American workers are under siege, battered by mercenary business practices, eroded legal protections, and even new laws meant to help
but hurting instead. The long decline of unions has left the worker standing alone, powerless against employers that, over an equally long span, have come to be all-powerful corporations rather than shops on Main Street.

That leaves fighting back to grass roots, such as the demonstrations demanding pay raises from fast food businesses that began in New York City. Campaigns to raise the minimum wage have met with success in states and now cities are boosting the minimum (see “Minimum Wage Mania…”), but there are a number of other forces that are squeezing workers from all sides.

half a loaf

Part time work, which offers employers flexibility, has expanded as a permanent component of the labor force with 27.7 million in that category and showing no decline even as full-time jobs rise — almost 3.5 million more part-timers than before the 2008 crash. Some 6.5 million of them report that they want full-time but are unable to increase their hours.

keeping workers at arm’s length

Businesses such as Uber that manage independents who drive their own cars in competition with cab drivers, and home and apartment owners that take in guests with bookings arranged by the likes of Airbnb, have been dubbed the “sharing” economy. The one takes business from cab drivers who have invested in costly certification, the other poses a threat to staffs at hotels and motels, and the investment in plant by their owners. These new Internet and smart phone-based business models have been met with resistance around the world, with cab drivers burning tires and clogging the streets of Paris in protest against UberPop, the company’s lower cost variant.

But for our purposes, media attention has exposed what companies have been doing out of the public eye for years, and increasingly since the plunge of 2008: hiring workers as independent contractors. That, plus the scrambling of hours of work by employers, has come to be known as the “gig” economy, a jazz world term to describe musicians’ intermittent bookings.

Contract workers receive a fee and from it must pay their own tax withholdings, payroll taxes, health insurance, and job expenses that are no longer reimbursed as with employees — gas and repairs and the vehicle itself in the case of Uber or Lyft, as examples. Companies sugar-coat the practice as giving people flexibility and independence but their motive is their own independence from vacation pay, sick day pay, unemployment insurance and costs now paid by the individual as contractor (who now pays both halves of Social Security and Medicare payroll taxes totaling 15.3%). And there’s the added benefit that businesses can more easily hire and fire, like a bellows drawing in people such as software engineers for a project, and blowing them out when a project is done, with no notice and no severance.

Hundreds of workers are suing a FedEx subsidiary that treats them as independent contractors arguing that the company’s strict rules about personal grooming, delivery times, and paperwork make them not independents but employees who are owed for overtime and the deductions taken from pay for uniforms, truck washing, and the scanners they had to buy for logging packages. The California Labor Commission has ruled that Uber’s drivers are employees, not contractors, but Uber has won similar cases in five other states.

Taking it a step further, some businesses have found that they can require workers to become single-person franchisees or limited liability companies so as to shield the company entirely from labor statutes, liability for injuries, or any interpretation of an employee relationship. A worker typically buys a franchise from a company — paying $10,000 in the case of an outfit named CleanNet — to be assigned janitorial work cleaning offices. In Arizona and Utah a house builder had set up more than 1,000 construction workers as limited liability companies and switched them from payroll to independents from one day to the next.

avoiding the cliff

The Affordable Care Act added to the fragmentation of work with its stipulation that employers with 50 or more employees working more than 30 hours a week must offer to pay for their health insurance. The Act mindlessly set up a precipice instead of a graduated scale, such as ever larger companies paying an ever larger percentage toward insurance. Instead, adding a 50th employee suddenly triggers the sizable cost for all 49 preceding employees.

What should have been easily foreseen by the drafters of the legislation is that employers are cutting back workers to 30 hours, severely crimping their pay, forcing them to seek second jobs, and filling the difference with more under 30-hour part-timers.

free loading

Corporations have taken maximum advantage of the post-2008 downturn by turning unpaid internships into a near must on young people’s résumés. Often the interns learn close to nothing, handling scutwork like photocopying, taking lunch orders and running errands. A clear violation of minimum wage laws, a federal appeals court nevertheless just ruled against interns who had worked at a movie studio for no pay. The practice is doubly reprehensible at a time when those interns are likely to be heavily in debt for their student loans and could use some assistance.

just-in-time

Working men and women, only trying to get by let alone get ahead, have a new adversary — software. Development companies are selling software packages to the fast food, retail and other fields that optimize the scheduling of part-time employees. Like the just-in-time inventory management pioneered by Japanese car companies in the 1970s, where parts are scheduled for delivery exactly when needed, software plots just who is needed and when, using past sales and traffic statistics.

For the individual employee this can create havoc. With days and hours constantly shifted by impersonal algorithms, they are made to juggle the rest of their lives with husbands, day care and schooling of children, meals, sleep, and simply trying to coincide with each other at home.

