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Economy will Improve in 2014; Inequality Needs Action

January 08, 2014 By Lee Egerstrom, Economic Development Fellow

In both Minnesota and at the federal level, 2014 is set to be a tipping point in which we either institutionalize poverty, hunger and a struggling economic recovery, or we take steps to stimulate the economy further and assure more equitable growth for all.

We’ve arrived at this point while Minnesota’s economy is outperforming the nation’s. As recently as Monday, the Minneapolis Federal Reserve Bank released surveys showing a generally upbeat outlook for the state’s economy and for the Fed’s entire Ninth District that stretches from Michigan’s Upper Peninsula to Montana.

That is little comfort for people and communities, still struggling with great inequality, widespread poverty, homelessness and hunger.

Minnesota has an immediate need to fight poverty and its companions. This makes it imperative that the Legislature raise the Minnesota minimum wage to at least $9.50 an hour, and index it to inflation, as advocated by faith, labor, nonprofit and service organizations collaborating in the Raise the Wage Coalition.

This would add $470 million annually to the state economy from improved purchasing power of the working poor, and start the task of lifting low-paid workers and their families out of poverty.

This won’t eradicate poverty. The Jobs Now Coalition Cost of Living Calculator shows that two working parents in a family of four would both need to make $13.55 per hour to meet basic family living expenses. But it would nudge upwards salaries and wages paid to workers across the lower wage ranks, it would stimulate Minnesota’s economy through increased purchasing, and it would begin to lower public social welfare costs for public programs that now subsidize companies' low wages.

The Pew Research Center notes four New England states raised their minimum wage rates on Jan. 1, meaning 21 states now have higher minimums than the federal $7.25 per hour rate. Minnesota is among a handful of laggard states where state policy doesn’t equal the federal mandate for workers at certain companies.

Further, the nonpartisan Pew researchers found 71 percent of Americans would approve a federal minimum wage increase to $9 per hour, including 50 percent of Republicans who were polled. Though it will be proposed and debated, no one expects the current Congress to act on raising the wage this year – lower income workers don’t have big lobbies and PACs as we approach congressional elections.

On the homes and housing front – a big part of the basic living expenses for the unemployed and working poor – partner organizations in the Homes for All alliance are asking the 2014 Minnesota Legislature authorize $100 million in state bonding for affordable housing, preservation and foreclosure recovery.

The Minnesota Housing Partnership said this proposal breaks down with $80 million to increase the supply of affordable housing and $20 million for rehabilitation of public housing. The Minnesota Housing Authority would award the funds competitively.

Regarding hunger, Minnesotans can only hope recalcitrant members of Congress, especially in the House of Representatives, encountered enough “Tiny Tim’s” and their families during the holiday break to have a change of heart, return to work, and restore significant Supplemental Nutrition Assistance Program (SNAP, formerly know as food stamps) provisions to pending federal farm bill legislation. As of this past fall, more than 536,000 Minnesotans were receiving SNAP. The House version of the long-stalled bill would ask the hungry to tighten their belts by cutting $40 billion from that program.

Congress could begin to rectify some of the economic disparities by extending long-term unemployment benefits for the 1.3 million Americans who lost an estimated $400 million per week at the end of the past year. Professor Lawrence Katz, a Harvard economist, told the Guardian newspaper in the U.K. that multiplier effect economic analysis shows these austerity cutbacks are draining up to $1 billion a week from the U.S. economy.

So where are we Minnesotans at the start of a new year and at the precipice of a tipping point on basic questions of poverty, homelessness and hunger?

We can stress to our local and state elected officials that we want to eliminate severe poverty in our communities and state. And we must weigh our representatives and candidates for federal public office on three basic measures: Are they problem solvers, problem makers, or simply go-along, enablers of the second category that is institutionalizing poverty and inequity in America and Minnesota.

