Make minimum wage? You’re paid too much

“Let’s raise the minimum wage to $30 per hour, and then we’ll all make a good living.” — State Delegate Larry Kump, R-Berkeley, as quoted by Russell Mokhiber at his Morgan County USA blog.

Don’t worry. Larry Kump was only being facetious. Kump has no love for the minimum wage, which he views as a counterproductive government intrusion into the free market — a position he shares with numerous state legislators, particularly Republicans, many of whom would also repeal West Virginia’s Prevailing Wage law that requires contractors working on state projects to pay employees a wage that’s comparable to wages in the private sector for similar work. And they would like to enact “Right to Work” laws that would undermine union organizing efforts by freeing individual workers from the obligation to join a union even if a majority of workers at a given employer vote for unionization.

What would be the direct effect of these actions? Wages for working West Virginians would be driven lower than they already are — quite a trick in a state where more than a third of jobs pay a poverty wage, which means that a full-time worker’s income is less than $23,550, the federal poverty line for a family of four.

So, why would Larry Kump and those like him do such a thing? Do they hate low- and middle-income workers, whose wages would also be undercut? Probably not. They probably don’t sit around plotting ways to make West Virginians poorer. The reason they want to cut wages is that they’re focused on the interests of employers. Employers see wages and employees as costs and, as such, things that should be minimized in the interest of maximizing profits, which it is hoped will lead to increased investment and trigger economic growth, making up in additional jobs what’s lost in the incomes of workers whose pay checks are slashed.

This is the delusion of “supply side” economic thinking that among conservatives produces a relentless hostility to wage growth. At a macroeconomic level they argue that “upward pressure on wages” is a precursor to inflation and, therefore, something to be thwarted by monetary and fiscal policy. At state and local levels they insist that increasing wages leads to deficits, higher taxes and, most ominously, reduced competitiveness, which discourages businesses from expiring, hiring and locating here.

But, just as similarly delusional conservative prescriptions for cutting government spending and deficits in the face of recession has proven disastrous for European countries, cutting wages does not produce economic growth, especially in West Virginia.

West Virginia has long offered among the lowest wage rates in the U.S. We also have low utility rates, low property costs and low taxes. But, that hasn’t produced job growth. Why not? Look at what companies do when wages are low and profits are booming. Since 2001, when George W. Bush was president, private sector after-tax profits have grown from 16 percent of GDP to 23 percent while labor costs – wages primarily – have dropped by 10 percent. Meanwhile, the number of jobs in the U.S. economy remained flat and overall business investment has dropped by 20 percent.

In other words, the proceeds of reduced wages usually don’t go into job creation, which sadly makes sense since three decades of business school theory has proclaimed that companies’ only mission is to enlarge shareholder value, which means maximizing profits and equity while minimizing costs. So, while labor once made up two-thirds of operating costs, it represents far less today.

This drive to cut labor costs and wages has crippled West Virginia because, among all states, ours is the most dependent on wages to generate wealth for its residents. Even though West Virginia has nearly 6/10 of 1 percent of the U.S. population, state residents hold only 4/10 of 1 percent of the nation’s wealth. That’s a third less than the average American and the difference mostly consists of corporate equity, of which we are almost bereft. Consequently, when corporate profits and equity grow, West Virginians benefit far less than other Americans and, when wages are stagnant or declining, West Virginians suffer far more.

That’s why years of cutting corporate taxes in West Virginia and low wages have merely shipped lots of money out of state and out of our economy with little offsetting benefit in the form of jobs or economic growth. It’s also why reducing wages in West Virginia even further would constitute an act of virtual economic suicide.

There is good news, however. West Virginia can, if it chooses, use its wage dependency to stimulate the economy to a degree other states can’t. The point is neatly summed up in a 2012 study by the Economic Policy Institute, which showed that if West Virginia were to raise the minimum wage from the current $7.25 per hour to $9.80, the result would be an infusion of more than $300 million into the state’s economy among the people who need it most, which in turn would lead to the creation of about 800 new jobs.

Russell Mokhiber and others are starting an effort to make it happen. But success depends on people stepping forward as candidates to run for the House of Delegates and the Senate against those who are so steeped in conservative dogma that it blinds them to the stark reality of West Virginia’s failed attempt to discount its way to prosperity.

Are you willing to take up the challenge or do you know someone who would?

 

— Sean O’Leary can be contacted at seanoleary@gmail.com. This column and others can be seen at thestateofmystate.com.

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