The Ramifications of Economic Inequality


CS News
By: Joe Kefauver
January 20, 2014

Wealth gap. Wage gap. Income inequality. The "99 percenters" vs. the "1 percenters." You've no doubt seen the media coverage of these various approaches to the issue of "economic inequality" over the years. Some sound scientific research - and some not so sound research - has focused on this socioeconomic trend as the American economy slowly regains its footing following the Great Recession.

Particularly in the last 12 months, labor activists and certain factions of the politically left establishment have used this data to justify everything from universal health care coverage, to a $15-per-hour minimum wage, to the destruction of the franchise business model.

As the new year has gotten underway -- a mid-term election year where control of Congress and posturing for the 2016 presidential election will dominate -- the concept of using whatever policy means necessary to bring economic equality to every citizen, non-citizen, employed and unemployed workers in the country will be the overriding theme for progressive activists and elected officials. The implications for employers are reputational in the near term, yet financial in the longer term should any of the more radical proposals become reality.

The term "economic inequality" means different things to different audiences, and the employer community needs to understand the ramifications to both their workforce and their customer base. There are two basic schools of thought when it comes to addressing such a core issue. One is concerned with how we "grow the pie," how we create more economic activity and opportunity to grow the economy. This could be illustrated by programs to increase the educational opportunity for all American workers so they are qualified for higher paying jobs in the economy.

The other school is focused on how we redivide the existing pie through changes to the tax code, mandated wage and benefit proposals, health insurance reform and other devices. The school of thought here is to set wages based on the financial circumstances of an individual worker rather than their skills and productivity.

It is clear the labor activist community is focused on "redistribution of wealth," i.e. dividing up the current pie to deliver a middle-class lifestyle to every American worker, regardless of skills, education or motivation. Despite the fact that fewer than 50 percent of Americans actually pay taxes, we can be sure there will be efforts to increase taxes on Mitt Romney's infamous "47 percent," and lessen or eliminate the tax liability of the rest.

One example in the policy realm this year is so-called "fair share" legislation to punish companies that allegedly pay such poor wages that their workers must supplement their income with various forms of government assistance. Proposals to hike minimum wages in cities, states and nationwide will be a hot topic from coast to coast, with Seattle currently topping the list with a concerted effort led by recently inaugurated Mayor Ed Murray to boost the wage of all workers in the city to at least $15 per hour. Several states are likely to see minimum wage and paid sick leave mandates on the November ballot in order to boost Democratic turnout in a year typically bad for the party of the president. (With the exception of 1998, mid-term elections taking place in the sixth year of a president's term have yielded losses for that president's party on every occasion since 1938.)

An interesting side note in the minimum wage debate, one that is very revealing as to why traditional unions are engaging in the wage fight of non-unionized retail and restaurant workers, is this: many union contracts contain provisions mandating the workers in a collective bargaining unit be paid a certain level over the minimum wage. So while the primary impact of such a wage hike is the doubling of hourly wages for workers currently making the federal minimum wage of $7.25, unionized janitors or hotel workers already making, say, $10 per hour could see their wages boosted to well over $15 without renegotiating their own contracts.

For a significant part of our nation's history, the narrative of class warfare has worked its way into countless political campaigns for elective office. What we have witnessed over the last 10 years or so is the evolution of this narrative from a campaign theme discussed every two or four years to a foundation for an entire economic and political agenda that is redefining the way our country elects leaders and sets policy.

Fortunately, one thing that has changed during this debate is a healthy dialogue around wages and benefits, and whether wages are reflective of the value of the work performed and the skill set of the worker or should they be reflective of the economic needs of the worker and the country. Unfortunately, the latter seems to be winning. This conversation is not about the profit and loss of a small business. It is about the type of economic model that the country will have for the next century and whether we can be competitive with emerging economies.

Employers must become more cognizant of this shifting landscape. There is a growing acceptance of the socialistic notion of "need" trumping "value" in the labor market. And for the employer, this narrative feeds into not only new, more onerous policy threats, but also an increasing exposure to the perceived benefits labor unions offer service-sector workers.

About this Entry

This page contains a single entry by CFED published on January 24, 2014 3:36 PM.

Playing the Odds on Saving was the previous entry in this blog.

U.S. divided over how to tackle income gap, poverty: poll is the next entry in this blog.

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