Inequalities in the Workforce Minimum Wage and Living Wage Abstract

Inequalitiesin the Workforce Minimum Wage and Living Wage

Abstract

From1973 to 2007, inequality in the amount of wages paid per hourincreased by over 40 percent in period. The trend was coupled with adecrease in the number of workers registered with unions. Forinstance working men registered with unions decreased from 34% in1973 to 8% in 2007 while the number of women registered with unionsfell from 16 percent to 6 percent in the same period (Western&amp Rosenfeld, 2011).This paper discusses the rise of workplaceinequalities in the scope of the reduced participation of the workingclass in union affairs. Unions helped to institutionalize the normsof equity in the workplace through inhibiting the dispersion of unionwages that is common the contemporary workplace. In areas whereunions still have significant power in terms of checking employerpower, there is a high rate of wage dispersion from nonunionizedwages. Hence, this discussion treats the decline union membership asa significant factor responsible for the tremendous increase wage inequalities. The same trend is concordant with the growingstratification the wages in the education sector. Apart from thedecline bargaining power of unions, the entrenchment ofproduction-based compensation methods by employers is alsoresponsible for the increase in the wage inequalities. Supply anddemand factors and issues emanating from the interaction of marketforces and institutions that constitutes the labor market. The wagestructure has been undergoing transformations that are highlighted inthis market to illustrate the crucial measurement issues that areevident in the entire discourse of the contemporary wage structure.

Keywords:Minimum wage, living wage, the labor market, unionization, andinequality.

Andeeper understanding of the legal definition of the terms minimumwage and living wage is offers an ideological and a theoreticaltrajectory through which the discussion on the inequalities thatexists in the labor market can plausibly be concluded. Minimum wageis the hourly rate that the institutions are obliged by state and/orfederal law. At federal level, businesses that engage trades that areat interstate level fall under the federal minimum wage requirements.A majority states have the minimum legislation that have similarjurisdictional operations notwithstanding the differences ingeographical operations. When minimum wage legislations are passed,they appear as though they will protect the wage interests of workerson the low end of the labor pyramid. Thus, the discussion intends touse empirical data from credible institutional sources to demonstratethat wage inequalities in terms of minimum wage. Living wage, on theother hand, is the level of income for workers to afford basic goodsand services essential for life (Luce,2004). Living wage was a response to the changing objectives ofeconomic circumstances and the changing social norms that wereembodied the right to such changes. Henry Macrotsy, a nineteenthcentury political scientist, once wrote thatthe living wage wasincidental to the maintenance of the standard of life, which, for allintents and purposes, had been altered through the introduction ofmachines as a means of production. Although the community andemployees of companies ultimately benefit, the immediate result isthe displacement of high income earners, high-skilled workers, whilethe less-skilled get lower wages. Industrialization has causeddegradation in the living wage because all classes of workers workedat a considerably lower than they previously earned before productionwas mechanized.

TheRising incidence income inequalities

Thetrends in the labor market have a significant influence oninequalities in the workforce especially on minimum wage and wageissues (Luce17). The skill differentials that have been used to justify relativewages have their origins in the human capital theory. Althoughneo-institutional economists introduced a different perspective whereskill differentials were embedded in the characteristics of the jobsand historical practice, the neo-classical economists’ postulationsof that considered individual features of the worker still make sensein the contemporary labor market. Individual features that influencedwage inequalities were education, experience and the job tenure,training and job-related skills, and other factors that were mostlyindustry-generated to fit the needs of employers. Varying levels ofhuman capital investment and attainment would garner different wagesfor workers. In the context of the civil rights movement thatclimaxed in the 1950s and 1960s, the acquisition of human capitalbecame the means through which economists suggested will improveeducation, training, and job access for racial and ethnic minorities,women, and other groups that were stuck in poverty after being leftout of by the industrial age (20). Rather than societaldiscrimination, wage inequalities in terms of minimum and living wagewere attributed to individual problems. The recent changes in wagestructure in recent past as summarized below:

  1. In the 1970s and mid-1990s the labor market experienced an increase in the wage dispersion for male and female workers. The 90th percentile of the working population relative to the 10th percentile widened the gap by 25% (Western &amp Rosenfeld 513). The earning inequality has even increased further relative to the top 1% percent of population. Even the changes in the non-wage compensation that are meant to mitigate the disparity have not offset the rising wage inequality.

