By
Robert Reich
For more cartoons by Andy Singer, click here. |
I
was in Seattle, Washington, recently, to congratulate union and community
organizers who helped Seattle enact the first $15 per hour minimum wage in the
country.
Other
cities and states should follow Seattle’s example.
Contrary
to the dire predictions of opponents, the hike won’t cost Seattle jobs. In
fact, it will put more money into the hands of low-wage workers who are likely
to spend almost all of it in the vicinity. That will create jobs.
Conservatives
believe the economy functions better if the rich have more money and everyone
else has less. But they’re wrong. It’s just the opposite.
The
real job creators are not CEOs or corporations or wealthy investors. The job
creators are members of America’s vast middle class and the poor, whose
purchases cause businesses to expand and invest.
America’s
wealthy are richer than they’ve ever been. Big corporations are sitting on more
cash they know what to do with. Corporate profits are at record levels. CEO pay
continues to soar.
But
the wealthy aren’t investing in new companies. Between 1980 and 2014, the rate
of new business formation in the United States dropped by half, according to a
Brookings study released
in May.
Corporations
aren’t expanding production or investing in research and development. Instead,
they’re using their money to buy back their shares of stock.
There’s
no reason for them to expand or invest if customers aren’t buying.
All
the economic gains have been going to the top.
The
Commerce Department reported last Friday that the economy grew at a 4.6 percent
annual rate in the second quarter of the year.
So
what? The median household’s income continues to drop.
Median
household income is now 8 percent below what it was in 2007, adjusted for
inflation. It’s 11 percent below its level in 2000.
It
used to be that economic expansions improved the incomes of the bottom 90
percent more than the top 10 percent.
But
starting with the “Reagan” recovery of 1982 to 1990, the benefits of economic
growth during expansions have gone mostly to the top 10 percent.
Since
the current recovery began in 2009, all economic gains have gone to the top 10
percent. The bottom 90 percent has lost ground.
We’re
in the first economic upturn on record in which 90 percent of Americans have
become worse off.
Why
did the playing field start to tilt against the middle class in the Reagan
recovery, and why has it tilted further ever since?
Don’t
blame globalization. Other advanced nations facing the same global competition
have managed to preserve middle class wages. Germany’s median wage is now
higher than America’s.
One
factor here has been a sharp decline in union membership. In the mid 1970s, 25
percent of the private-sector workforce was unionized.
Then
came the Reagan revolution. By the end of the 1980s, only 17 percent of the
private workforce was unionized. Today, fewer than 7 percent of the
nation’s private-sector workers belong to a union.
This
means most workers no longer have the bargaining power to get a share of the
gains from growth.
Another
structural change is the drop in the minimum wage. In 1979, it was $9.67 an
hour (in 2013 dollars). By 1990, it had declined to $6.84. Today it’s $7.25, well below where it was in 1979.
Given
that workers are far more productive now – computers have even increased the
output of retail and fast food workers — the minimum wage should be even
higher.
By
setting a floor on wages, a higher minimum helps push up other wages. It
undergirds higher median household incomes.
The
only way to grow the economy in a way that benefits the bottom 90 percent is to
change the structure of the economy. At the least, this requires stronger
unions and a higher minimum wage.
It
also requires better schools for the children of the bottom 90 percent, better
access to higher education, and a more progressive tax system.
GDP
growth is less and less relevant to the wellbeing of most Americans. We should
be paying less attention to growth and more to median household income.
If
the median household’s income is heading upward, the economy is in good shape.
If it’s heading downward, as it’s been for this entire recovery, we’re all in
deep trouble.
ROBERT B. REICH, Chancellor’s Professor of Public Policy at
the University of California at Berkeley and Senior Fellow at the Blum Center
for Developing Economies, was Secretary of Labor in the Clinton administration.
Time Magazine named him one of the ten most effective cabinet secretaries of
the twentieth century. He has written thirteen books, including the best
sellers “Aftershock" and “The Work of Nations." His latest, "Beyond
Outrage," is now out in paperback. He is also a founding editor of the
American Prospect magazine and chairman of Common Cause. His new film,
"Inequality for All," is now available on Netflix, iTunes, DVD, and
On Demand.