[NJFAC] US firms have little incentive to pay the minimum wage

US Firms Have Little Financial Incentive to Comply with the Minimum Wage Posted on April 19, 2024 by Yves Smith

US Firms Have Little Financial Incentive to Comply with the Minimum Wage... More on "American hates the poors": companies face hardly any downside in cheating on disgracefully low minimum ...

Yves here. This is pathetic. America has a super low Federal minimum wage, of $7.25 an hour. It was increased to that level in 2009. That is equivalent to roughly $10.60 an hour, using a CPI calculator, which understates the increases in the cost of living to low-income workers, based on food price increases alone.

But on top of that, it turns out cheating pays. Minimum wage enforcement is so weak and fines are so low that non-compliance is a good economic bet.

By Anna Stansbury, Assistant Professor in Work and Organization Studies Massachusetts Institute of Technology (MIT). Originally published at VoxEU

A minimum wage is only effective to the degree it is actually paid – and research suggests that minimum wage non-compliance is very common. This column uses data on all violations of the Fair Labor Standards Act in the US documented since 2005 to ask what incentives US firms have to comply with the federal minimum wage. While the law allows for large penalties, average penalty levels are far too low to give most firms an incentive to comply. As the federal minimum wage is increased, higher penalties and greater enforcement will be needed to ensure compliance.

The US federal minimum wage is the baseline labour market protection for low-wage workers. Debates rage over how high it should be, in policy and in academia (e.g. Roth et al 2022, Cazes and Garnero 2023). ¹ But a minimum wage is only effective to the degree it is actually paid – and research suggests that minimum wage non-compliance is very common. Random Department of Labor inspections of fast food outlets over 2001-2005, for example, found 40% in violation of Fair Labor Standards Act (FLSA) minimum wage or overtime provisions, and random garment industry inspections in 2015-2016 found FLSA violations in 85% of workplaces (Weil 2014, 2018). ²

US firms have little financial incentive to comply with the minimum wage A minimum wage is only effective to the degree it is actually paid – and research suggests that minimum wage non...

In a new paper (Stansbury 2024), I compile case-level data on all FLSA violations identified by the Department of Labor since 2005 – combining publicly available data obtained in a Freedom of Information request. I use these data to ask: What incentive do US firms have to comply with the federal minimum wage? This question is important to understand the efficacy of existing minimum wage legislation, as well as to interpret other minimum wage research, including estimates of disemployment effects.

How to quantify a firm's incentive to comply with the minimum wage? A long tradition in economics applies a cost-benefit framework to compliance decisions, suggesting that a profit-maximising company complies with the law if the extra profits made by breaking the law are less than the expected costs (Becker 1968). Taking this cost-benefit approach, I use data on penalties levied on violators to infer the penalties firms can expect to face under different scenarios – and thus, to estimate the degree to which firms have an incentive to comply with the minimum wage, under different assumptions about the probability of detection.

While the law allows for large penalties, few firms face penalties over and above paying the wages that they owed

The FLSA requires that all firms who underpay the minimum wage pay the back wages owed. They can also be required to pay an equal amount in liquidated damages. Willful or repeat violators can be charged a civil monetary penalty. In certain cases, the 'hot goods provision' can be used to embargo goods made in violation of the FLSA. And the most serious violators can be referred for criminal prosecution.

Yet, my analysis of the Department of Labor data shows that most firms face minimal costs for underpaying the minimum wage, over and above paying workers the wages originally owed.

Liquidated damages can in theory be levied on a large share of minimum wage violations. They were, however, almost never levied in DOL cases prior to 2012. This policy has changed in more recent years (Weil 2018). By 2022/2023, more than 30% of cases concluded had liquidated damages assessed. The remaining two thirds did not.....

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June Zaccone
National Jobs for All Network
http://www.njfac.org

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[NJFAC] What Is a ‘Decent Wage’? France’s Michelin Raises a Debate.

What Is a 'Decent Wage'? France's Michelin Raises a Debate.    

By Liz Alderman

The tire maker vowed to ensure that none of its workers would struggle to make ends meet.

....

Last week, the 134-year-old company, which has 132,000 workers at 131 factories in 26 countries, announced that it would guarantee all of its employees a "decent wage" wherever they were in the world, part of a broader social plan intended to ensure that none of its workers would have to struggle to make ends meet.....

Mr. Menegaux declined to divulge how much Michelin's lowest-paid workers around the world had been earning, but said their pay was higher than the minimum wage where they lived, which he described as "not a decent salary." He added that a living wage was a way to help move employees "at the bottom of the ladder up."....

