The U.S.-Israel rift widens over Prime Minister Netanyahu's stance on Iran. Russia threatens to cut off gas supplies to Ukraine and Western Europe. And "Jihadi John" has been identified as a British national. A panel of journalists joins Diane for analysis of the week's top international news stories.
Hundreds of fast food workers in Detroit, St Louis and several other cities are walking off the job this week. Their complaint: while the fast food industry is making record profits, workers make minimum wage. They can’t afford, they claim, to cover the basics such as rent and food. Their call for a livable wage of $15 an hour does not seem likely to be met. Still, their grievances strike a chord, especially among those with concerns about the widening gap between rich and poor in this country.
- Damian Paletta reporter for The Wall Street Journal.
- Cinnamon Tigner employee at Wendy's.
- Michael Saltsman research director of Employment Policies Institute.
- Lawrence Mishel president of Economic Policy Institute.
MS. DIANE REHMThanks for joining us. I'm Diane Rehm. Hundreds of fast food workers are striking in several cities this week. They want to highlight industry salaries which they say fail to cover the most basic living expenses. Joining me to talk about the protests and the debate over the right to a living wage, Lawrence Mishel of the Economic Policy Institute, Michael Saltsman of the Employment Policies Institute and Damian Paletta of The Wall Street Journal.
MS. DIANE REHMI hope you'll join in, give us a call at 800-433-8850, send us an email to email@example.com, follow us on Facebook or send us a tweet. It's good to have all of you here.
MR. LAWRENCE MISHELThanks for having us.
MR. MICHAEL SALTSMANGood to be here, thanks.
MR. DAMIAN PALETTAGreat to be here.
REHMDamian, let me start with you. Tell us about these strikes, who's involved, where they're taking place, how many people are involved.
PALETTAI think it's hard to tell right now, but it's at least hundreds of people. And I think as, you know, we hear more and more about this, the number of people could grow. I think it's what sort of struck a chord with a lot of workers is that they see the stock market going up so much, they see a lot of people are really benefiting from this economic recovery. And a lot of Americans both working at restaurants, you know, fast food restaurants and other places feel like they're not, you know, getting the benefits.
PALETTAAnd that's the people that have jobs. There's still, you know, millions of Americans that don't have jobs at all. So I think there's a lot of people that feel like they're getting left behind by the recovery and by quite frankly Washington, and they want something to be done about it.
REHMSo is it primarily fast food restaurants?
PALETTAIt sounds like that's where the strikes have begun. Now, whether it spreads or not, it's hard to tell.
REHMLarry Mishel, what do these fast food workers make?
MISHELOh, they're basically minimum wage workers. They may make a little bit more.
MISHELSeven and a quarter an hour is what the federal minimum wage is. There's many states that have a somewhat higher minimum wage. But I'm really glad you're covering this because this is one of the most hopeful and encouraging things that are going on right now. We have in this country a broken wage setting mechanism. Over the last 10 years, workers with a college degree, a typical medium worker, someone midway up the scale as well as low-wage workers have not seen their wages improve relative to inflation and not standing improvement in benefits.
SALTSMANThis is what's behind the middle class squeeze and the overall squeeze in the economy in addition to the recession. So these people are shouting this out, and they're saying that something has to be done about it that we have to have higher wages. We can't live like this. And as Damian said, we have really high stock prices, corporate profits are at historic highs. And this is clearly an economy that works for some but doesn't work for the very many.
REHMNow, these fast food workers are asking for $15 an hour, is that correct?
REHMHow likely do you think they are to get that kind of a doubling of the minimum wage?
MISHELWell, I think it's a bold demand, and I'm glad to see people out there being bold. And it's not clear exactly how they will be able to see those higher wages. They're not actually calling for higher federal minimum wage, but that for these workers to pay that, it could be the workers in the central city districts where they work. It could be in other ways. That hasn't yet been figured out, but people are out there.
MISHELAnd I think it's really important that people support them and find ways to raise their wages. This is really important. If we don't do that, listen, the taxpayers end up supporting the people. If the companies don't pay the wages, either people are destitute or we end up subsidizing people through tax breaks and health care and other things which they should get. But it seems to me that McDonald's, Wendy's, all these people, they should be paying more.
REHMAll right. And turning to you, Michael Saltsman, what percentage of these minimum wage workers are at fast food stores?
SALTSMANYou know, I don't have the exact number who are at fast food stores. I think what we do know about people who are earning the minimum wage of 7.25 right now is actually only about one in six sort of match the city -- the idea I think a lot of people have of minimum wage workers, of say, a single parent supporting children. The problem and that kind of gets to the problem with the $15 minimum wage demand that we've been talking about is that you can't have it both ways.
SALTSMANYou can't have both a $15 minimum wage and the same number of entry-level or job opportunities for less experience employees that we have currently because the businesses that are hiring these employees that employ them, they're not private equity firms. We're talking about businesses that have single-digit profit margins. And so when you increase the cost of the minimum wage again by 100 percent, they're sort of -- they can't just absorb the increase.
