Recently, I have noticed with the talk of 2014 midterm elections, articles about minimum wage are starting to pop up more in my daily reading. The problem with these articles (one, two, and three) is no one completely gets the argument right. The problem is not that that the wealthy made more money, but that the rate at which they are making more money is increasing more quickly compared to other groups. Between 1979-2007, the ‘99%’ saw a 53% change in comprehensive income, while the top ‘1%’ had a 314% increase. The concern surrounding this trend has given rise to the hot political debate of a suggested federal minimum wage increase to $10.10. But, as we continue to discuss the validity of minimum wage legislation, we need to be clear on its effectiveness, purpose, and discuss more powerful alternatives like unionization and collective bargaining.

Why Conservatives Are Wrong About the Minimum Wage

There is a very popular myth among conservatives that the minimum wage always hurts job growth and in fact leads to a decrease in available jobs. We need to realize that this not always the case, and in fact, significant amount of data suggests that increasing the minimum wage is a very practical thing to do because it provides needed benefits to workers with zero impact on employment levels. According to Madland and Bunker at the Center for American Progress, “at least five different academic studies focusing on increases to the minimum wage… find an increase in the minimum wage has no significant effect on employment levels.” People often forget that an increase in the minimum wage does have benefits, and it seems these benefits prove to be very effective and helpful during times of high unemployment. A minimum wage increase results in ‘boosts in demand and reduction in turnover’.

Contrary to conservative doctrine, it is actually the consumer that keeps the economy going. This is for two reasons. First, when more people are buying products the economy grows faster. Second, people with less money, spend more money. Director of the CBO Doug Elmendorf notes that “increases in disposable income are likely to boost purchases more for lower-income than for higher-income households,” thus a minimum wage increase provides more money for these families and that results in more spending which boosts demand.

Turnover refers to the process of workers quitting and companies having to re-hire and re-train new employees, thus high levels of turnover create a very inefficient system. Some companies, such as Costco, have implemented ‘efficiency wages’ to avoid high turn-over among workers. Costco pays its employees $15.60 per hour, which is significantly over the minimum wage. Their philosophy is that a higher wage will yield more productivity with less turnover and retention of good workers. This model has been extremely successful. Consider their numbers in comparison to Wal-Mart, which pursues the path of cheap labor.

Why Liberals Are Wrong About the Minimum Wage

What we need to understand is that liberals have two goals in mind with the minimum wage. The first is to create a level of income that constitutes a living wage. The second, and more philosophical reason, has to do with establishing a sense of equity in society. The United States is currently the third most unequal society among OECD nations. We have extremely low social and economic mobility, which means that the likelihood of someone moving from a low-income status to the middle class or from the middle class to a high-income status is extremely unlikely. I suggest that the protection and promotion of unions would be a more efficient policy for achieving both of the liberal’s goals — helping workers obtain a living wage and instilling equity in our society.

Unions and Living Wages

We find that unions, like the minimum wage, are effective in helping ensure workers are making a living wage. Lawrence Mishel and Matthew Walters of the Economic Policy Institute, complete a thorough analysis of data sets, and conclude that “unions raise wages of unionized workers by roughly 20%.” However, one of the advantages of unions over the minimum wage, is that unions do more than just help provide workers with better compensation. Unionized workers are much more likely to receive benefits that many would consider fundamental to a stable economic status. Mishel and Walters also point out that

Unionized workers are more likely than their nonunionized counterparts to receive paid leave, are approximately 18% to 28% more likely to have employer-provided health insurance, and are 23% to 54% more likely to be in employer-provided pension plans.

These benefits are not included in a minimum wage increase, yet they are extremely important to helping people stay at the ‘living wage’ threshold. It used to be the case that a majority firms offered employer-based health insurance. However, over the last thirty years, the number of firms offering this benefit has been on the decline along with the presence of unions in the labor market. Since it was the strong unionized labor force the procured benefits like employer-provided health insurance in the first place, it shouldn’t be a surprise that as unions have decreased so have worker benefits.

Unions and Equity

 Liberals support minimum wage legislation also to establish a sense of equity in society. This goal will not be achieved through a minimum wage increase, and in fact, supporting an increase may be further perpetuating a system of inequality. In Why Nations Fail, M.I.T. economist Daron Acemoglu and the Harvard political scientist James A. Robinson provide an account of what factors contribute to the constitution of a successful and flourishing nation. New York Times columnist Thomas Friedman does a nice job of summarizing the main thesis of the book, “nations thrive when they develop ‘inclusive’ political and economic institutions, and they fail when those institutions become ‘extractive’ and concentrate power and opportunity in the hands of only a few. The important thing is that you need to have both a politically and economically inclusive system, because they depend on each other. Without one, you will lose the other, and that in turn creates a downward spiral into collapse and failure.

