Friday, May 29, 2015

Minimum Wage, Retirement Income

I recently received an email from an acquaintance of mine which included a petition to push our Pennsylvania legislators to consider raising the minimum wage.  As of today, the PA minimum wage, like approximately 30 other states, is the same as the federal minimum wage.  The good news is that a number of states have already raised their minimum wage, while there are still a few states with no minimum wage.  In the meantime, average pay for the top earning CEO's in America continues to rise by percentages ranging from double to 12 times to 900 times, depending on the source of the data and the time frame studied. 

In researching the above data, I also read an article from Forbes by someone claiming that CEO pay increases are exaggerated.  The article reminds us that statistics can be used to prove anything one wishes to prove, which means that perhaps the 900 times number detailed above emanates from a source trying to push the income inequality issue, while the source of increases only double in size , may be the result of a person or group trying to defend high CEO pay or show that it hasn't grown as much as is reported in the mainstream media.

So, who to believe?

One interesting fact that I uncovered in more than one place is that using all sorts of gauges and indexes, it is believed that the federal minimum wage peaked in 1968, in terms of its buying power.
I saw that statement repeated a few times, then found a chart which detailed the minimum wage every year from 1938 to 2012, then gave its worth in 2012 dollars.  Here is a link to that chart.

A quick glance at the chart, seems to say it all.  Soon after WW2, buying power for those making the lowest wage, increased steadily within the bands of that particular increase.  In other words, minimum wage increases, even after multiple years of that same rate, increased buying power with each consecutive minimum wage increase.  To put a number on it, in 2012 dollars, those making the minimum wage earned the equivalent of a rate above $8 from 1961 (peaking in 1968 at $10.34) through 1982 when the equivalent buying power fell below $8 for the first time in 2 decades.  Since then, it has never reached $8 again, falling as low as $5.91 in 2006, and averaging just below $7 in those 3 decades.  Yes, in today's dollars, our minimum wage is more than $1 an hour less than those making minimum wage in 1961; over $3 an hour less than in 1968.  Can you imagine the reaction of CEO's if they were making less money (in real dollars) now than then?  What would the Forbes author have to say about that?  Is it any wonder why retail and fast food workers are upset?

And, it is any wonder why the middle class grew by such leaps and bounds during the three decades between 1950 and 1970, because remember, this data only reflects those making minimum wage.  Those making above it realized an even bigger increase in buying power.

Personally, I do not think it a coincidence that 1980 marked the election of Ronald Reagan, and, at least in this area, the beginning of the decline of earning power of the middle class.  To those who bow their heads when mentioning President Reagan, I would remind them that the minimum wage stayed the same from 1981 through 1989, (NINE years) at $3.35.  Even more remarkably, during the great decline of the minimum wage, during the dominance of the trickle down theory of economics that permeated Reagan's terms, Bush 1, and Bush 2, in 25 years from 1981 to 2006, the minimum wage increased only 4 times, in 1990, 1991, 1996, and 1997, (all but one under Clinton) for a total of $1.80! 

What boggles me is that the business community, always first in line to protest mandatory vacations, paid sick time, paid maternity leave, and higher minimum wages, don't see that when the American consumer has less money to spend, less products and services will be purchased.  In the long run, a strong middle class makes the economy go, while conversely, a middle class struggling to make their money last to the end of the month, makes the economy stall.

Why isn't the minimum wage indexed to inflation?  Take the rate out of the hands of politicians and big business campaign donations, and make it a reflection of the needs of people to live.  And, don't forget, the definition of minimum is the least amount of a thing necessary.  Shouldn't virtually all Americans working full time earn more than the least amount?   

Perhaps some day, those with the most resources will understand that our economy is only as strong as its weakest link, and that too much money in too few hands makes America weak and vulnerable.

Speaking of vulnerable, I saw an alarming article about retirement income and the, perhaps, false belief that IRA's can replace social security and pensions.  The article suggested that for reasons linked to the declining earning power of the American worker, the amount of money necessary to invest in IRA's etc, so that one can retire with the same or similar living standard is far beyond the means of the average Joe to put aside.  Which means that for the next few generations at least, social security must still exist, and must be solvent, and that should those advocating for the privatization of social security become successful in their endeavor, it will result in millions of people running out of money far sooner than they plan because they will never be able to invest enough money, even with the additional money they would get if they did not have social security deductions.  This is not to say that a privatization of social security won't benefit many people, it is saying that it will leave far too many without a safety net.  Add to that the additional out of pocket medical costs that turning Medicare into a voucher system will create, and there is a more than a fair chance that those just entering the workforce today may not only not live as well as their parents, but may not live in retirement as well either.

Finally, of course, everyone thinks they deserve more money.  Or, at least, are OK with their salary, but think person X or person Y makes too much money.  If I were king, I would put a ceiling on salaries, perhaps creating a matrix that limits salaries within categories, industries, companies.  In other words, a CEO can earn as much as she wants, as long as her salary is no more than 30 times that of the lowest paid worker in that company.  Or, a sports star can make all the money he can get from a sponsor, but only 5 times more than the minimum salary in that sport.  Or an entertainer can make as much money on tour as they can, as long as the ticket price for a show never exceeds 5 times the average hourly salary of the town where the show is playing.  Frankly, I would prefer that people realize the necessity of this idea on their own, without laws or edicts.  But, as long as selfishness remains a more powerful force that selflessness, we might need such governors to help us maintain the core strength of our economy and our country.

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