We all pay for low wages

When you are paid starvation wages, it’s up to public-assistance programs to make up the difference. That government assistance, costing treasuries billions of dollars per year, is part of the high cost of low wages.

Raising the federal minimum wage to $12 an hour would save an estimated $17 billion per year for U.S. taxpayers, according to a study by the Economic Policy Institute. The EPI’s study, “Balancing paychecks and public assistance,” found that, not surprisingly, low wages equal government help. A majority of United Statesians who earn less than $10 an hour receive public assistance, either directly or through a family member.

The study’s author, David Cooper, examined participation in eight federal and state means-tested programs for low-income families — the earned income tax credit; the refundable portion of the Child Tax Credit; the Supplemental Nutrition Assistance Program (what used to be known as food stamps); the Low Income Home Energy Assistance Program; the Supplemental Nutrition Program for Women, Infants and Children, commonly known as WIC; Section 8 housing vouchers; Medicaid; and the Temporary Assistance for Needy Families program and its state and local equivalents.

Protestors outside a McDonald's in Minneapolis demand a $15 hourly wage and paid sick days (photo by Fibonacci Blue)

Protestors outside a McDonald’s in Minneapolis demand a $15 hourly wage and paid sick days (photo by Fibonacci Blue)

Working people with low wages use these programs heavily. One-third of Supplemental Nutrition Assistance Program recipients are full-time workers and one-half of WIC recipients are full-time workers.

Contrary to right-wing propaganda, most recipients of public assistance work, a large number of them full time. The EPI study reports:

  • Among families or individuals receiving public assistance, two-thirds (67 percent) work or are members of working families (families in which at least one adult works). When focusing on non-elderly recipient families and individuals under age 65, this percentage is 72 percent.
  • About 69 percent of all public-assistance benefits received by non-elderly families or individuals go to those who work.
  • About 47 percent of all working recipients of public assistance work full time (at least 1,990 hours per year).

Nearly $53 billion of public-assistance money is paid annually to people who work full time, the EPI study reports. And, full- or part-time, money going to working people is concentrated in specific industries. More than half goes to workers in three sectors: educational, health and social services; arts, entertainment, recreation, accommodation and food services; and retail trade.

Privatizing profits, socializing costs

Although not addressed in the EPI study, a big conclusion to be drawn from this data is that these billions of dollars of public-assistance money constitutes a massive subsidy of business. Often highly profitable businesses. Take War-Mart, for example. Wal-Mart reported net income of $14.7 billion for 2015 and nearly $80 billion for its last five fiscal years. Yet the company pays it employees so little that employees organize food drives for themselves while it dodges billions of dollars of taxes and receives further billions of dollars in government subsidies.

Currently, the federal minimum wage is $7.25 an hour. Adjusted for inflation, the U.S. minimum wage peaked in 1968 when the then $1.60 rate would be worth $10.95 in 2016 money. So although that peak total is itself low, the federal minimum wage has lost more than one-third of its value.

Or, to put this in another perspective, one of the demands of the March on Washington in 1963 was a minimum wage of $2 an hour. Adjusted for inflation, $2 an hour in 1963 would be worth $15.56 today. So today’s activists demanding a $15 minimum wage are simply asking for the same thing that was asked a half-century ago. Nothing outlandish.

It is no secret that wages have badly lagged productivity, nowhere more in the global North than in the United States. Wages for U.S. workers have fallen behind productivity gains since the 1970s, to the point that the average U.S. household receives $18,000 per year less than it would had wages kept pace. Canadian households are about $10,000 behind. Differentials between wages and productivity are also found, albeit in less drastic form, across Europe and in Japan.

We can’t order a return to Keynesianism

So what conclusion should we draw from all this? Unfortunately, the EPI study concludes with what can only be termed weak-tea liberalism. Wishing for a return to Keynesianism, the author writes:

“[W]e can raise wages by eliminating the lower subminimum wage for for tipped workers, updating overtime protections, strengthening workers’ ability to organize and negotiate with employers collectively, improving enforcement of labor laws, providing undocumented immigrant workers a path to citizenship, and ensuring monetary policy prioritizes full employment.”

