Minimum Wage Debate Shows That Historically High Inequality Is Not Inevitable

By: Jerry Rubin

For the last several decades we have watched inequality rise to levels not seen since the Gilded Age. Our extreme levels of inequality are driven by several factors: the wealthiest individuals have seen enormous financial gains, both in annual earnings and investment gains; middle and lower-income individuals have seen flat to declining earnings and income when inflation is factored in, and have seen little to no investment gains.

Though awareness of extreme inequality and concern over its implications has grown, little is being done to address this disturbing trend. In fact, acceptance of inequality as a natural and inexorable trend seems to dominate public debate.

Yet, there is clear evidence that very specific policy decisions are driving extreme inequality. Some of the policy decisions most closely correlated with rising inequality include changes in laws which had allowed workers to engage in collective bargaining, changes in federal and state tax laws that shift the burden of taxes from high income to lower income individuals and families, and international trade decisions that make it increasingly difficult for less educated Americans to find high-paying jobs.

At the federal level, more than nine years have passed without an increase in the minimum wage. In July 2009, the date of the last increase, the federal minimum wage was set at $7.25 per hour. When inflation is factored in, that wage is now worth $6.19 today.

In the face of federal inaction, and data that largely shows that minimum wages can climb significantly without causing significant job loss, many states have taken action to increase their minimum wage. In Massachusetts, the minimum wage will rise to $12.00 on January 1, 2019, and will increase annually until it reaches $15.00 in 2023. Twenty other states are also raising their minimum wage independent of the federal government.

In Massachusetts, many individual employers have already increased their minimum wages to $15.00. Beth Israel Deaconess Medical Center took the lead in the healthcare industry more than a year ago to increase their minimum wage to $15.00. Recently JPMorgan Chase, which is expanding in Massachusetts, announced that they would be paying $17.00 minimum starting wages to their employees, and many other companies are taking a similar approach in our very tight job market.

Raising the minimum wage is certainly not the sole solution to extreme income inequality, and there is little doubt that some industries and employers will feel pain as it rises, but it is an important start. Other public policy solutions like ensuring fair labor rights and increasing the Earned Income Tax Credit (EITC) are equally important. America does not have to look like so many developing nations, with such extreme income inequality that economic growth and quality of life is limited for all. Public choices got us into this bind, and public choices can get us out of it.

At JVS, our work focuses on closing the income inequality gap by helping low-income individuals and those facing barriers to employment find economic success. For example, through our Tax Site we help low-income individuals file for EITC and other tax benefits, and last year our clients collectively received $750,000 in tax refunds. We work with thousands of clients each year, helping them advance their education and pursue meaningful careers that pay a living wage through innovative workforce development initiatives. The new higher minimum wage in Massachusetts will significantly improve the financial situation of many of our clients, and we hope to see more policies aimed at closing the income inequality gap implemented at both the federal and state level.

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