All of the following can be the reasons behind the concept of living wages, except
Directions: Answer the question based on the following passage.
In 1991, the U.S. economy pulled out of a yearlong recession and entered a period of sustained economic growth that was to become the longest boom in the nation’s history by the start of the twenty-first century. Fueled by the technology revolution, the development of the Internet, and globalization, a flurry of entrepreneurial activity led to the rise of new businesses (albeit some short-lived) and the rapid expansion of existing ones. The economy favored the American worker with national unemployment rates at around 4 percent toward the end of the 1990s, their lowest since the late 1960s, drawing former welfare recipients, minorities, and the long-term unemployed into the workforce in unprecedented numbers. Demand for highly skilled workers also surged as the computer age gathered force, creating a new class of “overnight” millionaires. Though many Americans have clearly benefited from this expansion, commentators are alarmed by what they contend is the widening gap between high-wage earners and the rest of the workforce. According to former secretary of labor Robert Reich, “[In 2000,] the richest 2.7 million (10) Americans, comprising the top 1 percent, . . . [had] as many after-tax dollars to spend as the bottom 100 million put together, and . . . [they had] 40 percent of the nation’s wealth.” Unquestionably, the “new economy” has increased earnings for highly skilled workers—law firms, investment banks, and computer companies have spared no expense in attracting and holding on to employees in a tight labor market, where entry-level salaries have reached upwards of $120,000.
While the wages of skilled workers have increased, however, the wages of low-income workers have actually fallen over the past 30 years. The federal minimum wage, when adjusted for inflation, was worth nearly two dollars less in 1999 than in 1968, according to a study on low-wage earners by Jared Bernstein and John Schmitt of the Economic Policy Institute. Explain Bernstein and Schmitt, “Back in 1968, full-time work at the minimum wage put a . . . [one-parent family with two children] about $1300 (in 1999 dollars) above the poverty line… [In 1999,] that same family (20) would be $2700 below the line.” As reported by the Bureau of Labor Statistics, 4.4 million out of the 130 million workers nationwide earned the minimum wage in 1999. Over 20 million Americans are considered low-wage workers, earning under $7.15 an hour, and many of them are parents supporting families.
In response to the stagnating wages of low-wage workers and the widening income gap between rich and poor Americans, unions, community groups, and religious organizations have begun promoting the idea of a “living wage,” defined as the wage necessary for one earner to support a family of four above the poverty line of $17,000 a year. This wage works out to about $8.20 an hour for a forty-hour workweek. The living wage idea is based on the belief that in a society that discourages dependency and where work is highly regarded, no one should work full-time and still struggle to keep a family out of poverty. In 1994, Baltimore was one of the first cities to enact a living-wage ordinance, establishing a government-mandated hourly wage of $7.70 for contractors and subcontractors doing (30) business with the city. Since that time, numerous cities around the country have passed living wage ordinances, with hourly wages ranging from around $8 to $11. Advocates are also pushing for federal living wage legislation to replace the minimum wage on a national scale.
Living-wage proponents argue that the insufficient federal minimum wage is in part responsible for the large number of working poor in the United States. David Moberg, a senior fellow of the Nation Institute, a liberal research organization, argues that in paying low wages, businesses are in fact being subsidized by taxpayers, who must make up the difference in workers’ low pay and lack of health insurance with medical care, food stamps, and tax credits. Contends Moberg, “Why should businesses be allowed to slough off these costs onto taxpayers? And if taxpayers are ultimately paying the wages of contract employees anyway, why not simply pay the employees a living wage directly?” Contrary to conventional economists who believe that raising the minimum wage reduces employment and (40) hurts the poor, Moberg asserts “employers compensate for higher wages by managing better, . . . saving on turnover and recruitment expenses, and gaining productivity from a more motivated work force.”
Opponents contend that living wage laws are not the right approach to correct the income gap between high-wage and low-wage workers. According to a report on the American workforce by the Hudson Institute, a conservative policy research organization, education is the key to better wages; the earnings of college-educated workers are substantially higher than those with only a high school diploma. In addition, fears that economic inequality is rising are based on “‘static’ snapshots of income distribution at a particular moment in time,” according to the report. It is more realistic, in the opinion of the authors, to examine whether low wage earners are increasing their earnings over time. Concludes the Hudson Institute, “Data from . . . [a] U.S. Treasury Department . . . study [finds that] 86 percent of those in the lowest income bracket in 1979 moved up to a higher bracket within nine years. Two-(50) thirds of these Americans moved into the top three quintiles, and 15 percent of them moved all the way up into the top quintile of earners.”
Critics further argue that under the artificially high wages proposed by living wage advocates, low-skilled workers will have a harder time finding work in the first place, let alone moving up the income ladder, as businesses shed workers they can no longer afford to keep on the payroll. W. Michael Cox, a senior vice president and economist at the Federal Reserve Bank in Dallas, and Richard Alm, a business reporter at the Dallas Morning News, assert, “If government dictum replaces market reality, jobs will be lost or never created… What’s worse, local governments’ intervention in the free market sends an anti-business signal: Don’t come here. Go elsewhere. And companies will do that, taking their jobs and tax payments with them.” As the living wage movement expands to more cities, and threatens to move onto state and national levels, Cox and Alm foresee drastic consequences for America’s economy, (60) with slower business growth and higher rates of unemployment.