TREATMENTS
You may not be ready to accept chronic wage stagnation as "the syndrome" underlying our economic woes, but it's also true from my experience that having solutions (or "treatment options") at hand often makes it easier to identify the problems they resolve. With that in mind, I want to offer some solutions to America's low-wage conundrum.
One direct approach to raising worker wages is the one currently being discussed in the public dialogue, raising the minimum wage. This benefits the lowest-paid workers and also puts pressure on employers to increase pay for other lower-wage earners. The current target of $10.10 per hour would still leave many families at or below the poverty line. Workers making the new minimum wage would still be eligible for some public assistance for the working poor. While passing a minimum-wage law is at least possible, this option is not a systemic solution to wage stagnation. Even indexing the minimum wage to inflation would not compensate for declining wages relative to GDP growth.
Another direct approach to ending wage stagnation is to pass a living-wage law. This would set the minimum wage at a level that would allow everyone working full-time to be financial independent from government assistance, including subsidized health care. A living-wage law could be indexed to the local cost of living where a person is employed. This is idea because it takes into account local economic conditions, which are determined by market forces rather than government edict. But passing a living-wage law in the current political climate is unlikely.
There are other ways of encouraging wage growth that don't involve direct wage regulation. One idea would require the federal government to recoup, through business income tax rebates, the cost of taxpayer-supported aid to working families from profitable businesses that pay employees less than a living wage. Employee wages are easily identified through individual tax returns. Eligibility for taxpayer-supported subsidies are relatively easy to estimate as well, so recouping public funding to support a company's workforce is a practical possibility. A portion of the recovered money could be paid into Social Security and Medicare to make up for lost revenue due to substandard wages.
A welfare cost-recovery plan could gain popular support given the growing public resentment towards taxpayer-funded social programs. At least 40% of all full-time employees in America currently require some form of taxpayer assistance to financially survive. More importantly, this plan places the burden of supporting the workforce back on profitable businesses, where the responsibility lies.
Another solution has been suggested by former US Labor Secretary, Robert Reich, and others. They support proposed legislation, SB 1372, that sets corporate taxes according to the ratio of CEO pay to the pay of the company's typical worker. Corporations with low pay ratios get a tax break. Those with high ratios get a tax increase. This would effectively index worker wages to CEO compensation in a carrot-and-stick approach to corporate taxes. The details and merits of this approach is outlined elsewhere.[iii]
Do U.S. businesses have the financial capacity to offer higher wages to their workers? I would like to answer that question with another graph that you may also have seen before.
There is a clock ticking somewhere in the background on this issue. There is a point somewhere in the future where it will be too late to fix wage stagnation through the normal democratic processes. History has proven this to be true. We are not at that point now, but we are past the point of treating wage stagnation earnestly.
[ii] As of 2013 the median family income of $51,017 x GDP growth of 109.4% = $104,796 per year
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