Universal Living Wage

I am not sure how I came across this idea of Universal Living Wage. It is an idea that should get more attention particularly from policy makers in Washington. It addresses many of the issues related to the current shortcomings of our current minimum wage.

Some people might be saying how can you talk about minimum wage increases when we have unemployment (official) at 9.4%. I say to them: "go suck an egg". The increase in the minimum wage, currently at $6.55 per hour and is expected to go up to $7.25 per hour on July 24, 2009, may have actually created some economic stimulus.

Some studies indicate that 11.8 million people are directly effected by an increase in federal minimum wage. There are millions more people who salaries and wages are related in some way to the federal minimum wage. Potentially, that is a lot of money in the form of higher incomes for our economy.

One of the problems for our current minimum wage is that it lags behind the poverty line. A full-time minimum wage worker (40/hours per week, 54 week per year) will make $15,080 per year. Below is the table for the 2009 poverty line:

Persons in family Poverty guideline
1 $10,830
2 $14,570
3 $18,310
4 $22,050
5 $25,790
6 $29,530
7 $33,270
8 $37,010

Source: The 2009 HHS Poverty Guidelines

For a family of 3 or more with one worker that family is earning below the poverty line. But the kicker is that most economists recognize that the poverty line substantially understates the income needed to support a family meaning the costs are actually much higher. Can you imagine trying to raise a family on a minimum wage? The current minimum wage fails to support the cost of living for many people particularly when it comes to housing costs.

That is where the Universal Living Wage may help. The Universal Living Wage is indexed to the local cost of housing (HUD's Fair Market Rents). The formula assumes that if you work a 40 hour work week you should be able to afford a one bedroom apartment no matter where you live and spend no more than 30% of income on housing. The formula is easy to compute:

1. HUD STANDARD: No more than 30% of a person's gross income should be spent on Housing.

2. HUD Fair Market Rent: $(A)_________One Bedroom Apartment, or ____# of bedrooms in the city/county of _____________________.

3. TOTAL MONTHLY INCOME: $(A)_________ divided by .3 = $(B)_________ monthly gross income necessary to afford basic housing.

4. PREMISE: Anyone working 40 hours per week should be able to get housing and get off of the streets.

5. WORK HOURS: 40 hours/week @ 4.33 weeks/month = 173.33 work hours/month, 173.33 work hours X 12 months = 2080 hours/year.

6. Total Gross Monthly Income of $(B)_________ X 12 months = $(C)___________

$(C)___________ divided by 2080 hours/year $_________ /hour

NEW HOURLY WAGE in __________________

For example, the Universal Living Wage formula, based on existing governmental guidelines, requires a wage of $11.73 to get an efficiency apartment and $12.08 for a one bedroom apartment in Ithaca, New York.

Raising the federal minimum wage is a constant political battle that often causes significant delays in the increase. Prior to this latest round of increases that started in 2007, the last time the minimum wage was raised was 1997. This delay has a huge negative impact on the living standard of people living on minimum wages. The other problem is that the wage number is often arbitrarily picked by legislators with very little rhyme or reason for the number picked.

This Universal Living Wage formula removes much of the delay and political gamesmanship that occurs every seven to ten years. It eliminates the arbitrariness of the current procedures. Most importantly, it helps employers forecast or anticipate what the hourly wage will be which is much better than the current procedures.

All it takes is for legislation to adopt the Universal Living Wage formula as the new federal standard for determining the federal minimum wage.

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In Oregon the last minimum wage increase

Led to lower unemployment for the first few years.
Common Dreams has a nice writeup with the math on Oregon and Washington's highest in the nation minimum wage from a few years back.

I would say, however, that it's a roller coaster ride- in good times, higher minimum wage is good, but it leads to larger layoffs in bad times.

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do they ignore

the massive illegal labor pool and underground economy in Oregon in their analysis?

Seriously, Oregon is one of those states which is owned, lock, stock, barrel by the illegal alien lobby, so one has a massive underground, cash under the table economy and a huge labor pool that is nothing but illegal labor.

Same is true in California, Nevada....

All of this is pretty much ignored and the size of that labor pool is so massive (something like 11M-22M illegals in the country at this point?, probably most of them are in the labor force (how many 2 yr olds and 80 yr olds border hop?),

The size of the U.S. labor force is 153 million, so illegal labor is a good 8%! That is large enough to affect overall wages.

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From what I've heard from employers who argue with me

Even the illegals in Oregon get $8/hr- below Oregon's minimum wage, but far above the federal minimum wage and above some neighboring states.

For my understanding talking to owners of agricultural and construction industry jobs, illegal wages are pretty much minimum wage rounded down to the nearest dollar, and even then some end up closing for lack of help (or at least, claim to). I tried claiming that at $20/hr, they'd have all the labor they need, but apparently in certain sectors of agriculture, profit is already razor thin.
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Well then

there needs to be a movement to end sanctuary city laws and other similar nonsense. That is one of the biggest pillars in this artificial increase of labor.

