For the first time in 15 years, there is serious national momentum around raising the federal minimum wage, potentially to $15. With this momentum comes the opportunity to examine our national priorities around wages and jobs, particularly as we emerge from the pandemic and continue to grapple with racial inequity in the U.S.
- A key challenge of the minimum wage debate is that it conflates several related and critical issues into one, leading us to miss the larger context that surrounds the minimum wage. Specifically, that:
- Investing in America’s workers is good not just for workers themselves, but for shareholders and communities across the nation;
- Supporting workers, a core stakeholder and value-creator, should be a priority for all corporate leaders; and
- Creating a more just economy for Americans might begin with the minimum wage, but it cannot end there.
The minimum wage emerged as an answer to the Great Depression, and was codified in the late 1930s as part of a broader push to establish the floor for labor standards in America. It was born from the recognition that the government needed to create a baseline for how companies and the market could treat people and value their work. It was a time not too different from the one we’re in now – featuring a major stratification of wealth, as well as a realization that society wasn’t protecting enough people and that the market wasn’t as reliable or transparent as we needed it to be.
In the 1970s, we ushered in a new set of expectations for our economy, when corporate America codified the conventional wisdom that minimizing labor costs and keeping wages low is key to profitability. So it’s no coincidence that wages haven’t meaningfully gone up in a long time. According to recent work by the Economic Policy Center, worker pay has grown 13.7% since 1978. By comparison, CEO pay grew over 1000% in that same time horizon. That extreme contrast signals a belief system about who brings value to business.
And the minimum wage is a barometer for the values of a society. It speaks to our collective baseline expectations for how any business should treat someone. According to our extensive annual survey research efforts, Americans across the ideological divide agree that business leaders should prioritize workers above all else, starting with wages. As a nation, we should be aspiring to create jobs that give people the freedom to support themselves and their families.
In recent months, we’ve heard an increasingly loud argument about the irrelevance of the federal minimum wage – that local economies across the U.S. are so vastly different that one standard simply isn’t applicable. And while I can relate to that central premise, it misses a key point – that society dictates what is acceptable and unacceptable. That reality makes wages a federal issue.
On the other hand, good wages do vary dramatically across different geographies and counties, and therefore I welcome those who seek to eliminate the federal minimum wage to seize the living wage as an alternative concept. According to the Living Wage Calculator created by MIT professor Amy Glasmier, the living wage in counties across the U.S. ranges from around $18 to $30 for a family of four. A living wage, conceptually, is compensation that covers an individual’s or a family’s monthly bills for essential needs. Childcare. Housing. Transportation. Food. Living wages fluctuate dramatically based on if an individual has a partner and/or children, in addition to where they live. When we talk about raising the minimum wage, we miss that nuance and context. The minimum wage is not a concept designed to cover any one person’s monthly costs, while a living wage is.
We also hear a lot about how increasing the minimum wage will cost jobs and hurt business. There continues to be a lot of work done, and disagreement around, if and how many jobs could be lost. Increasingly researchers are finding that significant job loss is unlikely. Critically, this line of reasoning again misses the broader point – poverty-level jobs should not be what we aspire to. $15 an hour will not be a living wage for a family of four anywhere in the country. It would only be a living wage for a single adult with no children in about half of the states in the country. And good jobs can help businesses and workers.
But despite the importance of the minimum wage, it’s also a blunt instrument, further undermined by the fact that, when it was first established, it was in the context of a broader push for safe and family-supporting jobs. With the establishment of the minimum wage came overtime, outlawing child labor, and the creation of today’s concept of employment. The minimum wage, and indeed wages overall, can and should be understood in the context of jobs, not as a standalone.
Many business leaders today understand this. In 2019, PayPal identified the importance of understanding if its workers were getting by and getting ahead, and so undertook a formal assessment of the financial security of call center workers, focusing on their “net disposable income.” This analysis essentially looked at the workers’ wages, in addition to costs of healthcare, ability to save, and pay for emergencies. Since this assessment took place, JUST Capital and PayPal, along with the Financial Health Network and the Good Jobs Institute, have partnered to create the Worker Financial Wellness Initiative, which asks all corporate executives to consider whether they know if their workers’ wages are covering the bills, and if workers are getting by overall – and if they don’t know, to conduct an assessment, like PayPal did, to find out. In short, we need to move away from thinking only about one piece of the puzzle (wages), and instead examine the full financial lives’ of people. And we need to expect business leaders, who are increasingly trusted more than politicians, to work toward a future that creates quality jobs within their own companies, regardless of industry.
Research shows that engaged and financially secure workers can bring significant value to businesses. MIT Sloan Professor Zeynep Ton, founder of the Good Jobs Institute, has done extensive research on the business case for good jobs in the retail sector. The data shows that this approach can lead to competitive advantage. It can increase retention and productivity, and in turn, customer satisfaction. Mercer found that employers report losing $250 billion each year due to the stress of their employees. And JUST Capital’s own work shows that companies that invest in their workers also outperform their peers in the market.
The moral of the story is that the minimum wage is a crucial step on the journey toward a society and an economy that recognizes and values good jobs and good wages. And to be clear: raising wages is a critical piece of the puzzle. But over the decades, we’ve lost the context for this conversation, and have treated it as a government issue rather than a business AND government issue. As the dialogue in Washington gets more intense about raising the minimum wage, political leaders should consider this issue in the context of the broader push to create good jobs in our country, and understand that even $15 is not a living wage. And business leaders should embrace this new reality, where paying people well leads to better long-term business outcomes, and shows real leadership. As we emerge from the pandemic to a changed economy, it’s time to create an economy where a certain caliber of job is simply unacceptable, and where all Americans are able to both get by and get ahead.