The worst extreme of treating employees as movable pieces on a game board is “on call” or “on demand” scheduling whereby the employee must be available at all times to suddenly head for work because of a no-show or unexpected demand. With a few states excepted (e.g, New York, California), employers are not even required to pay a minimum to a worker called in and then immediately sent home because demand has subsided.

City workers with long commutes (because inner city rents are too high for their pay level) are let go or cannot find work at on-demand shops because they cannot get to work fast enough. Certain store chains require employees to call in hours before coming to work, when they can be told that work has been cancelled that day because store traffic is weak. These practices create unpredictable income that makes it difficult for families to pay their bills or do any sort of financial planning.

There has been some progress in fighting the multiple-front assault on workers. The New York attorney general is investigating the scheduling practices of thirteen major retailers. Starbucks was called out in an exposé that showed how its automatic scheduling based on sales data causes chaos in the lives of its baristas, giving short notice of working hours and sending workers home with short pay when sales are weak.

Overtime Underpay

Companies such as your cable operator give their installers smart phones. The catch is that they are to give out the number to all customers and tell them “Call me anytime if you have a question or a problem”, such as when they are having dinner with their family or getting ready for bed. No one is paid extra for this time — or the intrusion on their privacy.

Amazon workers lose as much as 20 non-paid minutes a day standing on line waiting to be inspected as they leave warehouses at the end of their shift. The Supreme Court heard their case and decided that they should be paid nothing for the approximately 120 hours they spend on line each year.

Employers are free to pay nothing for overtime to a worker who earns more than $455 a week. Beyond that — which equates to $23,660 a year — an employee is considered to be a “manager”, and paid well enough not to expect extra pay for whatever extra time must be spent at work. The boss can freely assign a list of chores that run well beyond the week’s 40 hours with the employee helpless to object to not being paid for fear of being let go.

The President is about to follow through on a promise of over a year ago — as we reported then — to greatly expand the range in which an employee must be paid for overtime work. He will call for the $455 a week, beyond which an employee is no longer eligible for overtime pay, to be raised to $970. The White House estimates that 5 million workers will be freed from the exploitation of their time without compensation. The Economic Policy Institute thinks it could be closer to 15 million.

Businesses are incensed. “Free raises for everyone…another form of income redistribution”, fumes a Wall Street Journal editorial. It is viewed as yet another example of Obama using executive orders to create law, except that he is empowered to set overtime rules by the 1938 Fair Labor Standards Act, just as George W. Bush did when he revised the rules in 2004. Bush favored business by lowering the bar to today’s $455 a week. And he gave business owners extraordinary latitude to classify work. A supermarket employee who normally unpacked shipments but was made to spend 5% of his or her hours on tallying inventory, say, could be classified entirely as “administrative” and denied overtime altogether.

The new level of $970 a week equates to about $50,400 a year — true manager pay — which about matches the threshold that was set in 1975 when adjusted for inflation, and which incredibly has not been set anywhere near that ever since. The clear indication that the law has been used corruptly by successive lowerings of the overtime cutoff is that a mere 12% of salaried workers are eligible for overtime today, with the rest considered “managers”. That compares with 65% in 1975 and 18% just ten years ago.

As with the Obamacare cutoff, business owners interviewed in news accounts say they will simply shift people into part-time to avoid overtime and will hire other part-timers to fill in. But others say it’s cheaper to pay overtime than to hire, train and manage more people, and the change could beneficially cause owners to manage employee time more efficiently.

ways to go

The Fair Labor Standards Act dates from 1938 and is mostly unsuited to labor practices and abuse that have emerged in the 21st century. Needed is an extensive review of how law can dovetail with the new realities of part-time, sharing, on call, just-in-time work to prevent the lopsided disempowerment of Americans trying to make a living. But we are saddled with a Congress that seems incognizant of the realities outside the chambers of the Capitol building and on the take from industry to remain oblivious and cloistered. Meanwhile, states and cities are commendably going their own way as if considering Congress insular, retrograde, and irrelevant.

$15 an hour minimum wage laws have suddenly sprouted all over the country. What began as an experiment, limited to a couple thousand employees at the Seattle area airport, spread to Seattle itself last year, recently to the enormity of Los Angeles, and is now close to happening to major fast food chains across all of New York State. Chicago and Kansas City are adopting wages of $13 an hour. Other cities are considering. The sudden surge is a profound grass roots triumph.

