Seattle Shows The Way To Higher Pay

People demonstrating for a $15 minimum wage in Seattle, in 2014.

On July 8, 2017, the Editorial Board of The New York Times writes:

A recent study on Seattle’s $15-an-hour minimum wage law reignited the debate over whether higher minimums help workers by lifting pay or harm them by leading employers to cut hours. The study, by University of Washington researchers, found more harm than good, a result that was at odds with a large body of previous research and was challenged by other economists who saw flaws in the study.

The dispute has been healthy. The critics have been specific and data driven, not ideological. The study’s authors have said they welcome criticism and have acknowledged that other conclusions are plausible. The dispute could actually advance the cause for higher minimums and give them a better chance of delivering the desired benefits.

For starters, the debate has underscored the validity of decades of rigorous research and real-life experience showing that moderate increases in the minimum raise the pay of low-wage workers without reducing job growth or work hours. The only question is whether big increases would also work. The federal minimum is a mere $7.25 an hour and most of the 30 states with higher minimums require less than $10 an hour. Large minimum-wage increases are generally defined as those calling for $12 to $15 an hour.

In Seattle, the minimum rose in 2015 from $9.47 an hour to either $10 or $11, depending mainly on the size of a business. In 2016 it rose to a range of $10.50 to $13. (The period studied covers 2015 and 2016.) In 2017, it hit $11 to $15. By 2021, all Seattle businesses will pay at least $15.

In attempting to assess the effects of the increase, the Seattle study excluded workers at businesses that also have locations outside the city, including chains and franchises like Starbucks and McDonald’s. The intent was to isolate the impact on Seattle employers, independent of outside business concerns. But the consequence was to overlook — and most likely underestimate — the experiences of employers who can best afford the raises. Similarly, the study blames the minimum wage increase for a decline in low-wage work in Seattle, when a likely cause is the city’s strong economy in which competition, not the minimum wage, bids up pay.

Seen in that light, it seems safe to conclude that Seattle has tolerated its minimum wage increase well and that, by extension, other strong economies could do so. It also suggests that a key to successful large increases is a gradual phase-in that gives businesses time to adjust and experts time to study the impacts as they unfold.

Caution is advisable, because large increases are largely untested. What is not acceptable is to do nothing in the face of uncertainty. Minimum wages have to go up: If the federal minimum of $7.25 had simply kept pace over the decades with inflation, it would be nearly $10 an hour today. If it had kept pace with other relevant benchmarks, like average wages and productivity growth, it would be $11 to nearly $19 today. Cities and states are experimenting with higher minimums because Congress has failed to raise the federal minimum. The experiment appears to be working.

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Gary Reber Comments:

The squabbling debate between pro minimum-wage advocates and free market advocates continues.

The real issue we should be addressing is how to empower EVERY citizen to earn more income through ownership of the non-human factor of production – technological invention and innovation that results in more efficient “tools” (what economists call productive physical capital) that reduce or eliminate the necessity for human labor.

Yet, it appears that no leaders or media or conventional economists are willing to say: “Stop, there is a better way to increasing earnings of EVERY citizen by focusing on financial mechanism that create wealth-creating, income-producing capital asset ownership simultaneously with the future capital asset formation of the future.”

But no, they are stuck in one-factor thinking – labor – as the ONLY way to increasing earnings of the vast majority of Americans who are locked out of the system to become a substantial capital owner.

Just the other day I commented on a Harvard study (http://www.foreconomicjustice.org/?p=17155) that points to minimum wage increases resulting in worker layoffs, increased pricing and hour-cuts for existing workers, resulting in reduced employment. Furthermore, as profit margins are further squeezed, those with the ability to automate are doing so and those who don’t are closing their doors. All this is happening and yet the minimum wage of $15 set by some cities won’t become law until, at the earliest, July of 2018.

But raising the minimum wage was supposed not to kill jobs or create operational costs that would squeeze profit margins and result in business closures. Wasn’t it?

Using common sense, if raising the minimum wage will not kill jobs then why not raise the minimum wage to $25.00 or $50.00 or $100.00 per hour? Of course there are consequences that either are reflected in job elimination, increased prices or business closures. Virtually never are the OWNERS of corporations willing to reduce profits, which often are marginal.

Competition drives businesses to constantly figure out ways to reduce operational costs. Full employment is not an objective of businesses nor is conducting business statically in terms of geographical location. Companies strive to achieve cost efficiencies to maximize profits for the owners, thus keeping labor input and other costs at a minimum.

If wage levels were not a factor there would be also no reason for ANY company to exit production in the United States and move production to foreign lands with significantly less labor costs. Also, there is the impact on pricing levels, as any increases in the cost of production or service always results in pricing increases – inflation.

If this were not the case, then no companies would be compelled to seek other non-human more cost-efficient means of production or to move production to foreign countries whose workers are paid far less than  Americans.  Increasingly, companies are seeking more efficient and less long term costs that non-human technology can deliver to reduce their operating costs, provide higher build quality, automate service, and maximize profits for their OWNERS. As is virtually always the case, the OWNERS of companies do not want to reduce profits.

What the proponents of raising the minimum wage fundamentally are addressing is that low-paid American workers need to earn more income.

We need to begin focusing on the means for people to earn more income, and not solely dependent on earnings from jobs, which are being destroyed with tectonic shifts in the technologies of production. We need to implement financial mechanisms to finance future economic growth and simultaneously create new capital asset owners. This can be accomplished with monetary reform and using insured, interest-free capital credit (without the requirement of past savings, a job or any other source of income), repayable out of the future earnings in the investments in our economy’s growth.

