Would Obama’s Minimum Wage Support a Middle Class?

Source: http://www.flickr.com/photos/proimos/As many Americans know, the public services and layers of infrastructure that contribute to their quality of life — from federally built and maintained highways to the hot lunches provided to school-age children — are the results of federal tax dollars. But what many Americans may not realize is that the workers who provide those public services that have become a standard feature of modern life earn barely enough to afford essentials like food, health care, utilities, and rent. Tax dollars may fuel the economy, but they can also exacerbate inequality.

On Friday, President Barack Obama left Washington for Baltimore, the second stop on his “Middle Class Jobs & Opportunity Tour,” aimed at focusing attention to his efforts to improve the lives of middle class Americans. “I know it can seem frustrating sometimes when it seems like Washington’s priorities aren’t the same as your priorities,” Obama told an audience at a facility of the dredging manufacturer Ellicott Dredges. “Others may get distracted by chasing every fleeting issue that passes by. But the middle class will always be my number one focus, period. Your jobs, your families, your communities, that’s why I ran for president.”

Hard facts show a fairly grim picture of the employment situation in America.

“We find that nearly two million private sector employees working on behalf of America earn wages too low to support a family, making $12 or less per hour. This is more than the number of low-wage workers at Walmart and McDonalds combined,” noted a recent report from Demos, a research and policy center focused on economic stability. At the very least, argued the organization, the American government owes employees on its payroll a livable wage.

Demos defines low-wage work as “a job paying $12 an hour or less, equivalent to an annual income of about $24,000 for a full-time worker. Nationwide, a family of four trying to subsist on $24,000 a year hovers near the poverty level. Even a single worker with no dependents would find no room in a basic budget for health coverage, a retirement nest egg, or building emergency savings.”

But its not just the private sector employees working on behalf of America that are suffering from lowing paying jobs. While unemployment has been very slowly ticking downward — in the most-recent Employment Situation report, the Bureau of Labor Statistics said that the U.S. economy added enough jobs in April to pull the unemployment rate to 7.5 percent — the declining headline unemployment rate masks some concerning trends that betray overall weakness and inequality in the labor market.

The National Employment Law Project showed that while low-wage occupations accounted for 21 percent of recession-era job losses, they accounted for 58 percent of recovery job gains — and while mid-wage occupations accounted for 60 percent of recession losses, they accounted for just 22 percent of recovery growth. What this means is that post-recession job growth is characterized by Americans taking lower-paying jobs, moving out of the middle class and into the lower class.

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This data highlights the growing economic divide between working families at the top and the bottom of the economic ladder.

Income inequality has increased steadily in the United States even as the stock market has recovered most of its losses and corporate profits have soared. Yet, for an increasing number of working families economic security is out reach. In the years between 2007 and 2011, the share of working families that are considered low income, meaning 200 percent of the official poverty threshold, increased from 28 percent to 32 percent nationally.

Demos focused on workers whose salaries are paid by federal tax dollars because this portion of the working population highlights the problems faced by low-wage earners particularly well and because it shows the extent government’s involvement in the shrinking of the middle class.

The federal minimum wage is currently $7.25 per hour. It is not surprising that employers in the retail and food services industries would take advantage of the low rate. What is dubious is that the federal government directly or indirectly employs 1.99 million people that fit under the same low-wage definition. “These are employees working on behalf of America, doing jobs that we have decided are worthy of public funding — yet they’re being treated in a very un-American way,” stated the report.

And this is not the only problem. Because tax dollars fund low-wage jobs, there is ripple effect as low-paid workers and their families have less money to spend, hindering further economic growth. Purchasing power of the current minimum wage is 30 percent lower today than it was in 1968, and by all accounts, the cost of American labor has failed to keep up with the cost of living in America.

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In his 2013 State of the Union address, Obama proposed that the minimum be raised from $7.25 an hour to $9. Additionally, a minimum-wage bill is now in Congress that, if passed, would raise the floor to $10.10 an hour, a figure that more closely approximates minimum wage’s value in 1968 than the current wage. Once minimum wage reaches that level, it would automatically increase alongside the cost of living. Even the president’s proposed lower increase to $9 would effectively provide a raise for about 15 million people, of which the great majority are adults, not teenagers.

Detractors to this proposed increase argue that the higher labor costs will prompt employers of low-wage workers to layoff workers and thereby increase unemployment. But Franklin D. Roosevelt’s New Deal is commonly credited with creating America’s modern middle class, and a major piece of legislation introduced during that period — the Fair Labor Standards Act of 1938 — set maximum hours and minimum wages for most categories of workers. While no economic situation is exactly the same, the answer to the minimum wage question is not as cut and dry as its detractors would claim.

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