The leap to $15 an hour — instead of the $10.10 President Obama has lobbied for — is no less than stunning. A fair argument can be made that it is too disruptive to business, except that in all cases the increases are gradual to allow time to absorb the shock, only rising to the full amount by 2020. Congress, determined to prove its irrelevance, is far behind. It refused even to consider Obama’s modest proposal in 2013, and is sure to ignore a current attempt at $12 an hour even though that wouldn’t happen until 2020.

arguing for the status quo

Conservatives take the side of business and continue to fight a rear guard action in editorials and op-ed pieces. They have called forth studies which say that prices will rise, jobs will be lost, the wrong income groups benefit the most, and income inequality will not be cured. All may be true to an extent, but they ignore the benefits to the 3.3 million workers now paid the poverty level $7.25 an hour, and to several times that number now earning more than that, but less than $15 an hour.

job loss

Economic orthodoxy says that when the chalk line on the blackboard labeled “wages” goes up, the chalk line labeled “jobs” must go down. Reality is more complex, and a number of studies say that the impact is minimal. David Brooks, a conservative columnist at The New York Times, wrote a column recently titled “The Minimum-Wage Muddle” which is designed to confuse and with which we take particular issue.

He is obliged to begin by citing just such a minimal-effect study because it is so well known in the social policy field. Two economists compared the job market in adjacent counties of two adjacent states (Pennsylvania and New Jersey) after one state had raised the minimum and the other had not and found their job-loss differences negligible. Even Brooks’ own newspaper says,

“With a recent accumulation of economic literature suggesting that moderate increases in the minimum wage have little to no cost when it comes to employment, opposition even among economists in the business world has begun to melt.

Not to go quietly, Brooks then skillfully says,

“Some economists have reported that there is no longer any evidence that raising wages will cost jobs. Unfortunately, that last claim is inaccurate. There are in fact many studies on each side of the issue.

…leaving the suggestible reader to remember “inaccurate”. Similarly, Thomas MaCurdy, of Stanford and the Hoover Institution, says “Advocates of a higher minimum wage argue that the number of workers who gain far exceeds those who lose”, but then adds, “Whatever the credibility of this calculus…”, as if it perhaps is not true, that more than those 3.3 million (and the multiple we mentioned) will lose their jobs than the number who will gain a higher wage.

And that’s what David Neumark says outright. The University of California professor, whose work on the subject is often quoted, says “It’s kind of a wash. The hit to losers wipes out the gains for winners”; a higher minimum wage costs as many low-skilled workers their jobs as help those who keep them. No data is provided because there is no data to support such a claim.

Brooks cites a study by Joseph Sabia of San Diego State University that says single mother employment dropped 6% when the minimum wage was raised 10%. Sounds alarming. But wait. Isn’t there a greater good that 94% began to earn 10% more? As for studies, Brooks says “there are dozens…showing significant job losses”.

But let’s look at that. As “one of the most studied topics in all of economics”, the minimum wage’s impact on jobs is well suited to a “meta-study”, a technique adopted from medicine where many small clinical trials are combined to produce consensus estimates. The Center for Economic and Policy Research crunched, by our count, hundreds of studies to conclude “that the minimum wage has little or no discernible effect on the employment prospects of low-wage workers”.

Brooks then says, “A study by the Congressional Budget Office found that a hike to $10.10 might lift 900,000 out of poverty but cost roughly 500,000 jobs” and goes no further, because that would have required him to report that the CBO went on to say that 16 million low wage workers would benefit from an increase, another 8 million currently paid above the minimum would probably see increases because of stepped wage structures in companies, and the aggregate of $31 billion added to paychecks — every dime of which would be spent by low-wage workers — would give a boost to the sluggish economy.

Nor does Brooks explain that CBO actually believed job losses would range from zero to 1 million, and they gave the eventuality of any job losses at all only a 2/3rds chance of occurring. The CBO had done no studies of its own and had simply settled on the midpoint of 500,000. A New York Times editorial called it “essentially the budget office’s way of saying it doesn’t really know what would happen”.

It’s a good example of selective quoting to make one’s case, with truth as casualty.

anti-poverty

Conservative pundits and op-ed writers point to a study by MaCurdy that shows “the failure of minimum-wage hikes as an antipoverty policy”. Neumark says that raising the minimum wage is no cure for poverty. “About half of poor families have no workers, in which case a higher minimum wage does no good”, he writes. (Really? It does no good for the other half?)

Along with Cornell’s Richard Burkhauser, Sabia found that the minimum wage increases are “horribly targeted”, in Brooks’ words. Only 11.3% of beneficiaries are from poor households.

Around 60% would go to households earning less than three times the federal poverty guidelines, which today would be around $70,000 for a family of four.

Neumark says, “34% of low-wage workers were in families that were far from poor, with incomes more than three times the poverty line”.

These conclusions well illustrate that economists look upon the minimum wage as misdirected social policy. The mistaken assumption by all is to assume that helping people rise above a poverty wage is thought by its advocates to be an attempt to cure poverty that has landed wide of the mark. Who is saying that? They seem to suspect a secret motive, as if overcoming the injustice of people paid so little is not motive enough?

