage of $15 an hour today, and will likely not receive a 50%, 60%, or 70% increase by the end of 2020?  Their struggle will continue, right, even though their minimum wage-earning teenagers will be thriving?

I know people say we have to start somewhere, but do we know where that 'somewhere' really is?