SALTSMANAnd so that either means raising prices on customers, or it means finding a way to provide the same product at a lower cost. I think what we've seen in recent years and actually I think for a while now is that providing the same product at lower cost is something the customers are OK with. I mean grocery stores are teaching us to bag our own groceries. Now, you have restaurants teaching us to order via iPad-type devices.
SALTSMANThe problem is, though, these are conveniences that used to be part of someone's job description, so it means fewer opportunities for the same entry-level employees we were trying to help.
REHMAll right, but let's stay for a moment with fast food workers. How would that model shift, do you believe, if those workers, entry-level workers were paid what they are argue is a living wage of $15 an hour?
SALTSMANSure. So I think -- actually, the technology is already sort of here to give us a sense of what we'd see. There's a company in San Francisco, for instance, called Momentum Machines that has basically what is an automatic burger maker that replaces three kitchen staff. At the current minimum wage, Momentum says their technology pays for itself within a year. So the doubling of the minimum wage, it would pay for itself in a matter of months.
SALTSMANI think in the front of the house where customers interact with employees, you have locations in Europe where there's already a higher minimum wage, have transitioned towards touch-screen technology where, you know, customers instead of placing it with a cashier just place it on a screen, and I think you would expect to see more of that here. So you'd have the same fast food restaurants, but you wouldn't have the same number of employees working in them.
REHMWhat about that, Damian Paletta, the idea that if you double that wage and make it a livable or living wage that you're going to see these companies move toward automation, eliminating these jobs?
PALETTAThat's definitely one of the big fears. And, you know, I think quite frankly one of the reasons they're asking for $15 an hour is because if they ask for $8 an hour, maybe they get 7.50, and they really made little progress from where they wanted to start. But I think, you know, the minimum wage probably was never designed to be a living wage and a wage that makes you comfortable where you are and put you in the middle class.
PALETTAIt's supposed to be a rung on the ladder where you want, you know, you don't want to work at a fast food restaurant, with all due respect to people that work there for 30 years, you want to take that job, build on it to better for your family and be more...
REHMThe problem is people are stuck there.
PALETTAThat's -- and not only stuck there. People have fallen back into jobs who are making more money with better benefits. So they're probably shocked that this is kind of where they are when they're, you know, in their late 30s or 40s or 50s.
REHMThere was some research done for The Huffington Post. Tell us about that.
PALETTAYeah. I'm actually not familiar with that. I'm so sorry.
REHMOK. And it talked about doubling the salaries and benefits of all McDonald's employees so that they would -- it would take the price of a Big Mac up by a very small amount.
PALETTASo this was a story that was on Huffington Post yesterday. There was a student at Kansas University that said it would increase the price of a Big Mac by 68 cents. And the problem with his analysis is he actually, he look at McDonald's annual report which says McDonald's spend 70 percent of its revenue on labor and assumed that's what McDonald's locations are. The problem is McDonald's locations aren't owned by McDonald's Corporation.
PALETTAThey're mostly owned by franchisees who are paying 30 to 35 percent of their revenue to pay for labor costs. And so what would actually happen following his own model is that the price of a Big Mac would rise by close to $1.30 to $1.50. And that's actually assuming that sales don't drop. I mean if sales drop in response to the higher prices, then you have to raise the price even higher to make up that margin on the remaining customers.
REHMBut isn't that also assuming that the CEO, Donald Thompson, would continue to make his 2012 compensation at $8.75 million in one year.
PALETTASo I think you can take the salary of the CEO of McDonald's and you could cut it to zero dollars and give everyone in the company a 100th of one cent increase in their hourly rate -- in their hourly wage. So even if the CEO is not getting paid at all, it still leaves us where we were before, which is that you have a company like McDonald's that's providing entry-level opportunities, but it's ultimately providing them dealing with customers as well and dealing with customers who might, you know, might react poorly if the Dollar Menu all of sudden becomes the $3 menu. And so that's always the tension between consumer demand for low prices and the cost of service. And at some point, one can trump the other.
MISHELWell, let's bring this back to the fact that we have a problem that working people in this country don't earn enough to get by. The minimum wage is abysmally low. It's in inflation-adjusted terms 12 percent or more down from 40 years ago even though the productivity of the economy, the ability to produce goods and services has gone up more than a 100 percent over that time, and low-wage workers in this country are far more educated now than they were back then.
MISHELSo what kind of country do we want to live in? And, yeah, we should have much higher wages if it fuels some change in technology, that's good. In fact, what you can say is that low wages in fact are enabling us not to in fact advance and have higher productivity. If there is faster productivity, people will get jobs other places. We will have a richer economy. And if we do have this productivity, growth in these restaurants, then the prices won't go up so much.
