Middle-Income Wage, Not The Minimum, Needs To Be Raised

COMMENTARY Jobs and Labor

Middle-Income Wage, Not The Minimum, Needs To Be Raised

May 7th, 2014 3 min read
Stephen Moore

Distinguished Visiting Fellow

Stephen Moore is the Distinguished Visiting Fellow for Project for Economic Growth at The Heritage Foundation.

There was more bad news for workers' paychecks in last week's April jobs report: Wages and salaries were flat. No raise at all — not even to keep pace with inflation. Yet President Obama continues to obsess over raising the minimum wage — as if he holds a magic wand to make American workers better off.

He says it is time working people "got a raise," and he's right. But we'd argue that a higher minimum wage to $10.10 is a clever diversion from the real crisis: falling middle-class incomes.

For the vast majority of workers, the problem isn't a flat minimum wage, it's a declining middle-class paycheck. The minimum wage affects only, at most, 5% of workers — and almost half of them are in starter jobs or are teenagers. What about the other 95% — especially those working parents with children?

These are the people who desperately need a raise. According to statistics from Sentier Research, based on monthly Census Bureau data, the median household income is still some $4,000 lower today than it was before the recession began in 2008, and about $2,000 lower than it was since the recovery began in June of 2009.

Usually periods of recovery from a financial meltdown are years when workers rapidly make up the lost ground in income and job opportunities surrendered during recession. In this case, average workers have continued to lose ground. This explains why more than half of workers think the recession never ended. For them, it hasn't.

This bitter pocketbook reality speaks loudly to the utter failure of Obama's economic policies — bailouts, stimulus plans, $5 trillion more in debt-financed spending, ObamaCare, green-energy failed investments and tax hikes. This president has thrown everything he has from the liberal playbook at this stagnant economy and, alas, none of it has worked.

To be fair, the wage meltdown really began at the end of the Clinton years, when the technology and dot-com bubble burst. A major reason for the disturbing lack of progress in middle-class earnings in the 2000s was a weak dollar that shrank in real purchasing power. The price of gold has quadrupled from 2000 to 2014, from $300 to $1,300 an ounce.

Even if a raise in the minimum wage didn't destroy jobs — which it would, with even the Congressional Budget Office predicting about a half-million lost — this policy will do nothing for the middle class. It might actually hurt workers by making the price of a McDonald's Big Mac or a hotel stay a little more expensive.

The average salary in the U.S. is not $7.50 an hour, as Mr. Obama seems to think, but $23 an hour — or triple the minimum wage.

The jobs report told us something else that is crunching the working class. Workers are having a harder time than ever finding a full-time, 40-hour-a-week job. Employers we talk to tell us this is partly due to ObamaCare rules that are holding many new positions below 30 hours a week. (Since when is 30 hours a week a full-time job anyway?)

The White House's new proposed overtime rules are another misdirection play: Mr. President, the problem is that workers are getting too few, not too many, hours on the job.

Mr. Obama's tax increases have also held down wages. It has been a truism for at least 100 years — and probably for time immemorial — that worker pay rises with worker productivity. It's simple: the more widgets or potato chips or microchips a worker produces, the more the employer will pay her.

In last week's dismal GDP report, business spending on investment in plant, equipment and technology fell. That drop matters to workers because with less capital to improve their workplaces, they aren't as productive, and they can't command higher wages.

Almost every economist agrees with that fact, so why discourage investment with higher tax rates on business investments and profits? We should move in the opposite direction and eliminate much of the double tax on investment. It will pay dividends for workers.

Finally, lifting the median wage of workers requires that new jobs created pay more than the jobs they replace. The president's war on fossil fuels — oil, natural gas and coal — is killing the creation of high-paid energy jobs.

In the oil and gas industry, welders, petroleum engineers, geologists, truck drivers and pipe fitters earn from $75,000 to more than $100,000 a year. These wages are 50% higher or even double the average wage.

And the industry could be creating millions more of these good jobs if the federal government would stop regulating and trying to impose new taxes on the nation's premier job creators. We should be dramatically expanding our drilling and mining capacity, not holding it back.

The squeeze on the middle class is real and painful for tens of millions of anxiety-ridden Americans. Even those with jobs are afraid of losing them. Republicans can win in 2014 and in 2016 only by becoming hyperattentive to these problems of average Americans.

The challenge for our party is to persuade an increasingly sour and cynical electorate that bought into the false promise of hope and change that the GOP's priority is to help lift the wages of the working class, not the privileged class.

Editor's Note: Senator Rand Paul co-authored this commentary

 - Paul is the junior U.S. senator from Kentucky.

 - Moore is senior economist at the Heritage Foundation and a member of the IBD Brain Trust.

Originally appeared in Investor's Business Daily