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Work and prosperity
14 August 2013

Why low paid jobs are a bigger problem than they used to be

According to James Surowiecki in the New Yorker, low pay is a now is big issue in US politics:

  • “A few weeks ago, Washington, D.C., passed a living-wage bill designed to make Walmart pay its workers a minimum of $12.50 an hour. Then President Obama called on Congress to raise the federal minimum wage (which is currently $7.25 an hour). McDonald’s was widely derided for releasing a budget to help its employees plan financially, since that only underscored how brutally hard it is to live on a McDonald’s wage. And last week fast-food workers across the country staged walkouts, calling for an increase in their pay to fifteen dollars an hour.”

Why the sudden interest? It’s not as if there’s anything new about low-paying jobs. Furthermore,  “low-wage earners have long been the hardest workers to organize and the easiest to ignore.” Also, with so many people still out of work, you’d think that any kind of paid employment would be gratefully accepted.

Nevertheless, there’s a very good reason why we should be more concerned about this issue than we used to be:

  • “…[it’s] not that the jobs have changed; it’s that the people doing the jobs have. Historically, low-wage work tended to be done either by the young or by women looking for part-time jobs...”

Whether working in supermarkets or fast-food outlets, the low-paid were usually supplementing not supplying the main household income. Or, to put it another way, burger flippers and breadwinners were different people. That, however, is changing:

  • “...over the past three decades, the U.S. economy has done a poor job of creating good middle-class jobs; five of the six fastest-growing job categories today pay less than the median wage. That’s why… low-wage workers are older and better educated than ever. More important, more of them are relying on their paychecks not for pin money or to pay for Friday-night dates but, rather, to support families.”

Surowiecki describes “a tectonic shift in the American economy” – with clear parallels to our own economy:

  • “In 1960, the country’s biggest employer, General Motors, was also its most profitable company and one of its best-paying… it was not alone: firms like Ford, Standard Oil, and Bethlehem Steel employed huge numbers of well-paid workers while earning big profits. Today, the country’s biggest employers are retailers and fast-food chains…”

One might think that the rapid growth of high-tech companies like Apple and Google would have compensated for the loss of heavy industry. And, in some ways, that is indeed the case:

  • “...the combined profits of all the major retailers, restaurant chains, and supermarkets in the Fortune 500 are smaller than the profits of Apple alone.”

But here's the kicker:

  • “...Apple employs just seventy-six thousand people, while the retailers, supermarkets, and restaurant chains employ 5.6 million. The grim truth of those numbers is that low wages are a big part of why these companies are able to stay profitable while offering low prices.”

Because most of the jobs are provided in one part of the economy and most of the profits made in another, Surowiecki argues that a “higher minimum wage can be only part of the solution”, which leaves redistribution as the obvious alternative:

  • “Fast-food jobs in Germany and the Netherlands aren’t much better-paid than in the U.S., but a stronger safety net makes workers much better off.”

The trouble is that by using tax credits and other redistributive measures to prop up the living standards of low-paid workers, the state is, in effect, subsidising low-profit, low-wage business models, thus further skewing the shape of the economy.

As Surowiecki concludes, “it isn’t enough to make bad jobs better. We need to create better jobs.”


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