REHMHas anyone actually defined a living wage, Damian?
PALETTAThere are different ways of defining it, and I think -- and it's -- and I don't think anyone believes it's $7.25 is a living wage. And, you know, the president has proposed raising it to $9.50. But, you know, that's really going nowhere either.
REHMDamian Paletta, he's a reporter for The Wall Street Journal. Your calls, comments, questions, a little later in the program. Do join us, 800-433-8850.
REHMAnd welcome back. We're talking about number of strikes going on at fast food restaurants around the country. Those employees who are earning minimum wage of $7.25 an hour are asking for $15 an hour. Here with me is Lawrence Mishel. He's president of the Economic Policy Institute. Michael Saltsman is research director for the Employment Policies Institute. And Damian Paletta is a reporter for The Wall Street Journal. Just before the break, we were talking about what actually constitutes a living wage, and I gather it varies major ways around the country.
PALETTAAbsolutely. I mean, in the Washington area, big cities like New York, Chicago and San Francisco, it takes a lot more money to support a family -- and we're just talking about, you know, getting by, you're talking about rent, groceries, transportation, gas -- than it does in other parts of the country where the cost of living is much less. So, you know, that's why different states have different minimum wages because it -- quite frankly, much different economic circumstances.
PALETTAAlso, we've seen that it's much harder in some parts of the country to get out of the kind of lower rung on the economic ladder. It's harder to move in some parts of the country to get up from the lower -- lower-income jobs into middle-class jobs.
REHMHow long has that been the situation?
PALETTAProbably as long as this country has been in existence. But it's kind of frustrating in the land of opportunity that we live in that we still are dealing with a lot of these issues right now.
REHMLarry, I wonder whether the situation has gotten worse over the last, say, 20 years that people are, as Damian says, stuck in that bottom rung.
MISHELWell, the truth is, Diane, that the hourly wages of workers at the bottom haven't grown since 1979 even though the economy's ability to produce goods and services has grown a lot. Obviously -- so, you know, this is a real problem, and it makes it hard for people to get by. And I want to address your issue about what does it take to live. And there's really competing versions of this.
MISHELI should mention that my own think tank, the Economic Policy Institute, just released what we call Family Budgets for 600-some areas across the country that captures what it takes to live in terms of health care, transportation, child care, et cetera. And we're about to hear a worker from St. Louis, so I'll just mention that we think that it takes roughly $3,900 a month to live in St. Louis if you're a single parent with one child.
MISHELNow, it's kind of humorous that McDonald's -- and people should find this on the Web -- McDonald's recently came out with a budget for its workers, advising them. And they offered that they expect that people should basically need an income of around $2,000 a month. But they note that they should have two jobs. And I'll just note that in order to have an income of $2,000 a month and only work full time at one job, you need around $12 an hour wage, which means you need around $15 pre tax.
MISHELSo it almost is that McDonald's is saying that for you to get by, you need $15 an hour wage. And you should note that the McDonald's budget doesn't even include heat, doesn't include gas, doesn't include child care, doesn't include work.
REHMWhat does it include?
MISHELWell, it includes a miscellaneous category for a bunch of different things. But it has a rent of $600 a month, car payment of $150 a month, et cetera. So, you know, there's a lot -- been a lot of controversy about that, written about it, and I think people should mark that and they should check that out because if you start from what do people need, we need to find -- build a country that provides that.
SALTSMANSure. So again, I think it's important to look at who's earning the minimum wage right now, specifically to address the McDonald's budget that get a lot of media. So over 60 percent of those who currently are in the minimum wage are actually not living in poor houses. In fact, about 63 percent are living in households more than two times the poverty line and about 45 percent are living in households...
REHMHow do you know that? How do you know that?
SALTSMANWell, we know it from Census Bureau data because we can look at the current population survey. It tells us the family income of people who are earning the minimum wage. And the reason that it's so high is because a lot of folks, not everyone, but a lot a folks who are earning a minimum wage or either -- it's either a young person living with their family or it's a secondary earner. When I lived in Philadelphia, I used to work for the Bureau of Labor Statistics, and my wife worked a minimum-wage job at Starbucks.
SALTSMANAnd so we would have fallen under that category. Now for those remaining who we do wanna help through raising the minimum wage -- and again, this is, say, the one in six that are single parents supporting children -- we've already put in place policies like the earned income tax credit that represent a 30 to 40 percent wage supplement. Depending on the state you're in, that's an additional five to $7,000 a year.
SALTSMANAnd the importance of this policy is that it's essentially created a situation where were able to better target these benefits to the families who need them and we're able to do it in such a way where we don't adversely affect the job opportunities that are available for folks who are just getting started in their career or who are less experienced. And so I think that policy is a much better way to boost wages, and it's also something that wasn't reflected in the McDonald's budget that made the rounds. It's a much better policy to reduce wages that's not gonna have these adverse consequences.
