On Friday the U.S. Department of Labor released good news about the overall economy.
173,000 new jobs were created in August and the unemployment rate dropped to 5.1 percent, almost the lowest it has been in 40 years.
Now the bad news. Wages are not moving upwards for the average American worker.
While those at the top of the income bracket are doing quite well, those aren’t the customers that most small business owners depend upon to be successful. Increases in the average worker’s pay are what we need to make our local economies thrive by increasing consumer demand.
And it isn’t just Main Street businesses that are concerned about this growing income inequality, corporate Wall-Street types also know that America needs a raise.
Last month we learned through a New York Times opinion editorial that a number of big business titans are scared.
The former head of a major international PR firm, Peter Georgescu, wrote on behalf of himself, a billionaire hedge funder and the founder of the Home Depot:
We are afraid where income inequality will lead.
For the top 20 percent of Americans, life is pretty good.
But 40 percent are broke. Every year they spend more than they have.
While so many people are struggling, even those on the higher end of the middle class have relatively little after paying the bills: on average, some $1,300 a month. One leaky roof and they’re in trouble.
If inequality is not addressed, the income gap will most likely be resolved in one of two ways: by major social unrest or through oppressive taxes, such as the 80 percent tax rate on income over $500,000 suggested by Thomas Piketty, the French economist and author of the best-selling book “Capital in the Twenty-First Century.”
We are creating a caste system from which it’s almost impossible to escape, except for the few with exceptional brains, athletic skills or luck. That’s why I’m scared. We risk losing the capitalist engine that brought us great economic success and our way of life.
Hey, when gazillionaires are scared and calling for higher, fairer compensation for workers, we must have a problem.
Mr. Georgescu goes on to say that as he talks to his fellow corporate execs about the issue of income inequality,
we find almost unanimous agreement on the nature of the problem and the urgent need for solutions. That’s the good news. Our concern is action. We have been told by chief executives that to pay employees more fairly, they need more support from their boards, from prominent business leaders, from the media and even from the government, to combat the intense market pressure to maximize short-term shareholder returns.
Unfortunately, when Mr. Georgescu talks about help from the government on this issue he specifically calls for tax incentives to offer better pay. Asking taxpayers to bankroll better worker pay for big corporations that should be doing it out of self-interest is off target. Let’s not forget that employee payroll is already a tax deduction for businesses.
But government does have a small role to play in payroll decisions—the minimum wage. We can raise the pay scale from the bottom up by increasing the federal minimum wage from $7.25 to $10.10 an hour. Here it is appropriate for tax credits for small businesses impacted. By using this traditional tool we can give a shot in the arm to local economies and all our small businesses.
If the corporate tycoons who fear social unrest and higher taxes on the wealthy want to avoid those outcomes, let them push Congress to raise the minimum wage but they better do it before the 2016 elections. Social unrest is already reverberating through the electorate. And Donald Trump and Bernie Sanders are calling for higher taxes on the very wealthy to benefit from the anti-tycoon mood.
Better move fast Mr. Georgescu. The clock is ticking.