The Crisis of Low Wages, and How to Fix It

 The Crisis of Low Wages, and How to Fix It

Neelay Talwalkar

If you Google the GDP per capita, which is basically the average income, for the United States, you’ll get figures around the $60,000 a year range. However, this statistic is deeply misleading for a number of reasons. 

Let’s do a thought experiment. What is the yearly income of your parents? Once you have the number in your head, compare it to the yearly income of someone like Jeff Bezos. Bezos has a net worth of $200 billion dollars, and, according to Business Insider, he accrued nearly $80 billion dollars in 2018 alone. Now take the median of your parents’ yearly income and Bezos’ yearly income. The yearly income of an average worker is so small, so miniscule, in comparison to Bezos’ yearly income that you could effectively round the worker’s income down to $0 a year. The worker and Bezos would technically have a median income of $40 billion a year, right? But surely, that isn’t anywhere near as much as Bezos makes in a year, and is light years above what the average worker manages to make. And with that, you’ll find the biggest issue with using GDP per capita as the gauge for how well the average worker is doing financially. Even though the GDP per capita, the median yearly income in the USA, is over $60,000 a year, the average worker is not making nearly that much. All this figure shows is the widening gap between the wealthy and the poor. In reality, 48% of American workers make $30,000 a year or less, and, according to CBS, 57% of Americans would not have the means to cover an emergency expense of $500.  

There are a couple ways we could combat this issue. We could either heavily increase union membership to increase collective bargaining, or we could federally mandate an increase in the minimum wage. This mandate could either be for a living wage, calculated by district, as a basic requirement, steadily increasing wages with inflation, or by setting the minimum wage to a number like $12 of $15 across the entire country. However, based on the empirical evidence from other nations, unionization seems to be the best step we can take towards combating inequality and plummeting wages.

When it comes to unionization, we know for a fact that it leads to better wages. Just take a look at the Scandinavian countries, where union membership is around 70-80%, or Iceland, which has the highest rate of union membership in the world at over 90%. These nations have a similar trait: they lack a federal minimum wage. Rather, wages are most often determined through collective bargaining. The high union membership means that workers can negotiate fair wages for themselves, cancelling the necessity of a federal minimum wage altogether.

Beyond that, according to the graph below, we see that as union membership has fallen from the 1950s, the share of wealth going to the top 10% has proportionally increased. This makes sense, as due to a decrease in unions, workers effectively lost their ability to bargain for better wages and working conditions, allowing the ultra wealthy to take a larger and larger share of the income while the low-income worker got crumbs, even if their labor was still being used. Should the worker not have a say in the way that their labor is organized within a firm? Would that not lead to a firm that functions much more smoothly, due to a workforce that is less stressed out over bills they have to pay and rent they have to make?

Finally, there’s the idea that some have that any increase in wages will lead to a decrease in the amount of workers a firm hires. It would theoretically make sense that an increase in wages would mean that a firm wouldn’t be able to hire as many workers as if they were paying them less. However, we see that in practice, this simply isn’t true. A multitude of studies, such as one from UC Berkeley, found that an increase in the minimum wage had no adverse effect on employment, and therefore did not create job loss. 

While a federal increase in the minimum wage in some form would be useful, it needs to be accompanied by, and preferably come after, the worker has achieved the ability to collectively bargain with their fellow workers. Unionization, statistically, seems like the most effective way to combat wealth inequality and low wages, and can hopefully lead to a better future for all workers in the United States. 

Works Cited

Economic Snapshot • By Lawrence Mishel and Jessica Schieder • May 24. “As Union Membership Has Fallen, the Top 10 Percent Have Been Getting a Larger Share of Income.” Economic Policy Institute, www.epi.org/publication/as-union-membership-has-fallen-the-top-10-percent-have-been-getting-a-larger-share-of-income/.

Hoffower, Hillary. “We Did the Math to Calculate How Much Money Jeff Bezos Makes in a Year, Month, Week, Day, Hour, Minute, and Second.” Business Insider, Business Insider, 9 Jan. 2019, www.businessinsider.com/what-amazon-ceo-jeff-bezos-makes-every-day-hour-minute-2018-10.

McCarthy, Niall. “Which Countries Have The Highest Levels Of Labor Union Membership? [Infographic].” Forbes, Forbes Magazine, 20 June 2017, www.forbes.com/sites/niallmccarthy/2017/06/20/which-countries-have-the-highest-levels-of-labor-union-membership-infographic/#2f27d6f033c0.

Picchi, Aimee. “A $500 Surprise Expense Would Put Most Americans into Debt.” CBS News, CBS Interactive, 12 Jan. 2017, www.cbsnews.com/news/most-americans-cant-afford-a-500-emergency-expense/#:~:text=While the jobless rate is,1,003 adults earlier this month.

Raul

              Editor, et al. “America's Middle Class Is Vanishing. Nearly Half of Workers Earn Less than $30,000.” HowMuch, howmuch.net/articles/how-much-americans-make-in-wages.

“Research Shows Minimum Wage Increases Do Not Cause Job Loss.” Research Shows Minimum Wage Increases Do Not Cause Job Loss | Business For a Fair Minimum Wage, www.businessforafairminimumwage.org/news/00135/research-shows-minimum-wage-increases-do-not-cause-job-loss.