PALETTAWell, what's so interesting about this -- and there's gonna be debates about the minimum wage. There's been for decades. There'll be for decades.
PALETTABut the question is how do we get a lot of these workers in the situation where they don't have to work for minimum wage? You know, and one of the tragedies of the financial crisis has been that the, you know, we haven't sort of captured a lot of these people that had fallen into the safety net and gotten them reeducated into jobs for the new economy that pay better. And you know, maybe a lot of those construction jobs that help fuel the housing boom, they're not there anymore. They need to find other kinds of work.
PALETTAAnd the economy hasn't been able to pivot and absorb, you know, a lot of those workers. And so that's one of the reasons that we've had so many people fall into these types of jobs and are having a hard time giving out.
REHMHas productivity gone up in the fast food business, Damian or Michael?
SALTSMANYou know, actually, I was looking at numbers for the food service industry yesterday and over the last 20 years. And over the last 20 years, productivity in the food service industry has either increased minimally or not at all. In fact, it's actually decreased in some years. I think that it gets to the problem of, you know, we've heard these discussions. I think that it was Sen. Elizabeth Warren who said we could -- if we had linked the minimum wage to economy-wide productivity, it would be $22 an hour today.
SALTSMANWell, that includes, you know, productivity gains, for instance, in telecommunications, you know, and the fact that, you know, we all have Apple phones now and, you know, we have better computers. But if you look it in the food service industry, there's only so fast that you can cook a burger or bus a table. And so the productivity situation looks very different there and linking wages to productivity in an industry where you're not seeing those gains. It's just a recipe for unintended consequences.
MISHELWell, the recipe of having no increase in wages if you're industry doesn't have any productivity increase is quite foolish. For instance, that would mean that people who are in an orchestra never get a wage increase for decades because an orchestra plays the same number of symphonies each year. A barber cuts the same number of heads of hair per year. This is known as the Baumol Effect in economics. So when we -- when people like me talk about wages should rise with productivity, it's on average.
MISHELIt's not that the fastest industries get the fastest wage growth. It's that on average, you should get an increase. And so the fact is, you know, the economy can afford much higher wages. And we shouldn't be talking about who are the deserving workers who just, you know, earn more money. The people who earn the minimum wage, they are definitely in the bottom half of the income distribution. And the idea of this -- of saying that a secondary earner doesn't need a higher wage, we're talking about a wife who may be providing 40 percent of household income. I just find that quite repugnant.
REHMAll right. Let's welcome into the conversation now, Cinnamon Tigner. She's an employee at Wendy's in St. Louis. Welcome, Cinnamon.
MS. CINNAMON TIGNERHi. Thank you. Thank you for having me today. Thank you.
REHMSure. I gather, you've been one of the strikers. Talk about why you decided to go on strike.
TIGNERWell, to be honest, I want to try to make a difference for my child and for my life. I've been working for fast foods since I was 16 years old, and I've been struggling since then. I'm now 22. I've been on my own since I was 17, and it's like I just feel like I've been struck in the same position for so long. And it's like, when is it ever gonna stop?
REHMTell me how much you earn.
TIGNERI apologize about that. And it's like when is it gonna stop? When is it gonna come to a point in life that it's gonna make it to where me and my daughter is gonna have a great life?
REHMCinnamon, tell me how much you actually earn.
TIGNERActually, to be honest, my checks would only be -- if I work my full 40 hours and don't take a break, I bring home at least, like, four -- probably like 470 or maybe 460 every two weeks.
REHMEvery two weeks.
REHMAnd how does that compare to your monthly expenses?
TIGNEROh, wow. To be honest, it -- I am budgeting every second of the day. I pay 450 in rent. I pay for child care, which is at least like $50 a week, you know? I pay for my own food. I don't have, you know, food stamps. I don't get any government assistance. I don't get any daycare assistance for my daughter. Everything is coming out of pocket for me.
TIGNERAnd when I found out about the striking and I found out about the, you know, the things that, you know, I did the research in it, overwhelmingly to the point where I'm like, well, I can stand up for something to make a change, you know, for people that's (word?) in school, like I wanna get education for myself. I wanna do better. I wanna, you know, have a career. By the time I do turn 25, but where do I start, you know? I have to have a job in order to pay for my education, you know, 'cause, you know, you're going to be in debt after that...
TIGNERYou know, it takes money to make money, you know?
REHMOf course. Have you tried to get a higher-paying job?
TIGNERYes, I really am. I'm really looking forward doing something special with my life so I can show my daughter that I did it, you know?
REHMBut, I mean, are you applying for other higher...
TIGNERActually, yes, I am. I'm actually looking for something better. It's just that, right now, all this hiring is really fast food. And now -- with the economy now these days, it's not really that many, but, you know, I apply. (unintelligible). I apply for a lot of positions, you know, 'cause all I have is a high school diploma. I don't have a degree. I don't have anything else. And...