There is nothing wrong with any of these prescriptions. Such reforms would be quite welcome. But these goals can not simply be conjured into existence. Nobody decreed we shall now have neoliberalism and nobody can decree we shall now go back to Keynesianism. We haven’t gotten to the disastrous state we are in by accident or simply because of the personal decisions of corporate executives and financiers.

Rather, the neoliberalism we experience today is the logical result of capitalist development; “logical” in the sense that the relentless scramble to survive competition eventually closed the brief window when rising wages were tolerated and government investment encouraged. The Keynesian policies of the mid-20th century were a product of a specific set of circumstances that no longer exist and can’t be replicated.

Intensified competition over private profits, and that “markets” should determine social outcomes, inexorably leads to a consolidation in which industries are dominated by a handful of giant corporations, and those corporations gain decisive power over governments and relentlessly reduce overhead (especially wages and benefits) in a scramble for survival.

Fighting back is surely what working people around the world need to do. But restoring a “golden age” of capitalism that never really existed (and definitely didn’t if you were a woman confined by limited options or an African-American facing officially sanctioned discrimination and/or state-endorsed terrorism) is a quixotic goal. Better to drive our energies into creating a better world, one in which the economy is geared toward human need rather than private profit.

18 comments on “We all pay for low wages

  1. What do you think of my state’s (California) raising the minimum wage gradually to 15 dollars an hour? I have my criticisms of it, and of course of Jerry Brown in general, was curious as to your thoughts?

    • Jerry Brown has steadily moved right over the years; it’s been a long time since the days when he could position himself as a left insurgent for the Democratic presidential nomination, similar to Bernie Sanders today.

      As to a $15 minimum wage, everybody who works should earn a living wage, so, given the totality of circumstances in which we live, that’s a real advancement. It ought to be phased in sooner, and it would better for a nation-wide minimum wage of $15. But we should not put down a good reform that improves the lives of people.

      • Was Jerry Brown ever left wing? Now I may only be 26, so I wasn’t even a glimmer in my dad’s eyes when Jerry Brown was first governor, but a glance at Wikipedia shows he ran campaigns against universal health care, in favor of New Age Buddhist woo woo nonsense and pro prison campaigns. I’m not saying you’re wrong, but it’s kind of hard to believe he was ever a Sanders style candidate.

        • Note my phrasing: “could position himself.” Brown wasn’t that much toward the left (although then much more than he is today) but his followers saw him that way and the corporate media presented him in that fashion. Bizarre as it seems today, given his corporate bona fides, Brown did have a Sanders-like following, although much smaller and far less successful than Sanders has achieved in 2016.

          • My mother actually voted for him and even voted for him in 92 against Clinton, when he apparently did run a mildly left campaign. She speaks fondly of him.

            Which I asked her about today, so okay I get your point😛 It truly is bizarre given his far right corporate bent now.

  2. Capitalism should have died in the 1930s. Thanks to Keynes and the creation of the welfare state, the ruling elite managed to patch it up and let it limp along another 85 years. From what I see, they have finally exhausted their little bag of tricks – and this obscene experiment is truly over.

    • I also believe we are nearing the end of capitalism; more specifically, we are at the beginning of the end. Left to its own devices, capitalism could go on for a few more decades, with more inequality, more pain for working people, and more repression to keep it in place. The end would be ugly, indeed, and quite possibly followed by something worse in a world depleted of resources and polluted beyond saving.

      I sincerely hope humanity can find a different path, create a better world by getting rid of capitalism once and for all before it is too late.

      What if Germany had a successful revolution after World War I? What if other European countries followed, and all gave helping hands to then undeveloped countries like Russia? Perhaps with all of that, the U.S. would have gone socialist in the 1930s. None of that happened, of course, but we can still learn from the past.

