The Issue: Income inequality and raising the minimum wage

By MARCELLA S. KREITER, United Press International
Fast food workers in the Los Angeles area began their first strike today, part of a nationwide attempt to raise the federal.minimum wage to $15 per hour and form a union. Organizers claim fast food workers are forced to rely on public assistance just to make ends meet.'' UPI/Jim Ruymen
1 of 3 | Fast food workers in the Los Angeles area began their first strike today, part of a nationwide attempt to raise the federal.minimum wage to $15 per hour and form a union. Organizers claim fast food workers are forced to rely on public assistance just to make ends meet.'' UPI/Jim Ruymen | License Photo

It's little more than a year since thousands took to U.S. streets decrying the disparity between those in the 1 percent of the population that controls a third of the nation's wealth and months since fast food and other minimum wage workers demonstrated, demanding a $15 minimum wage.

President Obama is expected to address the issue Tuesday in his State of the Union address, proposing new ways to deal with inequality and poverty and again calling for a hike in the minimum wage -- to $10.10, more than a buck more than he proposed last year.


"Let's declare that in the wealthiest nation on Earth, no one who works full time should have to live in poverty, and raise the federal minimum wage to $9 an hour," Obama said last year, adding, "Let's tie the minimum wage to the cost of living, so that it finally becomes a wage you can live on."


Obama has called the widening gap between rich and poor more of a threat to the economy than the budget deficit.

But no action from Congress meant no more money in the pockets of the nation's lowest-paid workers, with opponents arguing raising the minimum wage would eliminate jobs and saying the minimum wage is for entry level jobs, not meant to support a family.

But the reality is more people are trapped in such jobs with the economy still struggling to recover from the Great Recession.

"With each year that passes, the urgent need for an increase in the minimum wage will only continue to grow as more workers find themselves relying on low-wage jobs to make ends meet -- and opponents who continue to fight against such a modest pay raise will find an ever-shrinking number of allies in their corner," Jack Temple, a policy analyst for the National Employment Law Project, said in a release.

White House spokesman Jay Carney told reporters last week states have taken the lead on the issue absent action on the federal level.

"This goes to the heart of rewarding hard work. I think as a basic principle here in the United States, there's broad agreement, regardless of political affiliation, that if you work full time, if you work hard because you want to take responsibility for yourself and your family, you should be paid a living wage. You should not be paid a wage that leaves you in poverty," Carney said.


"So as a basic principle, raising the minimum wage remains as compelling an idea today as it was last year."

Carney said making sure there is economic opportunity for everyone is a priority.

"Statistics ... suggest that countries in Europe have greater economic mobility than the United States, which sort of goes at the heart of who we believe we are in this country and what our history has been about when it comes to opportunity for people," he said.

"So that's an agenda that could not have more presidential force behind it."

The conservative Heritage Foundation argues a $10.10 minimum wage would hurt those it's supposed to help.

"Indeed, studies show that the latest congressional hike would likely eliminate some 300,000 jobs per year and lower our national economic output by more than $40 billion annually. Why? Because raising the cost of labor naturally makes it more expensive to hire, leaving cash-strapped employers with no choice but to slow down or freeze hiring," Foundation President Ed Feulner argues in a blog post.

The Center for Economic Policy Research, however, concluded last year increasing the minimum wage would have little effect on employment, saying any increases in costs could be offset by better employee retention, organizational efficiencies and reduction in wages of higher earners.


"The most likely reason for this outcome is that the cost shock of the minimum wage is small relative to most firms' overall costs and only modest relative to the wages paid to low-wage workers," the report concluded. "In the traditional discussion of the minimum wage, economists have focused on how these costs affect employment outcomes, but employers have many other channels of adjustment.

"Employers can reduce hours, non-wage benefits or training. Employers can also shift the composition toward higher skilled workers, cut pay to more highly paid workers, take action to increase worker productivity [from reorganizing production to increasing training], increase prices to consumers, or simply accept a smaller profit margin. Workers may also respond to the higher wage by working harder on the job. But, probably the most important channel of adjustment is through reductions in labor turnover, which yield significant cost savings to employers."

A Pew Research Center survey released last week indicates 75 percent (53 percent of Republicans and 90 percent of Democrats) of the 1,504 adults queried Jan. 15-19 say they think said they'd support increasing the minimum wage to $10.10 an hour from the current $7.25. When it comes to extending unemployment benefits for the long-termed unemployed, 63 percent (43 percent of Republicans and 83 percent of Democrats) said they favored such action.


Sixty-five percent said the gap between rich and poor has grown in the last decade (61 percent of Republicans, 68 percent of Democrats and 67 percent of independents) and 69 percent say government should do something about it (45 percent of Republicans but a whopping 90 percent of Democrats).

Fifty-four percent (29 percent of Republicans and 75 percent of Democrats) say taxes should be increased on the wealthy to reduce poverty but at the same time, 44 percent (65 percent of Republicans and 26 percent of Democrats) say government aid to the poor makes people too dependent on government.

Sixty percent of those surveyed said they felt the U.S. economic system is rigged in favor of the wealthy, compared to 38 percent who said it was fair to all. An identical 60 percent said, however, people can get ahead if they work hard.

University of California-Berkeley Professor Emmanuel Saez says income inequality is at its highest level since 1928. His research indicates in 1982, the upper 1 percent of families earned 10.8 percent of pretax income while the bottom 90 percent earned 64.7 percent. Saez estimates for 2012, the top 1 percent earned 22.5 percent of pretax income compared with 49.6 percent for the bottom 90 percent.


The Organization for Economic Cooperation and Development ranks the United States 10th of its 31 member countries in income inequality before the effects of tax policy are taken into account. That ranking jumps to second behind Chile after such policies are considered.

Statistics also show black family income is losing ground. In 2011, black households earned 59 percent of what white households earned, down from 63 percent as recently as 2007. The gap grew from $19,000 in 1967 to $27,000 2011 -- using 2012 dollars for both measures, Pew said.

Pew also notes the wealthiest 20 percent of Americans earn 16.7 times as much as the poorest 20 percent and the richest fifth holds 88.9 percent of all wealth.

The situation globally is even more glaring. An Oxfam report released last week said the 85 richest people in the world have the same amount of wealth as the poorest 3.5 billion, with the wealthiest 1 percent controlling $110 trillion, 65 times the total wealth of the bottom half of the population.

"It is staggering that in the 21st century, half of the world's population own no more than a tiny elite whose numbers could all sit comfortably in a single train carriage," said Winnie Byanyima, Oxfam's executive director.


"Widening inequality is creating a vicious circle where wealth and power are increasingly concentrated in the hands of a few, leaving the rest of us to fight over crumbs from the top table."

The Oxfam report came as political and business leaders gathered in Davos, Switzerland, for the annual World Economic Forum.

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