REHMBut you do have a high school diploma. That should be helping.
TIGNERYes. Yes, I do.
REHMWhat are you hoping to accomplish with this strike, and are you at all afraid you might be laid off?
TIGNERActually, to be honest, I am kind of afraid that I'm going to be looked at different in my job. I feel like they're gonna try to, you know, poke at me a little bit. But, I mean, I feel like I'm doing it for a purpose. I mean, I'm doing it for me, and I'm doing it for everybody out there who's not gonna speak up, who -- I'm not OK with 7.35. I can't survive. I can't go -- if it takes me to speak out and let people understand that, you know, you don't wanna live the life that I'm living, you don't wanna struggle like I do, so it's time to make a change. So that's what I'm doing.
REHMCinnamon Tigner, she is an employee in St. Louis, Mo., at Wendy's. Thanks for joining us, Cinnamon.
TIGNERThank you so much. Have a great day.
REHMYou too. And you're listening to "The Diane Rehm Show." I gather, Damian, she really does represent a great number of people across the country.
PALETTAAbsolutely. And what's so amazing about -- I mean, I'm from St. Louis, so I can definitely -- probably -- I've probably driven by the Wendy's that she works at growing up. But one of the amazing things is this is a tragedy that it's the aftermath of the financial crisis still. I mean, these are -- the jobs just haven't come back since, you know, the 2008, 2009 downturn, and that's a reason that it's really hard for a lot of people to get out of these minimum wage jobs like this.
PALETTAI mean, one of the questions for someone like Cinnamon and others is, you know, what do you wanna do? What do you want the next step to be? You know, maybe you have your high school diploma. Can you go to community college? I mean, how much more sacrifice can you make, especially when you have a child? I know it's really difficult, but what do you -- what is your strategy to sort of get out of this position?
REHMSo, Michael, turning to you, how much money do you think you have to make to have sort of a decent, not luxurious but decent lifestyle?
SALTSMANWell, I think it's tough to put a figure on that because I think it's probably different for everybody else. I think in Cinnamon's case, I mean, we listen to her story, and I think everyone here and I think everyone listening is empathetic for that and wants to help Cinnamon and wants to see her succeed. And so I think the question from a policy perspective, though, has to be what's the most effective way to do that?
SALTSMANWhat's the most effective way to help her out? Now, we can say, let's create a $15 minimum wage, and let's double her current wage. But if what that does is create a situation where she's lost hours or she's lost employment because the job she used to be doing is now being done by the customer themselves, then she's not better off.
REHMWhat about that, Larry? If you have a corporation like McDonalds or Wendy's moving to mechanism and laying off these employees because they're too expensive, doesn't that go right smack against what you hope to achieve?
MISHELWell, what I want to achieve is that workers at every wage level are doing a lot better, and we need broad-based real wage growth because it's not just that the job that Cinnamon has isn't so good, but it's also that the job that she hopes to move to is probably earning less than what it paid 10 years ago or 20 years ago. So we have a systemic...
REHMSo we're not catching up.
MISHELWe have a systemic problem of employers having the upper hand with high unemployment, with weak unions, lower minimum wage, with -- without workers having ability to improve their wages. So if we actually got wages to go up -- and it's not gonna double to $15 overnight, it's gonna go up over time -- there's gonna be mechanization as there is across the economy. People are gonna find other jobs. You know, there is -- you know, we've had a lot of mechanization over the last 150 years.
REHMOf course we have.
MISHELYou know, it's not like we have 100 percent unemployment.
MISHELThis is a ridiculous idea...
REHMHere's what I have a problem with, and that is young people like Cinnamon, who are earning the minimum wage, seeing these top-level salaries, income, stock options, all of this income grow to such an extent that it's now much farther out of whack than it used to be, Damian.
PALETTAThat's right, and I think a big reason for that is, quite frankly, the high unemployment rate. There are so many people that need a job, any job, that they've had to settle for jobs that pay, you know, very low on the scale. And so, you know, what could help if we get more jobs in this country and there's more demand and more consumer spending and confidence that'll help kind of bring the economy back, and maybe there won't be as many people in this situation, but right now it's the situation we're in.
REHMDamian Paletta, reporter for The Wall Street Journal. When we come back, it's time to open the phones, take your calls, your email. I look forward to speaking with you.
REHMAnd we're back. About to open the phones. First to Boston, Mass. Hi there, Ruth. You're on the air.
RUTHHi. I have a question, and then I sort of got two comments.
RUTHThe question is where do you find $600 rent? I'm sorry. You can't find one in the bigger Boston area. You'll be living in a manhole.
REHMYeah. I understand that. And that's exactly part of what we were talking about, how in the big cities, you've got a much higher cost of living.
SALTSMANI don't know if you could find a $1,200 rent for a family in Boston.
