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Will higher wages hurt the economy?

Higher wages for fast food and retail workers could hurt the economy, according to an analysis by the Chicago Tribune.

The analysis includes comments from the Workers Organizing Committee, which led hundreds of workers from national chains, from Wendy’s to Potbelly and from Sears to Victoria’s Secret, in strike actions here last week.  They’re not looking to double wages to $15 an hour overnight; they’re trying to organize a union and address a range of issues.

It also includes a Whole Foods employee who works two additional jobs and still qualifies for food stamps, and a labor economist who is quoted to the effect that high unemployment helps lower wages.

But its major thrust is whether consumers can stand to pay the higher prices that they say higher wages would require.  The economists they ask about this specialize in consumer psychology and marketing behavior.

One crucial piece of information is omitted, curiously:  how big of a price increase are we talking here?

In a column reviewing “the boilerplate argument against higher wages” — which is precisely that it would hurt consumers with “enormous” prices increases — David Sirota fills us in.

Raising the minimum wage to $10.50 would add 5 cents to the price of a Big Mac, according to one analysis.  Another study found that raising McDonalds workers’ hourly rate to $15 would drive the price of a Big Mac up by 22 cents.

Run that by your consumer psychologist.

A recent study by Action Now and Stand Up Chicago found that  raising Chicago retail and restaurant workers’ wages to $15 an hour would cost about $100 million for a sector with $14.2 billion in yearly revenues in the city.  That’s about 2.6 percent of revenue.

“Downtown employers can afford a very significant increase in wages,” they argue.

It’s an important reality check to vague scare talk about higher prices.  That line of arguent works because it involves a “populist insinuation that higher wages would hurt the Average Joe,” according to Sirota.

Here’s another hard economic fact that deserves more attention, courtesy of the Center for Tax and Budget Accountability:  the largest, most profitable retailers in Illinois pay the lowest wages.

On average, the huge chains, those with more than 500 employee in the state — about 2 percent of the firms, with about 60 percent of market share — pay 18.5 percent less than smaller companies.

McDonalds’ profits last year were $5.5 billion.  And they don’t want to give their workers a $3-an-hour raise because they’d have to charge 5 cents more for a hamburger?

“Retail and fast food outlets in the Magnificent Mile and the Loop are among the country’s most profitable, but their workers take home poverty wages to the city’s poorest neighborhoods,” said Katelyn Johnson of Action Now in a statement supporting WOC strikers.

“We know that they need and deserve a living wage to support their families. And every dollar invested in a living wage will raise up the economy for all of the city’s neighborhoods.”

CTBA estimates that by increasing consumer spending, raising the minimum wage by two dollars would generate 25,000 jobs in Illinois and increase economic activity in the state by $2.5 billion.

But there’s a much larger question missed by the Trib’s analysis:  can the U.S. economy handle the wholesale replacement of middle-class employment with low-wage jobs?

Middle-income jobs represented 60 percent of job losses from 2008 to 2010 but only 22 percent of job growth in the recovery.  On the other hand, low-wage jobs accounted for 21 percent of lost jobs but 58 percent of subsequent job growth.  (The Tribune has covered this.)

It’s happening in Chicago:  nearly one-third of Chicago workers now work for $12 an hour or less (up from 24 percent in low-wage jobs in 2001) according to a report from Women Employed and Action Now. 

Those are the kinds of jobs where Chicago is “showing strength” — “lesiure, hospitality, food, retail industries,” especially tied to tourism — as Mesirow chief economist Diane Swonk tells the Sun Times.

According to Women Employed and Action Now, those are jobs “paying too little to support an individual, much less a family, without public assistance or charity.”

Meanwhile, as I’ve argued, Mayor Emanuel’s policies seem aimed at turning Chicago from the union town to a low-wage town.

Is this really the direction we want to go?

Maybe Chicago’s retail and fast food workers and the Workers Organizing Committee can do something about that.

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Category: labor

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