Everyone Wins in the Fight for $15

The Pitch: Economic Update for December 1, 2022

Friends,

This fall marks the ten-year anniversary of the fast food strikes that launched the Fight for $15, which saw its earliest gains in my home state of Washington before taking off around the nation. Anniversaries offer an important opportunity for reflection, allowing us to consider where we started — Forbes called the $15 minimum wage “near insane,” for instance — and how far we’ve come.

This week, our friends at the National Employment Law Project published a report examining the economic effects of the Fight for $15. Their summary of the full report couldn’t be clearer about the benefits workers have enjoyed: “since 2012, more than 26 million workers have won higher pay to the tune of $150 billion. Nearly half (46 percent) of the benefiting workers are workers of color, whose additional earnings amount to slightly over 50 percent ($76 billion) of the estimated higher pay.”

Here’s a table from the report showing how that $150 billion in higher wages has been distributed through the economy and how workers have fallen behind in states that allowed the minimum wage to stagnate at $7.25 per hour.

Many editorial boards across the country at the beginning of the Fight for $15 cautioned against raising the wage, instead encouraging cities and municipalities to wait and see what the higher wage would do. When the $15 minimum wage started taking root, mainstream economics reporters like Dylan Matthews called it a “terrible idea,” and Matthews’s coworker at Vox.com, Timothy Lee, warned in 2016 that raising the wage “would mean gambling with the livelihoods of millions of Americans and could produce widespread unemployment.”

But workers who saw a wage increase in the Fight for $15 are spending that money in their communities, adding an average of $87.6 billion annually to the economy in consumer spending since 2012, and that economic activity has created more than 450,000 jobs per year.

This report is packed with good news, including the fact that the $15 minimum wage has reduced the racial wealth gap:

In higher-wage states, the Black-white wealth gap decreased by 40.3 percentage points during the period analyzed, and the Latinx-white wealth gap decreased by 29.4 percentage points. In states on a path to $15 or more, the Black-white and Latinx-white gaps decreased faster: by 54.3and 48.0 percentage points, respectively.

As this report makes clear, raising the minimum wage was never a gamble. It’s an unqualified success that has increased paychecks, grown wealth for workers who have traditionally been left behind, and grown the economy for everyone. This is as close to a settled issue as you can possibly get in the field of economics.

The Latest Economic News and Updates

To Avert a Strike, Biden and Democrats Cross the Rails

Unless you were alive during World War II, President Biden has easily been the most pro-union president of your lifetime. That’s why yesterday’s news that the House, at the urging of Biden, passed a bill barring railroad workers from striking, was so controversial in the labor community. From afar, the moment has echoes of the time that the most anti-union president of the 20th century, Ronald Reagan, forced air traffic controllers back to work in one of the biggest repudiations of organized labor in recent American history.

This is a complicated situation, to be sure, but when you look closely at the situation, it becomes apparent that these two events don’t parallel each other at all. A railroad strike could potentially sink the economy, destroying all the work we’ve done to repair pandemic-era damage to the supply chain over the past year. But the four rail worker unions whose members voted to reject the contract that the Biden Administration helped broker clearly deserve to fight for better working conditions.

It’s important to note that railroad companies raked in record profits last year, even as they allowed working conditions to deteriorate during the pandemic and its resulting supply chain squeeze. Workers would not be threatening a strike if their employers had invested some of those profits into higher wages, better benefits, and improved workplace conditions. Instead, US railroad companies have handed out almost 200 billion dollars in stock buybacks to the shareholder class and executives over the last dozen years.

The single biggest issue for workers in this potential strike is sick days. Li Zhou explains for Vox that “Currently, rail workers don’t have paid sick days and have to use vacation time instead. Effectively, this means that workers need to get any time off approved in advance, meaning they often have to work if they come down with an illness or have a medical emergency.”

When the House passed a bipartisan bill to bar the strike yesterday, House Democrats also narrowly passed a parallel bill that would bar a strike but also require the railroads to provide paid sick days for workers, and the Senate will debate both bills in the coming days.

Democrats like Senator Joe Manchin are not sure if they support paid sick leave for the workers, but at least one Republican Senator — no less an archconservative than Josh Hawley — promised that he “will absolutely not support [a bill] without some sick leave.” This scenario is exactly why the cliche about politics making strange bedfellows was created.

It would be wise for Democrats to use this situation to launch a national conversation about America’s embarrassing lack of a national paid sick and family leave policy. Before the lessons of the pandemic fade completely from memory, President Biden has an opportunity to make the case to Americans that no workers should be forced to choose between taking care of themselves or a loved one and keeping their job. This is a wildly popular policy that would improve the lives of four out of every five American workers, and improve public health, and Democrats should be eager to place this issue directly in the media spotlight.

