A New Gilded Age

It has been 75 years since President Franklin D. Roosevelt signed into law the Fair Labor Standards Act, a hard-fought legislative victory for the administration that set the nation’s first enduring federal minimum wage at 25 cents an hour. The nation passed another milestone in 2013, though one that gives little cause for celebration: Sept. 15 marked the fifth anniversary of the collapse of Lehman Brothers, the first domino to fall in a financial crisis that would spiral into the severest recession since the Great Depression.

Looking back at these watershed moments prompts not only some stocktaking of the current economic recovery but also a question: how much progress has been made toward the laudable goal President Roosevelt described, of “insuring to all our able-bodied working men and women a fair day’s pay for a fair day’s work”?

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Four years into a sluggish recovery, housing prices are up, the unemployment rate continues to inch down and the stock market climbs to new heights. But these encouraging numbers belie another disturbing reality: the economic rebound has compounded a decades-long trend of greater income inequality. In 2012 the top 1 percent of earners captured their largest share of income since the Roaring ’20s and the top 10 percent took home a record 48.2 percent of total national earnings. While corporate profits have surged, thanks to increased efficiency (largely from cutting jobs and wages), median household income remains stuck below the pre-recession level, and one in seven Americans lives in poverty.

This new Gilded Age is no accident of history. While globalization and technological shifts contribute to the widening gap, so too do government policies. Less progressive tax rates, especially tax cuts on capital gains and dividend income, explain much of the increased disparity. And however necessary the bailout of Wall Street may have been to avoid an economic abyss, banks and their well-off investors undoubtedly profited from the intervention. Meanwhile, the real value of the minimum wage has steadily decreased since hitting its peak of $10.77, in current dollars, in 1968.

Intensified advocacy for better wages in recent months is thus a welcome development. The Obama administration has called for increasing the minimum wage from $7.25, the rate set in 2009, to $9 an hour. Fast-food workers in cities across the country have held strikes demanding $15 an hour—double what many workers earn now. In July the City Council of Washington, D.C., approved a measure that would have required large retailers to pay a “living wage” of $12.50, but failed to override Mayor Vincent Gray’s veto of the bill.

In response to these calls for better pay, opponents of increasing the minimum wage voice an argument recycled from the 1930s: wages set above the natural market rate will lead to higher unemployment and endanger the fragile economic recovery. Of course, it was in the midst of an even deeper economic crisis, the Great Depression, that the first minimum wage law was passed, not only to alleviate the suffering of workers, but because it made economic sense. “In periods of business recession,” President Roosevelt argued, paying poverty wages “has a serious effect on buying power.”

Putting money in the pockets of those who cannot afford to save can not only stimulate spending, but could temper the uneven distributional effects of the recovery to date. And despite countless studies on the employment effect of a minimum wage, economists have not consistently found a statistically significant correlation between an increase in the minimum wage and job loss. In fact, a study by the Economic Policy Institute found that a $2.85 increase in the minimum wage would generate $32 billion in economic activity and translate to roughly 140,000 new jobs.

Others make the argument that the minimum wage should be seen as a short-term “training” wage for low-skilled or young workers. But in today’s economy, too many workers can find reliable employment opportunities only in what has traditionally been a low-wage sector, retail and fast food, while manufacturing jobs, once a ticket to the middle class, continue to disappear.

But perhaps the strongest argument in support of increasing the minimum wage comes not from economics, which will always be disputed, but our Catholic tradition. Those who work full time should be able to provide for themselves and their families, a right supported by over 100 years of Catholic social teaching, starting with Pope Leo XIII’s “Rerum Novarum” (1891). The right to a just wage is rooted not in the freedom of the contract but the transcendent dignity of every human being.

Pope Francis has called upon nations to pursue economic policies that “serve humanity, beginning with the poorest and most vulnerable.” Though no panacea, moving the minimum wage closer to something like a just wage is a good place to start.