What does this have to do with Unions? My contention is this: the best way to ensure that the people experience political and economic inclusivity is through the presence of unions and collective bargaining in the work force.

We have already seen that unions are effective at improving the economic well-being of its members. However, members of society still need political inclusivity. Interestingly, in their conclusion, Mishel and Walters make an important observation, namely that, “unions enable due process in the workplace and facilitate a strong worker voice in the broader community and in politics.” Unlike an increase in the minimum wage, an increase in unionization can help citizens improve their political standing along with their economic position.

Citizen’s United

It is quite clear that we have become a very economic exclusive society with extreme income inequality, relatively high-poverty, and an low social mobility.

When it comes to the status of political inclusivity, things are a little more gray. It would seem that the US must be politically inclusive because it is a democratic-republic and everybody has the right to vote for elected leaders. However, the rise of big-money in politics has greatly changed the political landscape. In the current system corporations have the right to spend money on political campaigns, so companies like Bank of America and Goldman Sach’s donating over a million dollars to political campaigns through Super PACs. These extremely large donations allow significant access to the candidate, and a platform to communicate what they would like to see from their candidate while in office.

Low income and middle class citizens are losing political power, because their one vote is not as valuable as a million dollars in campaign financing, and unfortunately, it seems there is no solution to this problem except for reversing Citizen’s United, which is not a promising outlook.

If this problem cannot be fixed directly through the political sector, maybe it can be solved through unionization. Collective bargaining is a form of political power. Unions have a history of being key players in political movements such as the struggle for civil rights, the fight for Fair Employment Practices Commission, the Montgomery Bus Boycott, etc.

If conservatives and liberals really are interested into making the United States a thriving democracy, we really need to rethink our attitude towards Unions. They may be our best option for preserving and restoring economic and political inclusion which are fundamental components of a successful society.

[EPI] [NY Times] [OpenSecrets] [CBPP] [EPI – Mishel]

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Bo Donoghue

Featured Image Courtesy of [Flickr/401(K) 2012]

Bo Donoghue

Bo Donoghue is a student at The George Washington University. Contact Bo at staff@LawStreetMedia.com.

The post Why Conservatives & Liberals Are Both Wrong About Minimum Wage appeared first on Law Street.

Before the 2014 midterm elections start to heat up, I want to challenge a popular campaign phrase we are bound to hear from Republican candidates: “we are headed for European socialism.” It was especially, popular with candidates like Mitt Romney, Rick Santorum, and Newt Gingrich during the 2012 presidential election as an attack against President Obama. Republicans have offered no case as to why this is such a dubious fate; rather they are expecting it to be self-evident that we shouldn’t want to be like our allies in Europe. I did some research on how these countries compare to the United States. It became quite apparent that contrary to what conservatives claim, becoming more like the most ‘socialist’ nations (the Nordic countries – which ascribe to what the Nordic Socialist Model) in Europe would in fact be a great thing.

1. Citizens of European Nations Have More Freedom

Every year the Legatum Institute produces a Prosperity Index, which attempts to rank nations productivity by including more factors than just GDP growth. They claim that “most people would agree that prosperity is more than just the accumulation of material wealth, it is also the joy of everyday life and the prospect of being able to build an even better life in the future.” Thus, the Prosperity Index not only measures economic growth, but also accounts for the overall well-being of a nation’s citizens in its attempt to index countries’ prosperity. One of the subcategories that helps them develop their Prosperity Index is the level of personal freedom citizens have with in a given country. According to their 2012 report, the United States ranks 14th in terms of the level of personal freedom its citizens experience. Ahead of the United States are ten European nations, Canada, New Zealand, and Australia. Additionally four of the six countries that adopt the Nordic Socialist Model are ahead of the United States. This ranking was based on measurements of tolerance for immigrants, tolerance for minorities, civil liberty & free choice, and satisfaction with freedom of choice.

 2. European Countries Have the Lowest Gender Gap

According to the 2012 Global Gender Gap Report by the World Economic Forum, the United States ranks 22nd in the level of equality between men and women. Ahead of the United States are thirteen European nations including all six of the countries that adopt the Nordic Socialist Model. In fact, three of the top four nations with greatest equality between men and women are Nordic countries. These rankings are developed by measuring economic participation and opportunity, educational attainment, health and survival, and political empowerment.

