Are we Turning into a Cheap Labor Market?

Too much has been said in the past few weeks about Islamic State, and media has had a feast constructing propaganda campaigns against Muslims, increasing tensions and expanding islamophobia across the world. This has allowed US presidential candidates to distant themselves from key issues that affect our future. A few days before the incidents in Paris, during the Republican debate, the candidates finally reached consensus on one issue, minimum wage. The agreement on this issue made it seem for a few minutes like the Democratic debates, where cohesion and solidarity imposes itself over polarity and bullying. It was disappointing to see how the candidates collectively agreed that increasing minimum wage to $15.00 per hour was bad for the economy and for the future of the nation. It was even more shocking to see the approval of the Republican constituency in the polls that followed, knowing well that there are many victims of the accelerated income disparity within that constituency. But the comment that stood out the most, at least for me, was Mr. Trump’s argument that if minimum wages were increased the inevitable outcome would be a loss of national competitiveness in the international market.

It is now a reality that the global market system influences and dictates the policies of our domestic wage system. It is not good business or good policy to increase minimum wages because it hinders the global market system’s ability to preserve and guarantee the benefits of the neoliberal status quo. What is being argued here is that what is not beneficial for domestic and international business is not beneficial for the American worker. As argued by Mr. Trump, an increase in minimum wages under a globalized system results in a decrease in our international competitiveness. In other words, the present internationalization of production and trade dictates that the nation’s competitive edge depends greatly on the impoverishment of the minimum wage earner.

Fifty nine percent of workers in the United States are paid an hourly rate.[1] Within that group, thirty percent earn “near-minimum-wages” that oscillate between the federal minimum and the newly set federal target ($7.25-$10.10), and 3.2 million people earn at or below the federal minimum wage.[2] The tradeoff according to neoliberal principles is that it is better for the nation if the consumer is provided with the ability to access cheaper products and services produced overseas than it is for him/her to increase its purchasing power. Curiously enough, this is the leading argument behind the most recent trade agreement being negotiated by the United States, the Trans-Pacific Partnership (TPP).

Based on the argument pushed forward during the last debate, it is evident that we are in a race to the bottom. More and more, it begins to sound like the same argument made by developing nations across the world that want to gain a competitive edge in the international market by keeping minimum wages low in order to attract Foreign Direct Investment (FDI) and incentivize domestic and international businesses. Who are we competing with? If we are competing against other advanced industrialized nations, as we assume we are, then the argument does not make sense because out of that cohort the United States is the nation with the lowest minimum wages. Taking into account economist’s fairest way of comparing minimum wages internationally, the “purchasing power parity” (PPP), one is able to compare the industrial nations based on an individual’s minimum wage and purchasing power.[3]

Country PPP ($ per hour) Ordinary Wage ($ per hour)
Germany 10.34 11.28
Australia 11.14 15.58
France 11.01 12.75
Belgium 10.31 12.01
Netherlands 9.71 11.54
Ireland 8.85 11.48
United Kingdom 8.44 11.02
Canada 7.82 9.22
USA 7.25 7.25

“List of minimum wages by country.” Wikipedia. Accessed November 25, 2015. https://en.wikipedia.org/wiki/List_of_minimum_wages_by_country

If those are really our competitors and our business strategy is to keep our wages low so that we can attract their production systems and FDI, this means that under present parameters of globalization we have become a cheap labor market within the industrial world. If that is the case then it is time our policy makers and elected officials say it to our face, and that way we can reevaluate the debate over minimum wages. If this is our nation building strategy then make it clear to constituents. If this is not the case then lets increase minimum wages to $15.00 per hour.

Wall Street has been recording record highs since the economic recovery, corporate profits continue to rise, the income gap continues to expand to historical unprecedented levels, while middle and lower class Americans continue to stretch their incomes as humanly possible in response to increasing costs of living. We are the strongest and largest economy in the world tenth-fold, is not that a sign of high competitiveness? All that the people are asking for is to share a little bit more of the pie, a minimum sacrifice for the grater good, but this is too much to ask for those in the private sector who profit from stagnant wages across the United States.

Nation Gross Domestic Product (US dollars)
United States 17,419,000,000,000
China 10,360,105,247,908
Japan 4,601,461,206,885
Germany 3,852,556,169,656
United Kingdom 2,941,885,537,461
France 2,829,192,039,172
Brazil 2,346,118,175,194
Italy 2,144,338,185,065
India 2,066,902,397,333
Canada 1,786,655,064,510
Australia 1,453,770,210,672
Netherlands 869,508,125,480
Belgium 533,382,785,676
Ireland 245,920,712,756

“GDP (current US$). The World Bank. 2015. Accessed November 25, 2015. http://data.worldbank.org/indicator/NY.GDP.MKTP.CD

I have never heard or read about another advanced industrialized nation arguing that their nation is better off if their citizens are disenfranchised and impoverished. On the contrary, through social policy the industrial world (with the exception of the U.S.) has made sure that its citizens are protected and economically secure, not only as a gesture of national pride but of national security as well. It does not make sense that we are the wealthiest nation in the world by far, yet there are forces within society and our private sector that oppose a more just distribution of that wealth. As shown by both tables, we are at the top in wealth but at the bottom in distribution of that wealth.

Here in Maine fifteen dollars an hour would change the lives of many families and individuals who have struggled to make ends meet throughout decades of economic depression. A change in minimum wage would actually increase the competitiveness of the State, stopping the brain drain and improving the chances that younger generations stay in Maine. A change in policy would inject much needed capital into the State’s economy and would alleviate the debt burden in our local communities. How much longer will we be able to keep up with our credit consumption? When will we come to the realization that we cannot make ends meet under a heavily dependent credit and debt system? If our economy is greatly dependent on our consumption, as most economist seem to agree on, then how sustainable is our economic future if today’s average household credit card debt is $7,529, and add to that student debt, car debt, mortgage, and other sources of debt.[4] A higher minimum wage would help millions of people reduce that national risk and it would help balance the relationship between debtor and creditor.

[1] U.S. Bureau of Labor Statistics. BLS Reports: Report 1048; Characteristics of Minimum Wage Workers, 2013. March 2014. Accessed November 23, 2015. http://www.bls.gov/cps/minwage2013.pdf

[2] Drew Desilver and Steve Schwarzer. “Making more than minimum wage, but less than $10.10 an hour.” Fact Tank New in Numbers. November 5, 2014. Accessed November 24, 2015. http://www.pewresearch.org/fact-tank/2014/11/05/making-more-than-minimum-wage-but-less-than-10-10-an-hour/

[3] Jordan Weissmann. “ How America’s Minimum wage really stacks up globally.” The Atlantic. September 2, 2013. Accessed November 23, 2015. http://www.theatlantic.com/business/archive/2013/09/how-americas-minimum-wage-em-really-em-stacks-up-globally/279258/

[4] Rick Mathews. “US GDP is 70 Percent Personal Consumption: Inside the Numbers.” Policy.Inc. September 21, 2012. Accessed November 24, 2015. http://mic.com/articles/15097/us-gdp-is-70-percent-personal-consumption-inside-the-numbers#.SP6cxFiuE

 

Stefano Tijerina

About Stefano Tijerina

My name is Stefano Tijerina and this blog’s objective is to connect Maine’s social, environmental, economic, cultural, and political issues to the global system, centering on how the local impacts the global and how the global impacts the local or what is known in Global Studies as the "Glocal" effect. In our present era of globalization it is crucial for the general public to understand how the new dynamics of the international system impact our lives here in Maine and how our local decisions impact the earth.