Slave Labor Wages and the Proposal for $21.25

         Raising the Incomes of the Lower Earning 50 Percent    

There is a campaign in the state of New York to raise the minimum wage to $21.25 per hour. The EPI.org published two articles (here and here), both claim that passage of this high minimum wage will increase the incomes of 32% of workers in New York state. The Federal minimum wage is $7.25 per hour in stark contrast.

The Social Security Administration every year releases a detailed report on annual wage income. In 2021 it showed that 30.188% of workers earned less than $20,000. With a much higher minimum wage nationally, not just New York, all 50 million workers (30.18%) would have higher annual earnings. 

Wage income growth has been anemic over 50 years now, and it’s nearly slave-level in the U.S. Don’t gasp at “slave-level”. The lower earning 52% of U.S. workers in 2021 earned together just $1.45 trillion, as the SSA report shows, and that is less than 7% of the total national income (using the Fed’s Flow of Funds’ figure on total national income, $22 trillion). We might assume that 93% of income went to the other half of workers, but that is incorrect, but mostly true. Wage income in 2021 totaled $9.77 trillion which is 44% of all income ($22 trillion). 

Couple this $21.25 per hour proposal with the PRO Act and the Reward Work Act and the new sectoral bargaining proposal for unions, and the nation would see a revitalized union sector with much higher wages for all. Wage levels would return to their 1970s high. The scourge of low-income work-life would be over. In addition, the lop-sided, unjust and dangerous distribution of income would improve. The cause of the Great Depression was immiserating, one-sided distribution of income, as J.M. Keynes and then Federal Reserve chief Marriner Eccles sought to explain. The U.S. is losing its middle class and sliding into the unenviable condition of Mexico where inequality has created a poverty rate approaching 50%.  

The RealTimeInequality.org web page, a product of U.C. Berkeley economists, shows that from 1976 to 2022 (current figures) the shift of income from the lower-earning 90% of all adults has resulted in a decline of 13% of total income share for the lower 90%, which comes to nearly $12,737 for all 225 million adults in the lower 90%. I should emphasize the importance of the $12,737 figure. In 2022 the median household income was $70,784, and with two earners together making $25,474 in addition to their current income, it is plausible that the median would be about $96,000. If the wage gains were equally distributed across the pay range, then lower-income workers would see the biggest income improvements and poverty rates would improve in a major way.  

The report "Real Wage Trends, 1979 to 2019" from the Congressional Research Service shows wage growth was 8.8% for the 50th percentile worker in this span of time, while the "Real gross domestic product" grew by 91%, see here. This 8.8% increase at the median equals a yearly income increase of $3,868 (or a yearly income increase from $43,971 to $47,840). This begs the question "Why so slow? Why not an increase of 91%?".   

The wage report for 2020 to 2022 from the Economic Policy Institute shows

"Data from the Social Security Administration show that the chasm between top wages and the wages of the majority has only grown wider over the last four decades. Between 1979 and 2020, the top 1% of earners saw a 179% increase in their wages, while the wages of those in the bottom 90% grew just 28% (Mishel and Kandra 2021)."  

They conclude a gain of 28% for the lower 90%, much different than the 8.8% at the median reported by the CRS. Most of the growth must have happened above the 50th percentile. Linking to the Mishel and Kandra report, they claim 

• The bottom 90% received just 60.2% of all wages in 2020, the lowest share since data began in 1937 and far lower than the 69.8% share in 1979.

This shows again, the lower earners are getting a smaller share of the pie. 

The Supplemental Poverty Measure shows that about 19% of households earn less than 150% of the Official Poverty Line (OPL), which many esteem as the actual poverty level; and 34% of households earn below 200% of OPL (see page 70), which indicates not-poor-but-struggling. And the recently released ALICE report from the United Way charity shows 41%, about 137 million Americans, living with hardship in 2021. And the U.S. Census Pulse Survey of April 19, 2023, shows that 38% of American adults  found it "somewhat difficult or very difficult meeting household expenses" (Spending Table 1) and 50% responded to "Frequency of not being able to stop or control worrying: Several days [in the last two weeks], more than half the days, nearly every day" (Health Table #1). And 46% report feeling "down, depressed or hopeless" (Health Table #2).  These Pulse Surveys themselves make me depressed. Put all this dismal science data together and one realizes ---This nation is not wealthy, not worry free, not particularly well, and not happy for many Americans. The Pulse Surveys have been like this since they began in 2020.    

It is not entirely ridiculous to project a median household income of $96,000, the “average household income” is $165,000 using Flow of Funds figures. Lifting the incomes of lower-earning households  higher would improve life substantially. 

And using the Joint Committee on Taxation figure, which is $2 trillion less than the Flow of Funds total income figure, the “average” household income is $144,000. 

This RealTime figure is pre-tax and pre-transfer, or "factor", income, sometimes called market income.

In 1976 for every $1 earned in the lower 90%, the top 10% earned $5.44

In 2022 for every $1 earned in the lower 90% the top 10% earned $9.72.

The entire point of these paragraphs is: income distribution is crucial. Correction of the income distribution is paramount to correcting the economy.  __________________________________________________________________________

           Income Ratios   

The income ratios between three or four income groups  -- lower 50%, middle 40%, top 10% (and top 1%) -- can be calculated using RealTime Inequality data. First I look at the 50% -- 40% --10%, and afterwards I look at 50% -- 40% -- 9% -- 1%.  