But how, you ask, can such an OWNERSHIP CREATION solution be implemented?

We can and should do more to create universal capital ownership not only for workers of corporations but ALL citizens. What I believe is crucial to solving economic inequality and building a future economy that can support general affluence for EVERY citizen is to address concentrated capital ownership, the fundamental cause of economic inequality. The obvious solution is to de-concentrate capital ownership by ensuring that all future wealth-creating, income-producing capital asset formation will be financed using insured, interest-free capital credit, repayable out of the future earnings of the investments, creating ownership participation by EVERY child, woman, man. This should be about investment in real productive capital growth, not speculation as with the stock exchanges. But the problem is the vast majority of Americans have no savings, or at best extremely limited savings, insufficient to be meaningful as increasingly Americans are living week to week, month to month, and deeply in consumer debt. So forget about proposals for tax credits, retirement and health savings accounts.  There is no feasible way that past savings can continue to be a requirement for investment if we are to simultaneously create new capital owners with the productive growth of the economy. The current economic investment system is structured based on the requirement of past savings used directly or as security collateral for capital credit loans. But past savings are not necessary as viable capital formation projects pay for themselves. This is the logic of corporate finance.

Capital acquisition takes place on the logic of self-financing and asset-backed credit for productive uses. People invest in capital ownership on the basis that the investment will pay for itself. The basis for the commitment of loan guarantees is the fact that nobody who knows what he or she is doing buys a physical capital asset or an interest in one unless he or she is first assured, on the basis of the best advice one can get, that the asset in operation will pay for itself within a reasonable period of time – 5 to 7 or, in a worst case scenario, 10 years (given the current depressive state of the economy). And after it pays for itself within a reasonable capital cost recovery period, it is expected to go on producing income indefinitely with proper maintenance and with restoration in the technical sense through research and development.

Still, there is at least a theoretical chance, and sometimes a very real chance, that the investment might not pay for itself, or it might not pay for itself in the projected time period. So, there is a business risk. This can be solved using private capital credit insurance or a government reinsurance agency (ala the Federal Housing Administration concept). On a larger scale, the path to solve the security issue, that is, the risk can be absorbed by capital credit insurance or commercial risk insurance. Thus, in order to achieve national economic democracy, we need a way to handle risk management in finance by broadly insuring the risks. Such capital credit insurance would substitute for the security demanded by lenders to cover the risk of non-payment, thus enabling the poor and others with no or few assets (the 99 percenters) to overcome the collateralization barrier that excludes the non-halves from access to productive capital.

One feasible way is to lift ownership-concentrating Federal Reserve System credit barriers and other institutional barriers that have historically separated owners from non-owners and link tax and monetary reforms to the goal of expanded capital ownership. This can be done under the existing legal powers of each of the 12 Federal Reserve regional banks, and will not add to the already unsustainable debt of the Federal Government or raise taxes on ordinary taxpayers. We need to free the system of dependency on Wall Street and the accumulated savings and money power of the rich and super-rich who control Wall Street. The Federal Reserve System has stifled the growth of America’s productive capacity through its monetary policy by monetizing public-sector growth and mounting Federal deficits and “Wall Street” bailouts; by favoring speculation over investment; by shortchanging the capital credit needs of entrepreneurs, inventors, farmers, and workers; by increasing the dependency of with usurious consumer credit; and by perpetuating unjust capital credit and ownership barriers between rich Americans and those without savings.

The Federal Reserve Bank should be used to provide interest-free capital credit (including only transaction and risk premiums) and monetize each capital formation transaction, determined by the same expertise that determines it today – management and banks – that each transaction is viably feasible so that there is virtually no risk in the Federal Reserve. The first layer of risk would be taken by the commercial credit insurers, backed by a new government corporation, the Capital Diffusion Reinsurance Corporation, through which the loans could be guaranteed. This entity would fulfill the government’s responsibility for the health and prosperity of the American economy.

The Federal Reserve Board is already empowered under Section 13 of the Federal Reserve Act to reform monetary policy to discourage non-productive uses of credit, to encourage accelerated rates of private sector growth, and to promote widespread individual access to productive credit as a fundamental right of citizenship. The Federal Reserve Board needs to re-activate its discount mechanism to encourage private sector growth linked to expanded capital ownership opportunities for all Americans (Section 13(2) Federal Reserve Act).

Until we address concentrated capital ownership and implement solutions to simultaneously broaden capital ownership by creating new capital owners with the growth of the productive economy, money power will reside in the hands of politicians and bankers, not in the hands of the citizens. That is why, to reform the system leaders and advocates for economic justice must focus on money, how it should be created and measured, how it should be controlled and why a more realistic and just money system is the key to universal and equal citizen access to future ownership opportunities as a fundamental human right. Then prosperity and economic democracy can serve as the basis for effective and non-corruptible political democracy, an ecologically sustainable environment, and global peace through justice.

Support Monetary Justice at http://capitalhomestead.org/page/monetary-justice.

Support the Capital Homestead Act (aka Economic Democracy Act) at http://www.cesj.org/learn/capital-homesteading/, http://www.cesj.org/learn/capital-homesteading/capital-homestead-act-a-plan-for-getting-ownership-income-and-power-to-every-citizen/, http://www.cesj.org/learn/capital-homesteading/capital-homestead-act-summary/ and http://www.cesj.org/learn/capital-homesteading/ch-vehicles/.

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