RUTHYeah. I was listening to one of your talkers -- your guys on the panel, who said that, I forget, was it McDonalds, had a budget and they allowed you to budget $600 for rent.
REHMYeah. Exactly. Right.
RUTHI just think you can't find that anywhere in America.
REHMAll right. All right, Ruth. And your other questions or comments.
RUTHOh. Every time in the past that they raised the minimum wage, I've heard the same argument from people who don't want it raised that people will lose jobs et cetera, et cetera. But every time they've raised the minimum wage, the job hiring goes up, employment goes up, you know, because people who get a raise in the minimum wage buy more stuff.
REHMAll right. Thanks for your call. Larry.
MISHELWell, I think we do hear, in response to these strikes, a lot of the same old arguments over and over. These people aren't deserving.
MISHELWe're gonna mechanize it. They're all gonna lose their jobs. But, you know, we're in a really bad situation and people need money to get by. We need an economy that's gonna produce the kind of -- the quality jobs that are gonna support families or allow people to get ahead. So I'm very sympathetic with what Ruth is saying.
SALTSMANI don't think, though -- I don't think there's anyone out there who thinks that low wage or less-experienced employees aren't deserving of moving up. And I actually think, if you look at the research on this issue, the typical employee who earns the minimum wage gets a raise in their first one to 12 months on the job. There's tremendous wage growth. But it -- there are some employees -- and it's a small percentage, but there are some employees who are at that position for a longer period of time.
SALTSMANAnd so for those employees, I do think we need to have, again, a stark and sort of honest discussion about what's the most effective way to help them. We had 28 states that raised their minimum wage between 2003 and 2007 to try and accomplish this exact goal that we're talking about today. And what we saw -- in fact, economists from Cornell and American University found no associated reduction in poverty. The reason is it's because it's poorly targeted and because there are unintended consequences.
SALTSMANAnd so with that track record, we need to be thinking outside the minimum wage and raising it in terms of the best way to help folks like we've been hearing from today.
MISHELThe issue isn't whether these are the deserving people, whether they are poor or not. You know, you can be so poor that you get a raise and you still remain poor. That fact is that, the people who earn low wages are in households which are in bottom 40 to 60 percent. They frequently contribute 40 to 50 percent of the total household income. It's -- we keep on coming back to do they deserve it. Of course, they deserve it.
MISHELAnd we can have an economy that provides much higher wages. And the fact that we don't should make people angry. And people should be supporting these workers, and more people should be joining these strikes.
REHMAll right. To Miami, Fla. Hi there, Liz. Hello? Laz (sp?) , are you there?
LAZOh, hi. Hi. Good morning. Good morning. I just wanna make a couple of short points. Part of this does have to do with private equity. I mean, Bain Capital owns Dunkin Donuts, Domino's Pizza. They just spun-off Burger King, taking it, you know, public, making hundreds of millions of dollars. I don't think the employees saw much of that.
LAZAnd, you know, if we can't pay someone in New York City, a wage that is just, you know, at the poverty line while also, you know, making noise in Washington about reducing access to food stamps and low income HEAP subsidies and early childcare, you know, what are we doing? We have, you know, John Boehner is saying, health care -- sorry -- will -- health care will kill small business, $9 minimum wage will kill small businesses, you know, you can have a company in the U.S. worth $10 million and it's considered a small business.
REHMAll right. Thanks for your call. Michael.
SALTSMANSure. So, I think, the dichotomy that we've been seeing a lot lately is, again, between this idea of corporations and CEOs versus, say, people earning the minimum wage. And again, it's not just McDonalds. You can look at other companies and say the CEO will get no pay. You know, companies like Wal-Mart. If the CEO took a 100 percent pay cut, the hourly increase in the wage of Wal-Mart staff would be miniscule. I don't think that kind of narrative and that sort of discussion is helpful.
SALTSMANI think what we need to be talking about is the opportunities that are available. I mean, we've been talking about the, you know, industries like the fast food industry, again, where if you look at employees who earn the minimum wage between -- let's say, the last increase in the minimum wage between 1997 and the next, 2007, the number of people earning the minimum wage, both the percent and the number, dropped every single year. It dropped down like 2 percent of the hourly workforce.
SALTSMANIt was like nobody earning the minimum wage, and that's because there are such tremendous earnings mobility that people are working their way up. What we need to be able to do is we need to preserve a system where people still have the opportunity to get the experience they need to get a raise because otherwise, if you don't get that experience, you're not gonna get that raise.
PALETTAWell the problem was after 2007, we had the financial crisis, and everyone came kind of crashing back into the minimum wage. And one of the problems with the minimum wage is that it kind of puts in number. It's like it is a magic number that people -- that we've decided, you know, is the equilibrium between what businesses can afford to pay and what people need to earn. And, unfortunately, you know, like we know everyone's situation is different. You know, whether -- if you're a teenager, you know, maybe the minimum wage is kind of the perfect situation for you to get some experience.