Yes, the Minnesota economy is improving. Our unemployment rate is dropping, but salaries, wages and household incomes aren’t rising fast enough to lift fellow Minnesotans out of poverty, and for many families they're actually falling.

That old Minnesota axiom, “It could be worse,” isn’t good enough for a civil society.

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  • Dan Conner says:

    January 9, 2014 at 11:44 am

    I very much tire of the imbedded arrogance among the rich, not only in Minnesota, but the entire nation, who openly advocate and demand lower taxes and loopholes so they may duck their responsibility in society to do their share.  For some reason, they think they do their share by “blessing” Minnesota and national people with their presence.  They consider themselves the “job creators” and most everyone else the “takers” in society.

    Well the rich have not come close to doing their share for decades.  Tax rates for the rich were 91% in the 1950’s, corporate tax rates raised more than 25% of all tax revenues then too.  Today, the rich and corporations don’t pay anything approaching these figures.  The rich pay less tax than their proportion of wealth.  Corporations pay less than 10% of tax revenues.  Who the hell do people think are making up for those drastically reduced taxes.  Guess what?  It doesn’t take a brain surgeon to deduce it is you and me.

    Then, to make this disparity of taxes even worse, it has been going on for decades.  Yes, decades.  Just increasing taxes on the rich so they do their share might restore justice today, but it doesn’t address the gross inequities for past decades.  The rich need to do more…far more.

    I am tired of the unending refrain of the rich waging war on the poor, while squealing anytime anyone accuses them of economic injustice.  That has been a form of economic and political bullying.  They look to squelch examination of economic inequities.

    Now, if the rich choose to leave states or our country because of an effort to restore equity, then let them leave, and may the door not hit them in the ass.  Meanwhile, I would anticipate that states losing these people list ownership of those people, so that the State or citizens not patronize those businesses.  The same should apply to our country.  People who have so luxuriously benefited from the people of our state or country need to do their share, as well as show their “thanks.”  Furthermore, if in their bellicose nature they wish to foment wars around the world, their children need to be drafted as soldiers to fight, and also risk their lives.

    I am adamant when I say the rich and corporations have not done their share.  They haven’t approached doing their share.  When billionaires threaten to buy our government and its representatives, their have way too much.  All of the their money available to support government corruption needs to be taxed away.  I believe our economic problems are CAUSED by the rich, not solved by them.  The relentless war and demeaning of the poor is but one illustration of the societal damage done by the rich. 

    While the rich might present themselves as some sort of “self-made” people, they are dead wrong.  They made their money off of lots of “common” people.  They were sanctioned and protected in our country, allowing them to prosper.  Kicking the plurality of people who have so benefited them, is piggish and disconnected.  It is incredibly poor manners.

  • Jason Hicks says:

    January 11, 2014 at 10:34 pm

    Lee, thanks for the excellent post highlighting some of the key inequality, poverty, and public policy issues facing Minnesota and the broader U.S. While its unfortunate that the Minnesota Senate was unable to follow in the footstep of the Minnesota House and pass legislation raising the minimum wage to $9.50/hour in the 2013 legislative session, the upcoming 2014 session provides the Senate with a second and critically important opportunity to pass legislation raising the state minimum wage to at least $9.50/hour. It’s important to recognize that the best research on the minimum wage indicates that it has little to no negative impacts on employment, which deflates the long held argument of minimum wage opponents that raising the wage will dramatically increase unemployment. However, recent research also indicates that raising the minimum wage nationally to just over $10.00/hour would result in a 1.7 percentage point decrease in the national poverty rate from the current level of 17.9%. While the $9.50/hour minimum wage hike passed by the Minnesota House falls short of a more desirable $10.10/hour, the proposed increase to $9.50/hour would still provide important economic support to low-income Minnesotans and significantly reduce the poverty rate in Minnesota.