      • What do you think of Erik Wrights ideas on revolution vs evolution?

        • I’m not familiar at all with Wright, so I am in no position to make any judgment.

            • A very interesting read, and I thank you for bringing this work to my attention. I’ll confine myself to discussing this specific article, not Wright’s overall work.

              His thesis comes down to two basic points: That revolutionary ruptures always lead to authoritarianism, and that socialism can be nurtured within the capitalist system because socialist-type reforms not compatible with the long-term stability of capitalism would nonetheless be allowed because they would, at least temporarily, solve problems that capitalism can not solve itself. He draws a direct analogy with feudal governments tolerating the rise of merchant capital to solve problems although the rise of merchant capital would bring about the downfall of feudalism.

              There is much to be said for such an analogy (and I discuss such analogies at length in chapter 6 of my book), but Wright has presented a significantly overly simplified version of capitalism’s rise within feudalism, and also does not acknowledge that portions of the aristocracy became bourgeoisie. One set of elites was supplanted by another set of elites, with some overlap, and thus there was not the blockage that we face in that socialism would eliminate an elite class. Although some individual bourgeois would undoubtedly accept the transition, few would and, regardless of how many did, the class would cease to exist.

              The article’s main idea of how to nurture socialism within capitalism such that socialist relations and institutions could grow, is the institution of a basic income available to all. He writes:

              “A tax-financed unconditional basic income provided by the state would thus enable workers to refuse capitalist employment and choose, instead, to engage in all sorts of non-capitalist economic activities, including those constructed through social power. … UBI would underwrite a flowering of the solidarity economy, noncommercial performing arts, community activism, and much more. Unconditional basic income thus expands the space for sustainable socialist — socially empowered — economic relations.”

              I would surely endorse such an idea, but the problem is that the capitalists would bitterly oppose this for precisely these reasons. There is something to be said for the idea that movements should ask for reforms “too big” for the system to handle, and that when such reforms are proven unobtainable, it would inculcate the idea that system change is the only way to achieve such goals. (I am thinking here of Trotsky’s concept of the “transitional program.”) I don’t believe such a reform would be obtainable in capitalism, worthy though such a strategy is in the abstract.

              Let me conclude this very brief reaction by noting that I found the article to be very worthwhile, despite what I see as its limitations and failure to analyze in any way the difficulties of post-revolutionary societies. Having serious discussions of this nature is the only way we’re going to find a path to a better world.

              A few years ago, I reviewed Gar Alperovitz’s America Beyond Capitalism, which attempted to find a path somewhere between reformism and outright revolutionary upsurge. I had some issues with his thesis, and my partner quite reasonably noted that we’d have to do so much work to get such reforms we might as well go for a revolution. Still, it is a serious book by a serious theorist and a fine contribution to a discussion that we all need to have.

  3. lidia says:

    My favorite explanation of possibility of making capitalism a little better is:

    “Any government which had the power and the will to remedy the major defects of the capitalist system would have the will and power to abolish it altogether, while governments which have the power to retain the system lack the will to remedy its defects.”
    Joan Robinson’s remark is contained in her review of R.F. Harrod’s book The Trade Cycle which appeared in The Economic Journal, December 1936.

  4. Steady State says:

    To add injury to insult, corporations are subsidized through the public purse to make astronomical profits to be sheltered in tax havens away from the tax man.

  5. fridihem says:

    This is shocking to have to read these kind of numbers……..in Sweden the average wage is about $29 an hour, 37.5 hrs a week, 5 weeks paid vacation, free Healthcare, medication dental care and free education right thru uni…………..and income taxes are not high like so many American seem to Think they are…….

    Salary……$12000……..Tax $1560…….13%
    Salary……$36000……..Tax $4600…….23%
    Salary……$60000……..Tax $7800…….28%

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