PALETTARight. But if you're a working parent, you know, with three kids as a single parent, then it's a much different situation. The question is, how do we get these people into situations where they can, you know, have more job training or education and they don't need to be stuck like that?
REHMIn what situations can an employer pay a teenager less than minimum wage?
PALETTAWell, I think if you're a restaurant worker where you can earn tips, I think there's sort of a different minimum wage, I believe.
SALTSMANSo there's a youth opportunity wage, and I believe it's for employees 19 and younger, and it's for the first 90 days of employment that you can pay a reduced minimum wage of I believe 4.25 for 16 and 19 year olds. After that, it goes up to the full minimum of 7.25, and then also for tipped employees. So, you know, if you look at tipped restaurant employees who average about $13 an hour in take home pay when tip income is included, there's a lower base wage for them that they have to make at least the minimum wage after their tips are included.
MISHELDiane, you know, the -- that whole thing about paying the teenagers less, the actual experience was that is even though employers can, they don't. And that just shows how it's really not about the wages. And I wanna go back to the CEOs. The fact is that in this nation over the last -- since 1979, the share of income that goes to the top 1 percent went doubled, and now it was up to around 23 percent of all national income.
MISHELWe just did a study on why that happened. One of the major reasons was the rising pay of executives. Now, it's not just CEOs. There are 30,000 executives that report their compensation to the SCC in publicly held firms. There's many thousands more in privately held firms. Those -- their incomes actually comprise, along with the financial sector, about two-thirds of the income of the upper one percent. So this is not a small group.
MISHELThis is actually a large group that has driven the inequalities at the top. And so, you know, if we were to redistribute that extra 13 percent of income that went to the top 1 percent, that's not pennies.
REHMAll right. To Salem, Ind. Hi there, Dale.
DALEYes. I enjoy your show and gain a lot of knowledge from it.
DALEI had two comments. One is, why cannot the wage be tied to the profit margin of the corporation? In other words, the more profit they make, the more they can pay, which would be fair to both sides. And number two is, the sole reason that people many, many years ago own slaves was because they didn't pay them any wage. The less you pay a body for working, the more profit you make off that body.
REHMAll right. Thanks for your call. What about the idea of tying wages to profits, Michael?
SALTSMANYou know, I don't think anyone has look to that, I think, the idea of, you know, penalizing a company with an additional mandates for being more profitable. I mean, I think, in general, as companies continue...
REHMWhy would that be penalizing?
SALTSMANWell, I think creating an additional...
REHMShareholders, you mean?
SALTSMANYou'd be creating an additional or a new wage mandates, sort of based on -- again, based on a company becoming more profitable I don't think it makes a lot of sense. And I think, in general, as companies grow and as they become more profitable, you're going to see other folks in the company benefit. I mean...
REHMBut shouldn't the worker share in that kind of profit making?
SALTSMANI think the workers already do share. And you don't need the government to be involved to make that happen.
REHMOK. And speaking of government, don't many of these minimum wage workers unlike, Cinnamon, have to then rely on the government for health care, for child care, for food stamps even though they are being cut back? I mean, isn't the taxpayer, as a whole body, making up for those people who are earning minimum wage?
SALTSMANAbsolutely. A few months ago, I went to North Carolina to interview people on food stamps about what their experience was like. And it's definitely not the, you know, the stereotype that's out in America. A lot of these people, you know, are working long hours, and they're making more than the minimum wage even. You know, some of them that have families are making, you know, $10, $12 an hour, and they're still on food stamps because they just can't make ends meet.
SALTSMANSo, you know, there is this safety net, whether it's Medicaid, Social Security Disability or food stamps out there. And a lot of people that are earning that amount, you know, $7, $8 an hour and have to rely in those sorts of resources.
MISHELDiane, I think we should be thinking about the minimum wage as a labor standard. And what that means is that it used to be that the minimum wage was about half of what an average earner made, average worker made. And so it meant that as wages went up, the minimum wage workers went up along with the average worker. And that set a standard for wages at the bottom. I think that would allow us to provide a decent standard of living.
MISHELWorkers are gonna need the supplements of food stamps and Medicaid, but we shouldn't be allowing employers to get away with such low wages that we have to subsidize them to the extent that we do now.
SALTSMANWhat actually used to be is that the minimum wage used to be a minimum-skilled wage. It used to apply to industries like mining and manufacturing when it was first created. What's happened over time, specifically in the 1960s, that you had a series of amendments to the Fair Labor Standards Act that turned the minimum wage into what it is today, which is a wage for less skilled or less experienced employees that predominantly work in the service sector. And so I don't think the right way to think about this is that we're, you know, providing some sort of subsidy to low-wage employers.