Taking the average income of the lower 50% of adults as “1”, the following income ratios are revealed:

For 1976, looking at pre-tax income, we see that:   

with three groups it is    1 – 3.7 – 10.2.     

When we separate out the top 1% we see (four groups) these ratios:     1 – 3.7 –   8.0 – 31.     

It would take in 1976 about 31 years for an average lower 50% worker to earn the income of a One Percenter.

The ratios change drastically by 2022.

For every $1 earned by a lower-50% worker the ratios are:    1 – 5 – 23.     

(Lower 50% to next 40% to top 10%.)

Separating out the 1% in of the top 10% we see:                  1  -- 5 – 14.6 -- 103.   

To visually grasp the difference:

             1976   --   1 –  3.7   –  10.2        or   1 –  3.7   --    8.0  --   31.

            2022   --   1 –   5.0   –  23.0       or    1 –  5.0   --  14.6  –  103.

It would take 103 years working at the low income to earn what is earned at the top 1% of incomes.

This is “factor” income (pre-tax and pre-transfer) for adults 20 years and over. The graph shows the staggering income gains of the one percent of adults: 

Income growth of 1%, 10%, 50-to-90%, and lower 50% of adults' income. RealTime Inequality

This makes me sick. 

Fortunately, the post-tax income ratios are better or fairer.   

               The 2022 pre-tax income share for the lower 50% is 8.9%.   --   $20,300 per household.

               The 2022 post-tax income share for the lower 50% is 16.6%   --  $39,300 per household. 

I'll repeat the pre-tax ratios: 

            1976   --   1 –  3.7   –  10.2        or   1 –  3.7   --    8.0  --   31.

            2022   --   1 –   5.0   –  23.0       or    1 –  5.0   --  14.6  –  103.

These are the post-tax, post-transfer ratios for household income groups, same as above:

     The lower 50%, the next 40%, then the top 10% (and secondly, the top 9% with the topmost 1%)

            For 1976  ---      1  --  3.1 – 8.2          and             1  --  3.1  --  8.2 --  22  

            For 2022  ---      1  --  3.1 – 13           and             1  --  3.1  --  9  --  48.

But the post-tax, post-transfer graph looks identical to the pre-tax, the one above: 

Social benefit programs (like Social Security, Medicare, Medicaid and EITax Credits, etc.), or transfers, make a big difference for the lower half. The lower 50% nearly doubles its income, but one must ask is this the result of Social Security, Medicare, and Medicaid? Do these benefits affect the lives of the lower 50% or just seniors and sick people? I suspect the benefits exclusive of the ones I mention, do not affect the lower 50% much, except the Earned Income Tax Credit. But, as we regularly witness, these benefit programs are subject to criticism and cuts, they are regarded as gifts to the poor, or as parasitic injuries to the working contributors who provide for our national economic health.

I often repeat the following fact, and you should remember it, "average weekly earnings for production and nonsupervisory workers”, shows the Bureau of Labor Statistics, were higher in 1969 than in 2022.

Here's the BLS web page showing the details. And the graph I would like to see in every home: 

Therefore, yearly wage income, adjusting for inflation, for 80% of workers (both full-time and part-time) were higher in 1969 than in 2022. In the same 53 year period the GDP (Real gross domestic product) per capita increased by 148%. Now, the graph in real inflation corrected dollars: 

Place, mentally, this graph over the "average weekly earnings" graph. 

The economy grew by 2.5 times since 1969, but the 80% of mostly lower-earning workers saw no gain in yearly income!

The GDP/capita, or per person, in 2023 dollars today stands at $79,087 in 2022 dollars (from the Fed's FRED graphs). A four-person family generates an average GDP/capita of $316,238 -- sounds reasonable? That amount creates a total GDP amount of $26.4 trillion. The Flow of Funds figure is slightly less, $26.145 trillion. Remember, the Flow of Funds "national income" amount is $22.046 trillion (page 10). And we see at the BEA.gov, Table 2.1, the after-federal-tax national "disposable" income is $19.7 trillion, which implies a per capita post-federal-tax income of $58,891, which also implies for a four-person family a post-federal-tax income over $235,000. But the pre-tax median income for a four-person family is $111,104 as the Census shows. If we reduce the $111,104 pre-tax income by federal taxes it comes to $94,284, and with New Hampshire state taxes it is reduced further to $80,242, showing an "overall  effective" tax rate of 28%. This overall effective rate is congruent with the analysis of the ITEP.org rate for this income, see here (the last table). Half of U.S. families of four earn less than pre-tax 111,104, which becomes $94,284 post-federal-taxes. The average post-federal-tax income is $235,000 for the four-person family. The average ($235,000) and the median ($94,284) are far apart. 

It may be difficult to remember all these numbers, but one more to think about:  

The average income per household, for all 131 million households, is $168,000, but the median household (the mid-point family) has an income of $70,784, not even half the “average”. 

Confused? I'm showing that the "median" income is not a good indicator, and is not remotely close to  the average -- because the high income few have skewed the average much higher. Ergo: high inequality. 

I study this issue. I'm concerned that the general public, even readers of the American Prospect, do not grasp some fairly basic realities, the level of inequality and economic incompetence.

That $21.25 per hour goal is not pie-in-the-sky, it's somewhat realistic, it likely would need adjusting for special cases of low-income communities and businesses with less than 100 employees. The PRO Act, the Reward Work Act, and sectoral bargaining also would play a decisive roll in restoring prosperity to all in these highly unequal times.