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Tim O'Leary
4 years 2 months ago
I very much agree with the ultimate goal of the editors to getting to a living wage for as many people as possible, but I can't see how government mandating a higher minimum wage for all employees leads to that goal. I think there is a probability that it could frustrate that goal, particularly if it is national, when costs of living are not. The stagnant growth in jobs at the lower income level is an unintended effect of the current poorly managed "recovery" and a higher minimum wage will likely just prolong the drought. 1) Few attempt to define a living wage, but surely it is different for a teenager, a single adult, a married person, and a married person with various numbers of children? This is way too complicated for a government law to determine. 2), A "fair" wage or "just" wage may well not be living wage, a) because it could be just or fair for a single person but not for a married adult, and b) the terms fair and just imply a 2-way obligation, not only to the employee but also to the employer. An employee who cannot generate sufficient value-added to the employer cannot long remain employed. 3) The 2003 NAAL government study showed that 21% to 23% of adult Americans were close to functionally illiterate and that 40% of them were living in poverty. This group of the population desperately needs job training and a higher minimum wage would inhibit employers offering them opportunities for independence. 4) There is no doubt that almost any mandated wage will price some people out of the jobs market, and that is why few actually propose that the minimum wage actually be set at a number anywhere close to a living wage. So, what to do? My suggestion is that all public institutions and large corporations (say >500 employees) have a 2-tiered minimum wage (one for single people and one for those married with dependents) and calculated according to state or county cost of living estimates. The larger corporations would designate some jobs as training jobs and could apply for government supplements (say $5-10) per employee to incentivize them to hire inexperienced or less competent employees for 6-12 months. The government (= the people) would benefit from less people on welfare. Then, all companies below the "large" company definition would have no minimum wage. However, the latter would be encouraged to support their employees (by time off, etc.) in weekend or evening training classes, given free to the student by the public school system, as a form of supplemental adult education. I would couple this with a change in the tax handling of charitable contributions, where there is double the tax benefit for donations to works of mercy (foot, shelter, etc.) compared to other works (such as the arts or education, political causes, etc.). Finally, there should be a moratorium on useless inhuman attacks on the "rich and superrich" as this enkindles only envy and makes them hide their gains from public view - they should be encouraged to increase their charitable contributions and hire people as good citizens.
Ann Phillips
4 years 2 months ago
The poor will always be with us. Certainly we should advocate that all people earn a just and living wage. Unfortunately, the free market does not always allow this. To artificially force "fairness" - with a minimum wage and the like - creates more problems than it solves. Your plan makes hiring married workers with dependents more expensive for employers than hiring single people without dependents. Not good. It is very unfortunate that our Church, in correctly seeking to promote social justice and the preferential option for the poor, has contributed to the current economic and political sufferings by advocating for leaders that approach this problem in the wrong way. Free market forces, not legislation or bigger government, will help alleviate poverty.
Kevin Fox
4 years 1 month ago
If I remember correctly, Jesus threw the moneylenders out of the temple. He had no patience for the apologists (the Pharisees) that defended the manipulation of the status quo to defend the usury of the poor. Since when is one man's labor and humanity deemed worth so little? The Pharisees also worried about angering their Roman overlords, lest they get angry and not bestow the gifts of the Empire unto them. Jesus did not promote a free market or capitalism as the ultimate good, nor did he advocate letting the powerful have their way just because they were powerful. When CEO's are making billions in a year, but claim they cannot afford to pay their workers more, that is a bold-faced lie. When they say they will not expand their companies but will punish society by shrinking them, that is also a lie. The companies can and will grow, but those CEOs may have to make less than the hundreds of millions they currently make to do so. The Walton family, one of the richest in the world, pays their employees so little that many need to use food stamps. Also, your advocacy for paying married people more is short-sighted. Should not equal pay for and equal days work be the norm so that young men and women might save so they can afford a family one day? Shall I get paid more because I have more children? I would never need to worry about supporting my family because with each one my employer would pay me more, correct? By your logic, no one would hire married people, as they would become too expensive. You call it 'artificial fairness', but is it fair for the CEO of a publicly traded company to take bonuses using the money invested by pension funds while not turning a profit, diminishing the income potential of those funds? Is it fair for someone to become a billionaire based on paying poverty wages? Do you so value a wealthy human life over others who work that you accept their soul and value is greater? What happened to: 'It is easier for a camel to fit through the eye of a needle.'? Perhaps we should all go back and look at the words of Christ.

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