SALTSMANI think what we're doing is looking at those who earn the minimum wage, realizing that the majority of those who do earn it aren't living in poverty and saying, how can we help those who are living in poverty in the most effective way that make sure their jobs are still there? I think that's why policies like the earned income tax credit are some important and are so significant, and they represent a big commitment on the part of both parties in Washington, to help solve this problem without creating unintended consequences.
MISHELSo why does -- why do we -- this is Larry. Why we not see the Republicans? Why don't we see corporate America out there saying, we should have more food stamps? We should have a bigger earned income tax credit. Why aren't the employers that you represent out there trying to make sure that the public actually provides at the state and local level and at federal level the subsidies that these people need to get by? I don't see...
SALTSMANWell, I think employers are concerned with running their own business. I think what you've seen in Washington, D.C., is that you've had people in both parties advocating for policies like the earned income tax credit because they realize unlike the labor unions that support your organization, that support wage mandates that would put folks out of work, they realize that this is a way to boost incomes, reduce poverty without unintended consequences.
REHMAnd you're listening to "The Diane Rehm Show." Damian.
PALETTAOne of the thing -- interesting things that we're gonna have to watch in the wake of these protests is how do the businesses respond, you know? Do they -- can they sustain having protesters outside of their restaurant?
PALETTAExactly. And in Washington, we're dealing with this situation now where Wal-Mart is moving into the city for the first time. There's possibly gonna be six Wal-Mart's, three are already under construction. And there's a big fight with the D.C. City Council about, you know, what -- the D.C. City Council is trying to -- has passed a law. I'm not sure what the status of it is. But they want the...
REHMWaiting for the mayor to either sign off on it or veto it.
PALETTARight. And it would essentially raise the wage for people at Wal-Mart, not really any other store.
REHMTo $15 an hour?
REHMTwelve and half.
MISHEL...including all benefits.
PALETTARight. And so -- and Wal-Mart has said, now, wait a second, this isn't what you signed up for. We might pull three of our stores back. And there's a big division within Washington who quite frankly needs these jobs in the neighborhoods where they wanna put him, saying on the one hand, is it -- aren't we, you know, more of a disadvantage if we have no jobs rather than these low-paying jobs? And so that's something that's playing out as we speak.
SALTSMANThere was a great article in The New York Times about this situation. They actually interviewed some folks in D.C. And they said -- the one quote was that people in the Wilson Building, which is essentially the city hall in D.C., they don't get it. That -- and I think it was a gentleman who was -- he was maybe in his 30s, and he said, like, I need a job right now. He lived in -- I think it was Ward 7, and he said, I would love to have Wal-Mart in this community.
SALTSMANAnd that when you have people sitting there saying, well, they're just gonna sort of turn their nose up or their turn backs on hundreds of new jobs that would be in some of the wards that have the highest unemployment rates in the city, I mean, I think it's a very direct and very sort of compelling image of the consequences of wage mandates.
REHMSo it's a trade-off?
MISHELNot really a trade-off. If Wal-Mart comes in and it's selling goods and services, there's all gonna be other businesses that are not gonna be selling those goods and services and losing jobs. This is not necessarily a big neck creation of jobs. What's gonna happen with Wal-Mart, which is happening all over the country, is that they drive down the wages for all workers at the bottom. And that's why this is a big fight. It's a fight about the degradation of work and job quality in America. And D.C. Council is taking the lead in preventing that.
REHMBut on the other -- you have other corporations like Costco paying...
PALETTAThat's right. Costco is paying, I think, in many places more than $10 an hour for sort of similar work to what we're seeing at Wal-Mart. So the reason this is striking a chord right now is the kind of bigger economic picture that there is, you know, a lot of frustration among people who are making seven, eight, $9 an hour. But why aren't I benefiting from the economic recovery that I read about in the newspaper, that I'm watching on TV every day? You know, the stock market is where it is. How come I'm not feeling that?
PALETTAAnd we see, you know, some city governments and local governments that are saying, well, what can we do to kind of assertively make some of these changes ourselves? And, you know, it's probably not the best situation for Wal-Mart and the D.C. City Council to be at war over this. You know, they probably should be trying to figure out a way to make the situation work, but that's where we are right now because there's so much frustration.
REHMDo you think they will, Michael?
SALTSMANYou know, I think it'll -- in this case, it comes down to the mayor. I mean, I think when you have, you know, folks like Vincent Orange, a D.C. Council Member, out there saying things like, you know, that we don't need these retailers. These retailers need us. I don't think it's -- I think it's ignorant of the needs that are in the actual communities in D.C.
REHMMichael Saltsman, Larry Mishel, Damian Paletta, thank you all for being with us. Thanks for listening. I'm Diane Rehm.
ANNOUNCER"The Diane Rehm Show" is produced by Sandra Pinkard, Nancy Robertson, Denise Couture, Susan Casey Nabors, Rebecca Kaufman, Lisa Dunn and Danielle Knight. The engineer is Erin Stamper. Natalie Yuravlivker answers the phones.
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