As the job market slows, workers make uncomfortable decisions

The job market is still historically strong, but employment numbers are slowing from the boom we saw last year as people rejoined the workforce. The October Job Openings and Labor Turnover Survey (JOLTS) report was released this morning, and as the Angry Bear blog notes, the numbers of quits and hires across the economy are decelerating from their highs of earlier this year: “Hires declined 84,000 in October to their lowest level since January 2021,” the blog reports adding that “Quits declined 34,000 to their lowest level since May 2021.”

These JOLTS numbers are generally good, but they do indicate that workers don’t have the same bargaining power that they enjoyed when the labor market was white-hot and employers couldn’t hire enough workers to fill every empty position.

And so now the readjustment begins. For those workers lucky enough to be able to do their job from anywhere with a laptop and wifi connection, Abha Bhattarai notes for the Washington Post that worker demand for remote jobs is still sky-high, even as actual remote positions are starting to decline. The trend is just emerging but it is unmistakable:

At the same time, the Economic Policy Institute reports that even though many older workers at the lower end of the income scale are being forced into early retirements with no financial support, more older workers are re-entering or staying in the workforce for longer. Nearly a quarter of men over the age of 65 are still working — an increase of more than 5 percentage points over the 1980s.

The Americans who are still working tend to be nonwhite, and nearly a third have a high school diploma or less, and those workers are employed in physically demanding jobs that are slowly whittling away at their health. Furthermore, many older workers don’t have employer-funded pensions and haven’t been able to afford to contribute much — or at all — to their IRAs or 401(k)s. This is particularly true for women, and — most significantly — Black and Latino workers.

If only wealthy Americans are able to afford retirement, that’s bad news for the economy.

As America continues to age over the next few decades, this lack of retirement support will create a crisis that could undo much of the progress that we made in the 20th century in reducing elderly poverty through programs like Social Security and Medicare.

Is a recession inevitable?

Rachel Siegel reports for the Washington Post that while most of the mainstream economic punditry class has been predicting a recession for the better part of the year, some are starting to wonder if we might possibly avoid an economic downturn.

Experts, including Goldman Sachs economists and the global Organization for Economic Cooperation and Development, have recently suggested that they are cautiously optimistic about 2023. A recession — both global and domestic — is a real possibility, the dawning conventional wisdom argues, but the odds are good that the next year might not bring a recession along with it.

The reasons for this newfound optimism after a long autumn of seeming recession inevitability? Consumer spending is still way up, and prices are coming down. The fact that gas prices are already down to pre-Ukraine-invasion levels and could decline even further in the weeks before Christmas is inspiring even more optimism.

But even the biggest optimists have to acknowledge that the Federal Reserve could single-handedly tip the economy over into recession by continuing its series of aggressive rate increases. The Fed is now signaling that it will slow interest-rate increases, thereby making it easier for people and businesses to borrow money. The Fed’s recent unprecedented wave of rate increases has already put affordable housing out of reach for millions of Americans — particularly millennials and Black and Latino families. Home prices are on the decline, but housing is still ridiculously expensive for the average American. If the Fed continues to raise rates, this housing crunch could set us down the path to a real recession.

Yesterday, Fed Chair Jerome Powell indicated that the Federal Reserve might slow its rate hikes from multiple .75 increases to a .5 increase next month, which would be more in line with rate hikes in years past. Is that slow enough? Can Powell make good on his promises to lower prices without causing widespread job losses? We’ll have more of an inkling when the December Fed announcement arrives on the 13th of this month.

FTX is everything wrong with neoliberalism

Last month, I wrote a bit about the dramatic collapse of the FTX crypto exchange and the revelation that FTX CEO Sam Bankman-Fried appears to have sold millions of people shares in a system that is the unfortunate blend of a pyramid scheme and a house of cards.

For The New Republic, Dylan Guaych-Lewis and Tim Iwayemi report that the last crypto exchanges standing are trying to capitalize on FTX’s collapse by rushing a series of weak regulations on cryptocurrency through Congress and by making the relatively powerless Commodity Futures Trading Commission and not the strong Securities Exchange Commission, the hub of crypto regulation.

“The crypto market is in dire need of a regulator with experience looking into suspicious accounting practices, after speculation and hype causes an investment product to trade for more than it’s worth, and most importantly, the credibility to crack down on bad financial actors,” the authors write. “It needs a regulator skeptical that existing investor protection regimes should be weakened, or exceptions made, because crypto bros refuse to play by the rules — or refrain from breaking existing law. The SEC is the regulatory agency with all of these characteristics.”

Robert Kuttner at The American Prospect warns that Bankman-Fried is abusing the bankruptcy system to absolve himself and FTX of any responsibility to the hundreds of thousands of people it seems to have swindled. “Individuals who declare personal bankruptcy usually find that their credit is ruined and their economic lives destroyed,” Kuttner writes. “But corporate thugs frequently get to write off past debts and sail merrily on, often repeating variations on the same scam.”