  • Robert Nepper says:

    January 13, 2014 at 11:32 am

    I’m sorry but one-minimum-wage-fits-all is like having the speed limit on all streets and highways the same or all taxpayers pay the same number of dollars! Too many supporters of a $10/hr minimum wage have never hired anyone or met a payroll of any kind. They always point to Wall-Mart or McDonalds which pay top salaries in the millions while still earning millions in profits; meanwhile, ignoring the new mom and pop firms trying to get a foothold.

    Try to visualize trying to start any kind of small firm and paying a kid with no skills but with rings in his nose and tatoos all over his body—and paying him $ That might be much more than the owner takes in on a given day, to say nothing of what’s left over for he owner.

    Why should anyone expect to afford to run a household with four kids on the minimum wage? Get some skills to earn much more than that before getting into that situation. Young ladies should learn early on to complete high school and get more skills and a husband before getting pregnant!

    We urgently need a major graduated scale of a minimum wage to be fair.

    Even more important, we need to pass a “Use or Return” law to stop the destruction of potential new jobs by our large employers. Most of these firms claim all employee inventions for the firm, actually develop only a select few—then TRASHCAN the many remaining unwanted ones, so no one can create new products, new business, new jobs and new tax revenue with them!

    Minnesotans should pressure their state senators to champion and pass the no-cost, SF 21 bill to stop the ongoing destruction of thousands of potential new jobs! Urge your state representative to author and champion a companion bill in the Minnesota House! Call 1-800-657-3550 with your home address to locate your particular legislators

  • David Schmidt says:

    January 18, 2014 at 11:27 am

    Wages are a factor of three things: 1) what someone is willing to work for; 2) how much an employer can afford; 3) how easy it is for the employer to replace the employee with someone of equal abilities. McDonalds, for example, traditionally paid new and bottom rung employees minimum wage because it was easy for them to find replacements. Turnover is high and replacements were readily found. For these bottom rung and entry level employees, whether at Walmart, or Target, or Burger King, the increase in compulsory minimum wage will be helpful. There will be less impact overall than most people expect [whether positive or negative] as is usually the case with such regulatory changes. Some employers will be able to raise prices, some may decrease the number of labor hours granted to their employees, and some companies may find another way to save elsewhere to pay for the increased labor costs [you have to also account for the increase in FICA tax owed to the Feds, any employee increased income tax (thus decreasing the perceived employee take home pay increase, any increased employer matches or benefits for 401K or insurance, etc.].

    Unions that have contracts indexed to the minimum wage will love this. But overall, this will have little impact. The number is given of $470 million to the state economy. I won’t challenge the validity of this number, however, I do challenge the impact of that number. That $470 million has to come for somewhere else. The impact of that number is not the magical addition that the author implies. If I am a business owner and my cost of labor [e.g. I own a fast food restaurant] increases at the whims of the Government Intelligencia, then I have to get that money from somewhere. I’ll probably raise the cost of my goods and services to the public, I’ll probably reduce labor hours by my part time employees, etc. etc. In other words, that $470million is no magical increase to the economy, it will largely be re-appropriated from other parts of the economy to pay minimum wage employees a bit more.

    • Dan Conner says:

      February 10, 2014 at 6:38 pm

      But Dave, i disagree with you right out of the blocks.  Your 3 things wages are a factor of might be true in a “perfect” world, but we are far from that.  Almost all three of your factors can not be applied to corporate executive pay.  CEO pay is rigged.  Executive pay consultants are used by boards to determine executive pay, but these consultants are hired by the CEO.  Now, do you think these consultants want to tick a CEO that makes decisions about using them?  In many instances the CEO is consulted by the pay consultant in determining pay.  Of corse the process is further complicated that many of the board members are picked by the CEO, and generally they are CEO’s of other companies, yielding an empathetic quid-pro-quo.  CE o pay is off the charts and grossly unfair.  In fact, a major share of corporation profits are diminished by executive pay.  Many times, more than employee pay.

      I’m sorry but you wage determinants don’t often apply to even significant parts of employee costs.