The Minimum Wage: A Cautionary Tale
The recent public engagement in the campaign to raise the minimum wage is a good thing. Wages have stagnated since the seventies, while labor productivity has risen threefold. When further taking into account inflation, it’s farcical that the federal minimum wage lies at a dismal seven dollars and twenty five cents an hour. Of course, if economic policy were directed in the interests of the many, this would not be so, but for the few, it has allowed quite nice, if not downright fantastic profit margins for the service sectors. I almost become nauseated when I read the Wall Street Journals’ editorials discussing the calamitous results of a minimum wage increase in their typical sober, almost fatherly tone. What isn’t mentioned, is that, unlike the manufacturing base that was dismantled through the anti-labor trade deals of the nineties, the service sector jobs cannot be simply shipped overseas. Because of this, a minimum wage increase would not result in job flight, but in a decline in profit margin. History and economies of the other advanced industrial societies are evidence that higher wages in these service sector industries do not result in job flight, reduction or automation.
Because of this, it is highly undesirable for the retail and fast food sectors of the economy to have the minimum wage increased. The NRA is pumping tons of money into lobbying to see that his doesn’t happen. But as President Obama, said regarding healthcare, though ultimately pertinent here, “we can only get better”. While there will be an intense effort to forestall wage increase by these business sectors, not to mention Congress’s inability to really get anything done, eventually the wage will be increased. As evidence, the New York Times editors ran a piece before Thanksgiving as if to express solidarity with the fast food strikers. Local municipalities are passing laws to raise the wage. Paul Krugman, himself, has written that a minimum wage increase is necessary. In short, because of the massive public engagement in the fight to raise the minimum wage, the business class is responding in typical fashion: to consolidate the movement into a manageable legal and economic framework, so that it does not get out of hand. As predicted, President Obama came out with a plan to to raise the federal minimum wage to 10.10 an hour by 2016. Furthermore, in his SOTU speech, he announced that he would be raising the minimum wage of federal contractors to 10.10 an hour. Never mind that this only applies to new hires, and only ten percent of the actual work force. But better to give a bit of reform then have it spiral out of control, at least among more intelligent business leaders this is the thinking, though there are the stubborn, less intelligent, protractors. It’s this reason why I believe the federal wage will go up as well, and why Obama has been moved to issue his typically nascent declarations of how “inequality is the greatest issue of our time.”
This is why it is vitally important for the low wage movement to not succumb to the belief that a minimum wage increase is some ultimate victory. Consider the editorial piece in the New York Times on February 9 2014. It seems that the business community has given the “green-light” for a raise in the minimum wage. The article is actually very well reported, in that, they dispute the typical claims about job loss and provide a telling history of the reason for the minimum wage. But particularly revealing, is the discussion about bargaining power. It’s as if unionization is not even an option for the low wage sectors of the economy (and for good reasons in their eyes). Instead bargaining power should be rectified by providing a wage floor, so that employer aren’t able to drive down wages. This is indeed true, but the total lack of discussion regarding unionization, which is what really was aimed at rectifying bargaining power (just read the opening paragraph of the National Labor Relations Act) confirms that the wage increase is seen as a way to stymy any more radical measures.
Let’s make a few distinctions, however. Unionization efforts in the fast food industry are more difficult and unconventional than in the retail industry. Partly due to the small workforces in each location, but also because of the franchisee system that they work under. Due to the nature of the franchise system, of which, there are 200,000 in the United States, the franchisees are squeezed by the franchiser and operate on a marginal budget. While the corporation makes it annual revenues through a contractual percentage, the franchisees are much less profitable, mainly making their profit thought the exploitation of labor. As well, the composition of the workforce is younger then in most retail, there is higher turnover, and the marginal profit rate is lower. Due to these considerations, unionization efforts are at a disadvantage. Not to say they should be pursued, but that, novel strategies need to be explored.
Now this is not so the case for large retail and service chains. Companies such as Walmart, Target, Harris Teeter, Chase, Rite Aid, etc… are more vulnerable and scared to death of any threat of unionization. If one shop were to unionize it would have a spill over effect. If shops worked in concert in a national fashion, it would further pressure the employer, and not allow them to simply close down the shops that are organized. In the first two quarters of 2013 alone, corporate retail profits were a staggering 37.4 billion dollars. Theses companies are situated to pay employees more and offer compensation packages, while conceding a lower rate of profit. And said above, the inability of these companies to off shore these jobs puts the employees in a more conducive situation to bargain effectively So a warning. Though the minimum wage increase is a good thing, it should not be the end goal for the service sectors. The SEIU and UFCW and others should continue to support these sectors with the goal of unionization. To get caught in the trap that a minimum wage increase is the ultimate victory would be just what the business class would like. Unionization brings many other benefits besides higher wages, Dignity on the job, benefits, a right to discuss terms and conditions, unjust firings, discrimination etc.. And in the larger picture, unionization, or more simply, an organized labor movement is the only remedy to fix the disparate levels of wealth in this country. As in the old, as in the new, as they say.