3. European Nations are the Happiest Countries in the World

The 2013 World Happiness Report ranks the United States as the 17th happiest nation in the world. There are eight european nations ahead of the United States, and all six of the nations within the Nordic Socialist Model are included in those eight. In fact, the top five happiest countries in the world are all Nordic, and Finland is just two spots behind at seventh.

4. European Nations are More Economically Free

The Cato Institute’s “Economic Freedom of the World: 2013 Annual Report” ranks the United States as the 17th most economically free nation in the world. Ahead of the United States are three of the six  countries (Switzerland, Finland, and Denmark) within the Nordic Socialist Model. The remaining three are not far behind at 29th, 30th, and 31st respectively. According to the Cato Institute, “The foundations of economic freedom are personal choice, voluntary exchange, and open markets.”

5. European Countries Have Better Youth Education

The OECD produces an annual comprehensive world education ranking report, known as PISA, which scores students of industrialized nations in reading, math, and science. According to the 2012 report, students of the United States rank 36th overall, and specifically 24th in reading, 36th in math, and 28th in science. Ahead of the United States are twenty-one european nations, and five of them belong to the Nordic Socialist Model.

6. European Nations Have Less Income Inequality

In addition to PISA, the OECD ranks industrialized nations based on levels of income inequality. The calculate what is known as the GINI coefficient for each country, “which is a measure of statistical dispersion intended to represent the income distribution of a nation’s residents.” Out of all thirty-four nations that were ranked, the United States (with a GINI coefficient of approximately 0.37) is the fourth most unequal society behind Turkey, Chile, and Mexico. The top ten nations with the least amount of inequality are all European countries, and four of them are Nordic. The other two Nordic Socialist countries can be found within the top fifteen most equal nations in the world.

7. European Nations Have Much Lower Levels of Poverty

If you don’t think severe income inequality is a problem, maybe you will find this statistic to be more eye-opening. The OECD also creates a ranking system for the level of poverty found within industrialized nations. In their 2010 report, they found that the United States is the country with the fifth highest level of poverty, among the thirty-four nations they ranked. Ahead of the US is Turkey, Chile, Mexico, and Israel. Just like with income inequality, the top ten nations with the lowest levels of poverty are all European countries, with four of the belonging to the Nordic Socialist Model; the other two Nordic countries can be found in the top sixteen nations.

8. European Nations Have Greater Levels of Social Capital

The Prosperity Index of the Legatum Institute also produces a ranking of countries based on social capital. They calculate this ranking by measuring the level of certain factors such as reliability of others, volunteering, helping strangers, donations, religious attendance, trust of others, and marriage. The Legatum Institute’s 2012 report has the United States as the 10th country with the highest level of social capital. Also within the top ten, and ahead of the United States, are seven european nations, and five of them are Nordic Socialist countries.

9. European Nations Have a Freer Press

An organization named Reporters Without Borders produces an annual report ranking nations based on the freedom of their press. Their mission as an organization is to “promote and defend the freedom to be informed and to inform others throughout the world.” According to their 2013 World Press Freedom Index, the United States ranks 32nd. Ahead of the US are more than a dozen European nations and all of the Nordic Socialist countries. In fact, five of the top ten nations with the freest press are all Nordic.

10. European Nations are Healthier / Have Better Healthcare

For the first time in its history, the World Health Organization produced a ranking of nations based on the overall quality of health care back in 2000. They have yet to produce another ranking, as there was great controversy surrounding the project. Nevertheless, their findings still may be of interest. They found the United States to have the 37th best health care system in the world. This very low placement is quite shocking considering how much money we spend on healthcare. Again, more than a dozen european nations are ahead of the US in this ranking, including all six of the Nordic Socialist Countries. Many dispute these findings by questioning the methodologies that were employed. Regardless, the fact remains that Europeans are healthier than Americans. According to Bloomberg’s World’s Healthiest Countries Ranking, the United States is the 33rd healthiest nation in the world, behind many european nations and all six of the Nordic countries.

So what would it be like to live in the most socialist of the european countries? You would be happier, have more personal freedom, be better off as a woman, be more economically free, your kids would be smarter, you would be subject to less income inequality, there would be less poverty, you would have access to more social capital, you would have a freer press, you would pay less for better healthcare, and you would be healthier. So let’s drop the ‘we are headed for European Socialism’ argument and discuss the real issues in America.

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Bo Donoghue

Featured Image Courtesy of [tpsdave via Pixabay]

Bo Donoghue

Bo Donoghue is a student at The George Washington University. Contact Bo at staff@LawStreetMedia.com.

The post Debunking Election Myths: 10 Reasons Why You Shouldn’t Fear ‘European Socialism’ appeared first on Law Street.