When Los Angeles Mayor Eric Garcetti says, “It’s deplorable and bad for our economy to have one million Angelenos stuck in poverty even when working full time”, he is speaking of the injustice of their exploitation. When New York’s Governor Andrew Cuomo was asked why the state’s edict applies only to the fast food sector, his answer was because the industry was one of the “grossest examples” of not paying employees fairly. He said McDonald’s made billions of dollars in profits while its workers are forced to turn to public benefits programs to supplement their paychecks.

Again, it is the inequity of low wages that is driving the movement, not policy. It’s about frustration and anger and the belief that the system is rigged to trap them in penury. Economists should remove their eyeshades and look around.

training wheels

Those who want business to continue to enjoy artificially low labor costs promote low-wage jobs as a way for our youth to gain work experience; raising the wage in the fast food industry, which accounts for fully half of those paid the minimum, will cause them not to be hired, they argue. Pundits like Brooks make assumptions for which there is no evidence, even if you can make sense of them. He says that “because low-wage workers get less work experience under a higher minimum-wage regime, they are less likely to transition to higher-wage jobs down the road”.

The fallacy is that many assume that fast-food workers are mostly teenagers. On the contrary, 70% are over age 20, the average worker’s age is 29, more than two-thirds are the primary wage earners in their family, and 26% are raising a child, says this article.

price rises

MaCurdy says that if liberals are correct that there is minimal job loss from a wage increase, then business owners must be recovering the added cost by raising prices. “My analysis concludes that more poor families were losers than winners”. This is a baffling claim. Wages rise for only a fraction of the populace yet this drives up prices throughout the economy to such a degree that the poor are forced to spend more than they gain? “Nearly one in five low-income families benefited, but all low-income families paid for the increase through higher prices”. Not just “all low-income families” pay for the wage increase. All income groups pay the higher price, but spread so widely as to make increases barely noticeable, as the sidebar should make clear.

Why shouldn’t prices rise to the level that we ought to be paying because that’s the true cost of providing the good or service? Brooks again:

“MaCurdy found that the costs of raising the wage are passed on to consumers in the form of higher prices. Minimum-wage workers often work at places that disproportionately serve people down the income scale. So raising the minimum wage is like a regressive consumption tax paid for by the poor to subsidize the wages of workers who are often middle class.”

He’s gone all the way to now saying the wage gainers are middle class and preying on the poor, who, by absence of any mention, apparently haven’t even received any of the benefit of the wage increase. Muddle indeed.

subsidies

The sudden moves by cities and now states to much higher minima is undoubtedly caused by awakening to just how much the poverty level minimum wage is costing them. When workers must fall back on public assistance, the taxpayer is made to subsidize parasitic business models. Andrew Cuomo wrote the following in The New York Times:

Fast-food workers and their families are twice as likely to receive public assistance compared with other working families. Among fast-food workers nationwide, 52% — a rate higher than in any other industry — have at least one family member on welfare.

New York State ranks first in public assistance spending per fast-food worker, $6,800 a year. That’s a $700 million annual cost to taxpayers.

Nationally, the taxpayer adds to his or her tab federally-paid Medicaid, food stamps, housing assistance and low-earner tax credits.

The editorial crew at The Wall Street Journal has difficulty grasping this:

We understand that people are frustrated [by stagnant middle class incomes]. Harder to understand is why so many of our media brethren have been persuaded that suddenly it’s the job of America’s burger joints to provide everyone with with good pay and benefits.

Tax dollars also subsidize major retailers. Data from Wisconsin in 2013 calculated that the average Walmart superstore cost taxpayers $904,000 a year in various subsidies, or more than $5,000 per employee. Starting in 2016, California plans to publish the names of employers with more than 100 workers on Medicaid, and how much these companies cost the state in public aid.

ethics

The pundits and economists we have cited are representative and all are effectively against any increase in the minimum wage. We can say that, because none of the sources speak of raising it, even just a little bit. Neumark ends with, “The desire to help poor and low-income families is understandable. But increasing the minimum wage is a misguided way to do it”. Therefore, do nothing. No alternative is mentioned. There are economists so imbued with the free market that they believe each of us can simply bargain with multinational giants for a wage to our liking.

These pages have carried a number of articles on the minimum wage as the debate has progressed. None have been about curing poverty or closing the income gap. Both are larger problems that the minimum wage cannot fix.

Rather, they make the point that an employer usurps a worker’s time on this planet — which may be all they have to make their way — and should have no right to keep a fellow human trapped in penury. If the right to pay poverty level wages is what it takes for a business to survive, then it deserves to fail. Why isn’t that capitalism? Why should our wallets be subsidized by low prices made possible by poverty level wages paid to other Americans? Our argument has always been protecting the low-wage worker from exploitation.