The Link between High Profits & Low Wages |
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| Posted by Karen Traeger on Jul 23 2012 |
| Blog >> |
 By: Bob Lucore
A study released last week highlights the extent to which high profits and low wages are interconnected and provides more evidence that the minimum wage should be increased.
A minimum wage increase is long overdue. When adjusted for inflation, today’s federal minimum wage is nearly one-third smaller than it was in 1968. Congress should raise the minimum wage, bringing it above $10 an hour, and index it so that it keeps up with the cost of living. This would help millions of low wage workers, would reduce skyrocketing poverty rates, and would stimulate the lagging economy by putting money in the hands of those most likely to spend it.
Polling consistently shows strong, bipartisan, support for increasing the minimum wage, but opponents argue that raising the minimum would hurt low-wage workers, by discouraging small businesses from hiring them. This claim is made in spite of well-established economic evidence, reviewed here by the Economic Policy Institute, that shows little or no employment impact when the minimum is raised.
Opponents of minimum wage increases would like us to think that the typical minimum wage employee works in a small, mom-and-pop, business that will go under if faced with any increase in labor costs. But a new study from the National Employment Law Center (NELP) shows that this view is largely mythological. The study finds that “The majority (66 percent) of low-wage workers are not employed by small businesses, but rather by large corporations.”
To illustrate the role of large corporations, the NELP study goes on to show that the 50 largest employers of low-wage workers are highly profitable and have higher cash holdings and larger profit margins than before the recession. Compensation for top executives in these firms averaged $9.4 million last year and these companies managed to return $174.8 billion to shareholders in dividends or stock buybacks over the past five years. These are employers such as McDonald’s and Wal-Mart.
Wages have reached a record low as a share of the economy and corporate profits are at a record high. Furthermore, as David Cay Johnston points out, the amount of idle cash being horded by corporations is much larger than conventional measures show.
The link between low wages and high profits is direct. Low wages make high profits possible by keeping costs down. But an economy so far out of balance is unsustainable, because businesses cannot find customers. So, companies hoard cash rather than investing it and creating jobs.
Fixing America’s economic problems will require a significant redistribution of power and money away from the very rich and toward the working families that make up the vast majority. A higher minimum wage would be a small, but necessary, step toward that goal. It would help restore well-deserved rewards for those who do some of the hardest work in our economy.
Bob Lucore, a long-time ADA board member, is the former Director of Research and Policy for the United American Nurses and has worked for the Teamsters and the Department of Economic Research at the AFL-CIO. . He taught economics for several years at Centre College and Colorado State University and is currently studying Library and Information Science at San José State University. Bob is a member of UAW Local 1981, the National Writers Union.
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