In creating its "decent wage," the company, known for its rubbery Michelin Man mascot, referred to standards set by the United Nations Global Compact: a salary enabling a family of four to live "decently" in the city where they work. That means not running out of money before the end of the month after paying basic expenses and being able to save and spend modestly on goods or leisure activities, Mr. Menegaux said.....

Michelin turned to the Fair Wage Network, a nongovernmental organization based in Switzerland, to assess its salary structure. The resulting study found that 5 percent, or around 7,000, of Michelin's employees worldwide were not earning enough.

In response, Michelin adapted its salary scales to the cost of living in cities where its factories operated. In Beijing, the group increased the lowest pay level to 69,312 yuan per year, or a little less than €9,000. In Greenville, N.C., workers' base pay rose to the equivalent of €40,000 per year.

In France, where the gross minimum wage is €21,203 per year, the company lifted the salaries of its lowest-paid workers to €39,638 in Paris and €25,356 in Clermont-Ferrand, where the company's headquarters are and where the cost of living is lower than Paris's.....

...Nicolas Robert, a representative for the Union syndicale Solidaires, one of France's biggest labor organizations, said of Michelin's wage pledge. He said workers at the Clermont Ferrand factories who got the living-wage increases earned around €1,700 a month after taxes — not enough to support a family of four without welfare supplements.

"After you pay your housing, food, energy and transport, not much is left," Mr. Robert said. "What they call a decent salary is far from reality: We have many workers who have been in survival mode since inflation exploded."....

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June Zaccone
National Jobs for All Network
http://www.njfac.org

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[NJFAC] Galbraith: Bidenomics and Its Discontents

Bidenomics and Its Discontents https://www.thenation.com/article/economy/bidenomics-criticism-economy-election/ James K. Galbraith 3/27/24

The White House believes American workers have seldom had it so good. And lots of prestigious economists agree. But the voters aren't buying. Maybe they know something?

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Take the unemployment rate. It is a ratio of those seeking work to the whole active labor force. In past times, most households depended on a single earner, for whom holding a job was a make-or-break proposition. If unemployment was rising or high—say 7 percent, typical in recessions—then, even though 93 percent of the labor force was still working, fear of unemployment amplified the woes of those actually out of work. Conversely, if unemployment was low or falling, most workers felt reasonably secure. The unemployment rate, back then, was a reasonable indicator of distress or well-being.

Those days are long gone. Today's typical American working household has several earners, sometimes in multiple jobs. If one earner loses a job while the others keep theirs, she may leave the workforce for a time; there is the option of making do with less, and for some there is early retirement. She will not, in that case, count as unemployed—however difficult her life. A low jobless rate can mask a great deal of stress in such households. The employment-to-population ratio is still a bit below where it was in 2020, and far below where it was in 2000; average weekly hours are still falling.....

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June Zaccone
National Jobs for All Network
http://www.njfac.org

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[NJFAC] BlackRock CEO recommends that we retire later

A solution to the retirement crisis? Americans should work for more years, BlackRock CEO says

By Aimee Picchi March 27, 2024 /

With Americans living longer and spending more years in retirement, the nation's changing demographics are "putting the U.S. retirement system under immense strain," according to BlackRock CEO Larry Fink in his annual shareholder letter. 

One way to fix it, he suggests, is for Americans to work longer before they head into retirement.

"No one should have to work longer than they want to. But I do think it's a bit crazy that our anchor idea for the right retirement age — 65 years old — originates from the time of the Ottoman Empire," Fink wrote in his 2024 letter, which largely focuses on the retirement crisis facing the U.S. and other nations as their populations age. [Apparently he doesn't know that the Social Security age for full retirement has already been increased.jz]

Fink, who is worth an estimated $1.2 billion, notes that many 65-year-olds in the early 1950s didn't get a chance to retire because many had already passed away. In other words, he writes, more than half of workers who had paid into Social Security never got a penny because they died before they could claim the benefit.

"Today, these demographics have completely unraveled, and this unraveling is obviously a wonderful thing," Fink added. "We should want more people to live more years. But we can't overlook the massive impact on the country's retirement system."

[He'll be glad to know that life expectancy has been falling. Does he know that highly unequal incomes, like his, deprive SS of revenues? The payroll tax stops at incomes above $168,600 [2024].  jz] ....

Fink heads Black Rock, "the world's largest asset manager, with $10 trillion in assets under management."

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June Zaccone
National Jobs for All Network
http://www.njfac.org

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