A solution to flat wages

Recent jobs data demonstrate that while employment continues to grow, wages have remained flat. There is speculation about the reasons, with many economists offering different, but inconclusive analysis.

Some economist postulate that the failure of wages to increase is the result of rising healthcare costs, although the history before the enactment of the Affordable Care Act (ACA) showed 10 years of continuing increases in health insurance premiums while wages were, in fact, increasing. There had been claims made by opponents of the ACA that the ACA would result in declining employment — clearly not true — and reduced hours, also not born out by the facts. Other economists speculate that there remain a sufficient number of workers seeking work and being brought back into the workforce, so that you simply have a classic supply and demand situation where supply of labor continues to exceed the demand, and thus there is no upward pressure on wages. Others speculate that the fact that inflation has been held in check for many years now is also a factor.

{mosads}I suspect the average worker whose wages have been essentially frozen for several years would not agree that low inflation has been a great benefit to him or her, but rather they have seen the purchasing power of their wages decline. Several months ago, I authored a piece when Wal-Mart, Target and several others decided to raise wages. Let me be clear: I do not think that raising the minimum wage to $10 per hour in any way will significantly better the lives of the average worker, nor will it provide a dramatic boost to gross domestic product (GDP). Wages have to go much higher than proposed increases in the minimum wage in order for it to have a truly significant impact on individual lives and GDP in general.

Economist Mark Zandi of Moody’s Economy.com said in 2008 (in remarks paraphrased by CNN), that “For every dollar spent on that program [food stamps], $1.73 is generated throughout the economy.” As quoted by CNN, Zandi said that “If someone who is literally living paycheck to paycheck gets an extra dollar, it is very likely that they will spend that dollar immediately on whatever they need — groceries, to pay the telephone bill, to pay the electric bill.”

Corporate cash has grown from slightly under $1.6 trillion at the end of the first quarter of 2007 to nearly $2.1 trillion dollars at the end of the third quarter of 2014. This is displayed in a graph produced by Steve Slifer of NumberNomics. He points out that however this cash is used — to purchase technology, to build a new factory, to declare dividends or stock repurchases — putting these cash holdings back into the economy will support GDP growth throughout 2015. This position is supported by research from the Federal Reserve Bank of St. Louis demonstrating that at the end of the first quarter of 2015, there was $1.976 trillion in cash held by corporations in the United States.

These facts form the basis of a proposition that I would proffer, calling for the spending of a substantial portion of the nearly $2 trillion in cash held by corporations in the United States by paying it to lower level wage earners for the purpose of boosting GDP, as Zandi indicates for every dollar you put in the hands of those who live paycheck to paycheck, you increase economic impact by a $1.73 — not a bad rate of return. I suspect Wal-Mart and Target raised their salaries for just this reason. As I have remarked before, they are following Henry Ford’s dictum: If you put money in the hands of workers, they will spend it on your goods.

It is also fair to point out that there are no effective government policies, federal or state, that provide an incentive for a corporation to spend its cash. We clearly need to develop such policies — not directives — and a bill I introduced in the last Congress would, in my view, do that, as it marries together the interest of workers and owners so that for every dollar you increase wages, you get a dollar of distributable tax-free dividends.

Owens represented New York’s North Country from 2009 until retiring from the House in 2015. He is now a senior strategic adviser in the Washington office of McKenna, Long and Aldridge and a partner in the Plattsburgh, N.Y. firm of Stafford, Owens, Piller, Murnane, Kelleher & Trombley, PLLC.