Biden Should Target a Living Wage, Not a Minimum One
(Bloomberg Opinion) -- President Joe Biden’s plan to raise the federal minimum wage to $15 an hour has kicked up the usual arguments about whether Congress should support higher wages and where it should set the bar. But the debate often obscures the specific problem it’s meant to address: Tens of millions of Americans work full time yet can’t afford food, housing, transportation, health care and other necessities — a situation as intolerable as it is socially and economically unsustainable.
What workers need is a living wage, not a minimum one.
The result of widespread financial hardship is on display everywhere, from the searing protests that have broken out around the country, to the number of Americans embracing radical ideologies, to the country’s tattering social fabric. Covid-19 has exacerbated these problems, though they were brewing long before the pandemic arrived.
If that sounds like hyperbole, consider that the median personal income in the U.S. was roughly $36,000 in 2019, according to the Census Bureau’s latest numbers. Meanwhile, a single adult needs $34,000 to cover the basics in the most affordable places, such as Lamar County, Alabama, according to a living wage calculator compiled by Economic Policy Institute, a nonpartisan think tank. The wage realistically required to get by is nearly three times the federal poverty level, a benchmark that is absurdly low and skews our notions of hardship.
There are about 160 million workers in the U.S. and, by definition, half of them earn less than the median income, which means that a huge number don’t earn enough to afford a living in small towns and communities across the country.
It’s even harder for families. A family of four residing in Lamar County needs $70,000 a year to meet all of its needs, which is $2,000 more than the median household income in the U.S. And the cost of living becomes even more challenging in cities. That same family of four would need $83,000 in annual income to live in Birmingham, Alabama, $106,000 in Washington, D.C., and $114,000 in Boston. Wages do tend to be higher in the bigger cities, but not for everyone and not necessarily in line with the higher cost of living.
Don’t be persuaded by the argument that companies can’t afford to embrace higher wages. While it’s true that some employers can’t afford to pay more, many can. The 1,000 largest public companies by market value employ tens of millions of people, and the median pay at roughly half of them is below a living wage. As a group, those companies have been more profitable in recent years than ever before and are widely expected to return to record profitability after the pandemic. Paying workers a living wage is a question of willingness, not ability, for much of corporate America.
Unfortunately, some of the most profitable companies are also the most miserly. Amazon.com Inc., for instance, is more than twice as profitable as its average peer, and yet its median pay was just $29,000 in 2019. The median pay at Walmart Inc., another hugely profitable company, was $22,000 during the same fiscal year. And those numbers are almost certainly on the high side because companies want wages to appear as generous as possible.
Business leaders are well aware of the problem. In 2019, the Business Roundtable, a group of influential chief executive officers, revised its “Statement on the Purpose of a Corporation,” pledging to look after workers and other stakeholders in addition to their bottom lines. During the laissez-faire years of the Trump administration, the 181 signatories to the statement, including Amazon CEO Jeff Bezos and Walmart CEO Doug McMillon, had free rein to put their declaration into practice. But that opportunity has passed, as Biden’s move to raise wages shows.
Biden’s push is only necessary because the government has been forced to do what the private sector won’t to address inadequate wages. The effort is part of the president’s broader Covid-19 relief package, which is now mired in debates about how and where federal funds should be spent. The tea leaves suggest Biden is going to have trouble building bipartisan consensus around his current, $1.9 trillion package. Republicans have raised good points about specifics in his plan — including, for example, ensuring that stimulus checks focus on low-income Americans rather than their more affluent counterparts. A similar bipartisan rigor around the minimum wage debate would be refreshing.
It can start with a recognition that a minimum wage isn’t the bogeyman many fear. As our Bloomberg Opinion colleague Noah Smith has already pointed out, any setbacks in hiring that a higher minimum wage might introduce to poor areas, small businesses or recession-battered companies can be addressed easily with some minor policy tweaks.
But there is a far more important problem to address that goes well beyond that. If a minimum wage is meant to ensure that every working American earns a living, as opposed to merely subsisting a whisper above the poverty line, then $15 an hour won’t be enough. It generates an annual income of just more than $31,000 a year — which still isn’t a living wage in most places. It also wouldn’t apply to a growing horde of gig workers, freelancers and independent contractors. Nor would it do much for workers who can’t find full-time jobs.
So the federal government and the private sector need to take a more sweeping view of this wage crisis and focus on lifting pay to a level where workers can actually make a living.
Many tools exist to inform that effort. The government collects a trove of payroll and income data. It could develop analytics to identify full-time workers who earn less than a living wage, based on where they live and other factors, and use that information to encourage employers to address the shortfall. Congress could bolster federal assistance programs for full-time workers who earn less than a living wage and recoup the cost from employers through targeted taxes. It could require that workers be represented on corporate boards so that they have a say in decision-making. It could also expand the earned income tax credit.
But the first step is to acknowledge that for too many Americans, a full-time job no longer cuts it. If ignored, the hardship millions of Americans face will continue to drag down communities, families and the economy. We are surrounded by seismic fissures and social unrest caused in large part by inadequate wages. The time for addressing them is long overdue.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Nir Kaissar is a Bloomberg Opinion columnist covering the markets. He is the founder of Unison Advisors, an asset management firm. He has worked as a lawyer at Sullivan & Cromwell and a consultant at Ernst & Young.
Timothy L. O'Brien is a senior columnist for Bloomberg Opinion.
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