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Companies Guilty of Economic Malpractice: Worker Wages Fail to Keep up with Executive Compensation

Should the Federal Minimum Wage be Increased?

As you have probably heard, President Obama wants to increase the federal minimum wage to $10.10 per hour over three years and then index it for inflation. He already has signed an executive order increasing the minimum wage for federal contractors to $10.10. He doesn’t need Congress’ approval to increase that minimum wage but does to make it a national policy.

There is a fairness issue in what should be the appropriate level of the minimum wage so that it is a matter of ethics. Workers should be fairly compensated for their work; they need to earn a living wage; their wages must provide sufficient incentive to keep them going rather than encourage them to sit on the sidelines and collect unemployment; and, lastly, worker pride must be nourished to enhance labor productivity.

The federal minimum wage was $5.15 between 1997 and 2007 when it increased to $6.55. The wage went up to $7.25 in 2009 and that is where it stands today. For a family of four, this means $290 per week before taxes and pre-tax $15,080 for the year. The poverty level for a family of four is $23,850. Even if the minimum wage does increase to $10.10, it still will be below the poverty level.

Perhaps surprisingly, not very many people earn the minimum wage, and they make up a smaller share of the workforce than they used to do. According to the Bureau of Labor Statistics, last year 1.566 million hourly workers earned the federal minimum wage of $7.25 an hour; nearly two million more earned less than that because they fell under one of several exemptions (tipped employees, full-time students, certain disabled workers and others), for a total of 3.55 million hourly workers at or below the federal minimum wage.

In 2012, 75.3 million workers in the U.S. age 16 and over were paid at hourly rates, representing 59.0 percent of all wage and salary workers. Among those paid by the hour, 1.6 million earned exactly the prevailing federal minimum wage of $7.25 per hour. About 2.0 million had wages below the federal minimum. Together, these 3.6 million workers with wages at or below the federal minimum made up 4.7 percent of all hourly paid workers. The following are some highlights from the 2012 data.

  • Minimum wage workers tend to be young. Although workers under age 25 represented only about one-fifth of hourly paid workers, they made up about half of those paid the Federal minimum wage or less. Among employed teenagers paid by the hour, about 21 percent earned the minimum wage or less, compared with about 3 percent of workers age 25 and over

  • In 2012, 6 percent of women paid hourly rates had wages at or below the prevailing federal minimum, compared with about 3 percent of men

  • About 5 percent of White, Black, and Hispanic or Latino hourly paid workers earned the federal minimum wage or less. Among Asian workers paid at hourly rates, about 3 percent earned the minimum wage or less.

  • Among hourly paid workers age 16 and over, about 10 percent of those who had less than a high school diploma earned the federal minimum wage or less, compared with about 4 percent of those who had a high school diploma (with no college) and about 2 percent of college graduates.

  • About 11 percent of part-time workers (persons who usually work less than 35 hours per week) were paid the federal minimum wage or less, compared with about 2 percent of full-time workers

  • By major occupational group, the highest proportion of hourly paid workers earning at or below the federal minimum wage was in service occupations, at about 12 percent. About three-fifths of workers earning the minimum wage or less in 2012 were employed in service occupations, mostly in food preparation and serving related jobs.

  • The industry with the highest proportion of workers with hourly wages at or below the federal minimum wage was leisure and hospitality (about 19 percent). About half of all workers paid at or below the federal minimum wage were employed in this industry, the vast majority in restaurants and other food services. For many of these workers, tips and commissions supplement the hourly wages received.

  • The proportion of hourly paid workers earning the prevailing federal minimum wage or less declined from 5.2 percent in 2011 to 4.7 percent in 2012. This remains well below the figure of 13.4 percent in 1979, when data were first collected on a regular basis.

Critics argue that increasing the minimum wage is too costly for business especially in a recovering economy. Well that is a specious argument. Corporate profits have been increasing for some time including 18.6% for the past year. Perhaps businesses are afraid of the unknown costs that lie ahead including Obamacare. Perhaps they are still shell-shocked from the financial recession of 2008. More likely they are greedy and know it is a buyer’s market with respect to hiring employees and they can be picky while cutting back on wage and benefits.

We need to develop a big picture view of economic development in the U.S. With persistent high unemployment comes a lack of training on the job for new workers on the latest technologies, skills that will keep us competitive in an increasingly competitive global marketplace.

We need to open our eyes to the ethical values portrayed by the way we compensate workers. It is plain and simple avarice. Here is why. According to the Economic Policy Institute:

  • Average CEO compensation was $14.1 million in 2012, using a measure of CEO pay that covers CEOs of the top 350 firms and includes the value of stock options exercised in a given year up 12.7 percent since 2011 and 37.4 percent since 2009.

  • Using the same measure of options-realized CEO pay, the CEO-to-worker compensation ratio was 20.1-to-1 in 1965 and 29.0-to-1 in 1978, grew to 122.6-to-1 in 1995, peaked at 383.4-to-1 in 2000, and was 272.9-to-1 in 2012, far higher than it was in the 1960s, 1970s, 1980s, or 1990s.

It is economic malpractice for companies to continue to compensate their workers at such low levels while executives earn so much and profits are so high. I just hope it doesn’t take a worker rebellion to wake CEOs up to the reality that they are creating an underclass that threatens our economic survival in the 21st century.

Blog posted by Steven Mintz, aka Ethics Sage, on March 10, 2014

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