For 40 years, neoliberal politicians on both sides of the aisle assured us that light regulation was the best kind of regulation because it allowed for innovation and job creation. That’s the same brand of trickle-down lie as the often-debunked argument that a low minimum wage allows employers to create jobs and grow their businesses. The truth is, there’s no such thing as deregulation — a government with a light regulatory agenda is simply offloading regulation to the industries that it used to regulate.

When businesses like FTX are allowed to regulate themselves, ordinary people lose their retirement savings and billions of dollars disappear overnight, and because bankruptcy laws are rigged in favor of businesses and the super-rich, the only people who pay the price for the disasters caused by deregulation are the customers who unwittingly walked into the scam.

Last week, I noted that the Biden Administration has an opportunity to rewrite the rules on corporate mergers, undoing four decades of trickle-down deregulation that has allowed big businesses to swallow each other up and kill competition. This FTX scandal offers another opportunity for President Biden — the chance to explain why regulations are a vital part of doing business in America.

Without any real threat of consequences over their heads, CEOs like Bankman-Fried have run amok. Multi-billion dollar collapses don’t happen in a vacuum. There’s no way that this fiasco would have happened without four decades of relentless deregulation by leaders who should have been looking out for all of us. And it will keep happening unless our leaders remember whose interests they’re supposed to be protecting.

Real-Time Economic Analysis

Civic Ventures provides regular commentary on our content channels, including analysis of the trickle-down policies that have dramatically expanded inequality over the last 40 years, and explanations of policies that will build a stronger and more inclusive economy. Every week I provide a roundup of some of our work here, but you can also subscribe to our podcast, Pitchfork Economics; sign up for the email list of our political action allies at Civic Action; subscribe to our Medium publication, Civic Skunk Works; and follow us on Twitter and Facebook.

• Join us at 10:30 am PT tomorrow for Civic Action Live, where we’ll discuss the blockbuster new report on the first 10 years of the Fight for $15, dig into the FTX crypto disaster, and look at what holiday shopping might mean for the economy.
• On the Pitchfork Economics podcast, Nick and Goldy talk to economist and professor Eric Beinhocker about his fascinating research into the importance of fair social contracts, and why the erosion of contracts that we used to take for granted — including work agreements, social safety nets, and trust in institutions — have declined, and are creating division throughout society.
• At Insider, Paul wrote at length about the Kroger and Albertsons merger, and why the Biden Administration has the opportunity to create a generational shift by making corporate mergers incredibly rare.

Closing Thoughts

If you were near a TV playing a local news show over Thanksgiving break, you likely saw a segment featuring a reporter standing in the middle of a mall, interviewing Black Friday shoppers about their spending habits. It’s a silly space-filler of a story to run in a traditionally slow period for breaking news. This year’s Black Friday observations felt particularly portentous for some economists, though, because shoppers have absorbed almost a full year of inflationary price hikes. If numbers dipped over last year’s holiday shopping season, the conventional wisdom went, that would have spelled bad news for the economy.

This most secular of American holidays is always full of PR hype, so it’s hard to parse out how healthy consumer spending really is over Black Friday weekend. But it seems to have been a success, with nearly 200 million shoppers heading out to brick-and-mortar stores over Thanksgiving weekend, trouncing industry expectations and easily outdoing last year’s Black Friday numbers.

That’s great news for physical stores, but online retailers seemed to thrive as well: Amazon reported its biggest-ever holiday shopping weekend, and so did Shopify, which provides an online retail storefront for small businesses. So unless consumer spending drops off a cliff in the next three weeks, it looks as though inflation isn’t scaring away American consumers, and retailers might enjoy a robust holiday season rather than a bleak recessionary consumer desert.

I’d like to call your attention to one troubling signal, though: Zoe Han at Market Watch writes that “Online purchases using the type of financing known as buy now, pay later jumped 68% during the week of Black Friday (Nov. 21 to Nov. 27) compared to the previous week.” In other words, many of those holiday shoppers at the lowest end of the income spectrum were likely spending money they didn’t have, opting instead for predatory, high-interest loans to power their purchases.

The last few years have seen a significant increase in predatory lending schemes — particularly in the digital microloan space. Americans are taking on expensive loans to make ends meet in a time of high inflation, and their financial health is now on the line. We know what the economy looks like when huge numbers of Americans are unable to pay their loans, and that’s a situation that our leaders should be working mightily to avoid in 2023.

If I were an elected official, I’d make a New Year’s resolution right now to address this ticking time bomb nestled into the very base of the economy. Part of the solution is for our leaders to get together and tightly regulate the predatory lending industry, which has exploded in recent years. This is a popular policy that would enjoy bipartisan support. But regulating the industry won’t decrease the peril that low-income Americans face right now. To fix that, our leaders need to embrace other universally popular policies like a high minimum wage, the Child Tax Credit, and other social safety net programs that improve our entire economy’s economic health. When the bottom drops out for the poorest Americans, that’s bad news for everyone, including those at the very top of the economy. None of us can afford to allow that to happen.

Be kind. Be brave. Get vaccinated — and don’t forget your booster.

Zach