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universial living wage

What I was thinking was a truly global universal wage. i.e. a wage leveler based on PPP, exchange rates of each nation.

That would blast out the entire global labor arbitrage agenda as multinational corporations hunt the globe for the cheapest, exploitable labor and where they can squeeze nation-states for everything they've got in order to lure that MNC to do business there.

The entire global wage arbitrage strategy keeps 3rd world countries in poverty (in order to be the cheapest labor market), significantly depresses U.S. wages, further encourages manipulation of domestic labor markets via national immigration policies (as well as efforts to claim people are something to trade)...

if we had something that simply knocked out the fact labor/wages have a ratio of 100:1, 50:1, 12:1, 6:1 around the globe to U.S. wages and forced a "raising up" of wages...

I think that's the ultimate brute force method to stop this race to the bottom on U.S. standards of living.

On the entire minimum wage issue, there are labor economists who will argue that decreases the number of available jobs and frankly by the labor economics law of supply/demand, that's in line...

but on the other hand, if someone is a wage slave, now the working poor instead of just the poor...what good is that job?

One can also offset the additional labor costs in other areas.

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The Sky Hasn't Fallen

EPI did an analysis of the last min. wage increase in 1997 and showed that there was not the unemployment that the U.S. Chamber of Commerce and the Business Rountable were predicting.

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yup

my comment is from the actual labor economics theory, not the cheap labor lobby...and they do analyze other facts, such as increased wages cause increased consumer spending in a local region etc. in their analysis.

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FDR and that ULW

If I recall my history, it was Roosevelt (Franklin Delano) who proposed - as part of the even Newer Deal legislation - the Universal Living Wage (among a number of other great ideas!). I believe his first attempt to get it through failed, and his administration was working on another attempt when he died.

Also, quite a few studies indicate that the minimum wage should be around $22.50 per hour, but George H.W. Bush disconnected the minimum wage from the national productivity levels, as it used to be traditionally connected, back in his term as president.

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The problem is the eternal need to increase

The only way to do it would be to legislate not a given amount, but a percentage of World Production.

A very small percentage.

If you did it as a certain amount, you'd need to keep upping it, because the minimum wage is inflationary in and of itself.

One way to escape this rule would be a maximum salary cap as well.
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Please check this out, Mr. Oak

I forget if I've mentioned this before, but you should really check out J.W. Smith's site if you aren't familiar with him.

His economic beliefs are the most enlightened and intelligent I've yet to come across.

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share with the rest of the class

;) I'm just one of many on EP.

First scan I would call that policy more than economics. Econ is more "what is" and policy is more "what we want it to be".

This class clown isn't very idealistic though.

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About global labor arbitrage

That is a real problem, but I can't help the feeling at least a lot of it is self inflicted. Going into the Great Crash, Germany led the world in value of exports, basically all high value finished goods. Japan is a manufacturing powerhouse, crippled somewhat by spectacularly bad judgment on the finance side. France and Scandinavia hold their own. All of them have high standards of living, generous social services, advanced public infrastructure. By the American line of reasoning they should have been dead meat for China, India, Vietnam. But they chose to place a high value on the productive side of the economy, they chose to place a high value on labor.

Of course, choices have consequences, some things have to give. Taxes are higher, finance is relatively less important, CEO and other top compensation is lower, income inequality is lower, they are not the world's policeman (Germany got a break here, since many people, especially Germans, still freak out at the idea of a remilitarized Germany; similar for Japan). But those are the choices they made. Surely they have many issues of their own, but so do we.

We too made choices. And if we can blame wage stagnation on cheap offshore labor, that was the choice we made. Maybe now would be a good time to revisit those choices.

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Can we apply this globally?

I am all for living wages here and everywhere else.

Jobs shouldn't be moved overseas because labor is cheaper. (If there are other reasons for outsourcing, that aren't related to increased cost externalization, go ahead.)

Everyone, everywhere deserves fair, livable wages.

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I am sure it can in some form.

The question is whether a sovereign country is willing to do it.

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The Chinese would never

do this, it's their one big schtick in keeping growth, actually the same could be said for all of Asia. So long as their wages are relatively cheaper to the West, more employment will come their way, and that keeps the powers that be there in their jobs. How would you get the Peoples Republic of China or Singapore or South Korea or Vietnam or others to go along with essentially eliminating their one biggest competitive advantage?

If you tell me "well, then we won't buy their stuff", you better hope we have trade representatives with that kind of assertiveness. And you better hope that our European and South American friends would go along with us on that. Hate to say it, but we simply do not have that leverage anymore. The time to have done this was in the 1990s, when the original framework for the current system of globalization was being implemented. Trust me, it would be nice to have a setup that says X shall trade with Y if they are both part of the WTO, but in a WTO that mandates a global minimal wage that is an average of say Western standards. But it isn't there.

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