June 9, 2014 by Paul Goldsmith
After a two year campaign driven by low-paid fast-food workers that had galvanised the electorate, Seattle’s newly elected mayor, Ed Murray, signed into law a city-wide minimum wage of $15 an hour (£8.90). This had been a key pledge of the city’s first socialist councillor to have been elected since the early 20th century – Kshama Sawant, and was part of a package that included tougher labour standards that was opposed by the usual conservative business consensus as ‘uneconomic’ and ‘job-destroying’.
This is a significant victory for the workers, who have realised that they are more likely now to win elections than win strike battles. That is how much the public is with them now. New York City (minimum wage $10.10 (£6) and an openly left-wing elected mayor) could be next, and the business community should therefore take note.
As WIll Hutton points out in an excellent article in the Observer this week – The key was that the consequences of the enormous wage inequality that exists throughout the Western World (particularly in the USA) have finally hit home there – not just in terms of unfairness, but also in terms of how the American economy and society works at a macro level.
The campaigners for the $15 minimum wage had two very powerful rejoinders to the argument made that minimum wages would make fast food industries uneconomic:
1) Living on a minimum wage of less than $10 an hour is just not possible. Families in full time work depended on food stamps, birthday presents unaffordable. This at the same time as the CEO of McDonalds was paid $9m year.
2) More importantly, chronic low pay does not make macroeconomic sense. It is bad for business. It chokes demand for goods and services like….fast food. Workers can’t be loyal or committed when they have spend time desperately looking for better paid jobs. If you want your workers to build careers, drive the economy forward and be better customers – pay them properly.
Let’s look at one particular argument you could make to the voting public, especially the small business owner who regards themselves as unlikely to support the measure. Walmart makes $27bn (£16bn) profit every year at the same time as their workers are the biggest recipients of food stamps in the country and living in rancid poverty. Here’s an idea: Walmart could make $17bn (£10bn) in profit and every single one of their workers could earn $10,000 (£6,000) more a year. Those workers can buy more from your business and your taxes aren’t going to pay for their food stamps. Is that really such a bad idea?
Let’s put that in terms that you might identify with as a UK taxpayer…if our minimum wage was raised to the ‘living wage’ (which happens to be similar to Seattle’s new minimum) – the taxpayer would save £2bn a year in tax credits paid to boost income to a liveable amount, and we would go much further to stopping the frankly outrageous situation in our country of people working full-time having to get food from food banks and ration heat during winter.
We could also try this: After adjusting for inflation, the average American earns no more than he or she did in the 1970s. 95% of all income gains since 2009 have gone to the top 1% of income earners who now earn 22% of all US income. If you ever hear someone justify this by saying that the top 1% of income earners pay 30% of all income tax – it’s because their income is so much higher – not because they are so generous.
Not enough? Try this: Most of the highly-aid hero-CEOs you hear about are rewarded with massive pay packets linked to share price performance and profits. To achieve their targets they can drive wages and working conditions downwards. They can defer expensive investment and innovation. This may raise profits and share prices in the short term. But in the long term it leaves an impoverished, unskilled workforce and stagnated productivity after years of low investment. The effects of this were hidden by cheap and easily available credit – but that no longer exists.
It is significant that for the first time since I was born, the right-wing in the USA is about to lose an economic argument. Mitt Romney – the 2012 Presidential Candidate, has urged the Republican Party to back Barack Obama has he tries to raise the minimum wage throughout the country – arguing that the party must show it understand the plight of normal Americans.
Therefore, I think there is a very strong case that we have entered a new macroeconomic phase. The last four decades saw a march to the Economic right as an answer to the plague of stagflation that allowed the argument to rise that less state would solve all problems. Here we are in the 2010s and we have a new plague, inequality – to which one of the answers will be much higher minimum wages (so called ‘pre-distribution’ as opposed to ‘re-distribution’). What the USA does now should influence the rest of the West, and a far more social democratic setting of limits to capitalism’s operation is due.
Which is why all eyes should be on Seattle.