Our deeply broken labor market needs a higher minimum wage : EPI testimony for the Senate Budget Committee

Thank you, Chairman Sanders, Ranking Member Graham, and members of the committee, for the invitation to participate in today’s important hearing. I am Thea Lee, president of the Economic Policy Institute, the nation’s premier think tank for analyzing the effects of economic policy on America’s working families.

Today’s hearing poses an important question: Why do large, profitable corporations pay such low wages that their employees are eligible for and must rely on federal anti-poverty programs just to make ends meet? And what policies are necessary to address this problem?

I would like to make the case today that the wage-setting mechanism in the U.S. labor market is massively broken. Four decades of flawed policy decisions have systematically eroded the bargaining power of workers, while simultaneously concentrating the political power and wealth of large corporations and the wealthy.1

The result is a labor market where—contrary to neoliberal economic equilibrium models—actual wage levels for most workers reflect generations of accumulated systemic racism, sexism, and occupational segregation; where the federal minimum wage is egregiously inadequate, leaving too many workers below a decent and adequate standard of living; where workers’ ability to join in union and bargain collectively has been eroded; and where highly profitable corporations remunerate their executives lavishly, but choose to pay poverty wages to their front-line and production employees.

This labor market outcome is not just unfair and inhumane for workers and their families trapped in low-wage jobs. It is also inefficient, in that it rewards a short-term business model characterized by high turnover and overreliance on government safety net programs. It contributes to slower growth and growing inequality, especially along race and gender lines. And during the pandemic, we saw vividly that those workers most at risk of contracting the virus on the job were also disproportionately those earning at or near the minimum wage.

According to the GAO report requested by Chairman Sanders and this committee, 12 million wage-earning adults are enrolled in Medicaid, and 9 million wage-earning adults are in households receiving assistance from the federal Supplemental Nutrition Assistance Program (SNAP). Full-time work should provide a path out of poverty, but the reality in the United States today is quite different. According to the GAO:

Approximately 70 percent of adult wage earners in both programs worked full-time hours (i.e., 35 hours or more) on a weekly basis and about one-half of them worked full-time hours annually (see figure). In addition, 90 percent of wage-earning adults participating in each program worked in the private sector (compared to 81 percent of nonparticipants) and 72 percent worked in one of five industries, according to GAO’s analysis of program participation data included in the Census Bureau’s 2019 Current Population Survey. When compared to adult wage earners not participating in the programs, wage-earning adult Medicaid enrollees and SNAP recipients in the private sector were more likely to work in the leisure and hospitality industry and in food service and food preparation occupations.2

Federal anti-poverty programs provide an essential lifeline to people who need it—including single parents and those experiencing temporary setbacks or upheavals, health crises, or disabilities. These programs are not meant to relieve profitable corporations from their responsibility to pay a living wage and benefits and their duty to share the profits and productivity gains that their workers make possible.

These federal assistance programs need to be strengthened and expanded, but we also need to ensure that our labor market and broader economic policies rebalance bargaining power between workers and employers so that unscrupulous and uncaring corporations do not benefit from federally funded social safety net programs, putting more responsible employers at a competitive disadvantage.

Key elements to rebalance bargaining power include the following: First, raise the minimum wage to $15 an hour by 2025, as the Raise the Wage Act provides; second, pass the Protecting the Right to Organize (PRO) Act, which would reform and modernize our labor law so that workers have a fair chance to exercise their rights to form unions and bargain collectively; and third, pass a robust and comprehensive relief and recovery bill, as President Biden has proposed. Finally, going forward, we should prioritize achieving and maintaining a full employment economy.

Our broken system provides an inadequate standard of living for too many workers

In principle, people cannot supply their labor if they cannot sustain themselves and their families. In addition to food, clothing, and housing, basic needs to be funded include health care, transportation, and child care, among other things.

The federal minimum wage is currently $7.25 an hour, and a paltry $2.13 an hour for tipped workers. We have heard today from Terrence Wise and Cynthia Murphy how unconscionably inadequate this wage is. Today, in every region of the United States, a single adult without children needs at least $31,200—what a full-time worker making $15 an hour earns annually—to achieve a modest but adequate standard of living.3 By 2025, this need for a $15 an hour wage to reach even an adequate standard of living will be even more acute—it will hold true not just in every region but in every single county, both urban and rural.

The Raise the Wage Act is a policy solution to this crisis

Congress has the opportunity now to pass the Raise the Wage Act, which is included in President Biden’s American Rescue Plan Act. The Raise the Wage Act would raise the minimum wage to $15 an hour by 2025, index it to the median wage, and eliminate the subminimum wage for tipped workers. Raising the federal minimum wage now is an essential element of a robust and equitable recovery package.

As my colleague, EPI Policy Director Heidi Shierholz, testified earlier this week at the House Small Business Subcommittee4: