This week, Senate Republicans blocked a vote on raising the federal minimum wage. To economists, wages, goods and services must be priced in real terms—that is, adjusted for inflation—to understand their economic effects. In real terms, the federal minimum wage has been falling for five years. People who claim that “raising” the minimum wage would have bad effects, must also argue that lowering the wage has good effects. During the past five years while the real value of the minimum wage was declining, the labor market has been the worst it has been in more than seventy-five years, and poverty has been increasing. To argue that the poor economy outweighs the falling minimum wage is to make the case that other things are far more important in determining job losses and gains than the minimum wage—precisely the point of those convinced raising the minimum wage is important to the economic health of the economy.
But, the Senate Republican effort to suppress the wages of America's workers is compounded by the House Republican efforts to stall on extending unemployment insurance benefits and to drastically cut the Supplemental Nutritional Assistance Program (SNAP). Those actions hurt the annual income of working Americans and the bargaining position of workers for decent wages. The positions also contradict Republican arguments that poor workers should be helped by SNAP rather than paid higher wages. But these are elements in a set of policies at the root of America’s growing inequality. The Organization for Economic Cooperation and Development (OECD) highlights this global trend in a new report this week , showing America leading the trend. The OECD is concerned because inequality is bad for economic growth and for developing trust in institutions.
The votes on the minimum wage, unemployment insurance and SNAP aren’t the only policies to suppress the incomes of the 99%. Last month, we learned that Silicon Valley companies in California colluded to suppress the wages of their employees . For nearly two decades, Americans have been promised that a new middle class would arise from the digital revolution and computer jobs. But, the same old anti-worker attitude prevails in the “new” economy as in the old.
The press on this collusion to suppress the earnings of engineers and computer scientists in Silicon Valley has ignored a bigger policy issue: The use of H-1B visas by Silicon Valley. On April 7, companies already reached the cap Congress allows for the visa for this fiscal year. But, if firms are colluding to suppress the wages of America's workers, how can there be a policy aimed at a “shortage” of workers?
If wages are capped, then the demand for workers will be greater than the supply of workers. The result is that firms will observe a “shortage” of workers—one firms created.
If there is a real shortage of talents, then firms should want open competition. Bidding for talent serves many purposes. It assures workers that hard work will be rewarded. And, it sends a message to those who shirk that the firm will bid and pay to find someone else with the talent to do the work. Higher wages also send a market signal that investing in the skills will be rewarded; encouraging more people to get the skills for the job. About the time firms set in motion their collusion to suppress wages, the share of American undergraduates majoring in computer science peaked. Clear evidence the market isn’t sending the right signals.
The use of H-1B visas to fill the “gap” between the supply and demand of workers is the enforcement mechanism to make the collusion to suppress wages work. So, congressional bending to industry demands on the H-1B program is yet another policy, like doing business’ bidding on the minimum wage, keeping America's wages down.
Internationally, May Day is set aside to honor workers. Its origins are in America, when workers gathered in Chicago in 1886 to demand making eight hours the standard work day. Since then, many policies were put in place, with bipartisan support, to tip the balance in dividing America’s growing prosperity toward creating a vast middle class. Republicans should reflect on their continued opposition to popular policies that put more money in the pockets of the 99%.