  2. The labor market experienced an increase in the wage differentials on the basis of educational attainment, age, and occupational features. Employees with advanced graduate degrees increased their gap from those with graduate degrees and college diplomas.

  3. The wage dispersion was the highest within different population groups and skill categories.

  4. Increased mobility of earnings over the years failed to offset the gap those in high income groups and low income groups. The stagnation in earnings was coupled with permanent and transitory aspects that influence variations in earnings thus increasing income inequalities each year going forward.

  5. The same period that underwent massive changes in the labor structures was characterized by a low growth in the mean wage rate, the real earnings of low-paid workers and the real wages of less-educated people in the labor force.

  6. The rise income inequality has been the factor that influenced the substantial increase in the increase in equalities in family income. The main factors that caused the huge income dispersion include: a drop in the average income of family heads and an increased correlation between the incomes of spouses.

Later,the capital theory was used to justify the wage gap between men andwomen by attributing the disparity to the varying occupationalchoices between men and women, their commitments to their families,and their commitment to their careers. The common explanation bycapital theorists was that because women supposedly made differentlife choices than men, much of their lower pay was legitimate.However, only little empirical research supports wage inequalitiesattributable to these factors. As the labor experience of womencontinues to become closer men’s, supply-side theoreticaljustifications continue to lose more power in persuading the publicabout the unchanging income inequalities along gender, racial, andincome lines notwithstanding the increased number of men and womenfrom these minority groups with education attainments of a universedegree. Furthermore, there are more women in technical fields insuch as architecture, structural engineering, software engineeringand many others that were previously a preserve of men from majorityethnic and racial groups.

Backto the effects of labor unions on the wage inequality, there isenough evidence that suggests that union decline has a correlationwith market and institutional effects of rising inequality (. Secondunions had an impact on nonunion wages, considering that workersaffiliated with unions have the highest wage disparity relative toworkers not affiliated with unions especially in areas and industriesthat have less employer power due to the collecting bargaining ofunions. Unions affect nonunion workers indirectly. Employers increasewages in an attempt to alleviate the threat of workers joiningunions. Unions play a critical role in formalizing andinstitutionalizing traditions of fair pay including workers that arenot registered with unions. For instance, in the 1980s, when 1 in 3male workers belonged to organized labor, unions leaders prevailedupon employers to apply the rules of equity, not just for membersregistered with them, but for all workers in associated with aparticular trade (519). The fall of organized labor unions erodes thenorms that guided the moral economy and the underlying measures thatensured equitable distribution of income. As a result, wageinequality in organized labor declined tremendously. When the numberof workers registered with unions declined, even the nonunion membersare likely to report belonging to a union for public relationspurposes. The result is that income inequality increased across theboard because employers on adhere to statutory minimum wagerequirements without much attention to living income. The table 1 (inthe appendices) indicates the trends in unionization and the minimumwage inequality among men and women working full-time in the privatesector.

Themoderation of employer power is one of the ways to reverse the abovetrend in the labor market especially for low-wage workers (Lemieux21). Low-wage workers derive their power from their collar of weakwage bargaining power that exists in the labor market. The trendintroduces a caveat to the distributive function of the minimum wageon both fairness and efficiency as the grounds to measure of the wayemployers adhere to minimum wage requirements. Today, workers areactually, in an inferior bargaining position to employees due to anincreased employer power that was catapulted by the fall of organizedlabor (24). The low bargaining continues to increase because workerslack the information that employers have are less capable of holdingout for a higher wage. For example, a contemporary power does nothave the discretion to quit their present work and seek employment inanother company or willingly striking without latent threats from theemployer. Employers control the few jobs that are in the markethence, they take advantage of the ‘short-side’ power they haveover workers.

Low-wageworkers remain in weakest position as far as the bargaining ofworkers is concerned. Statutory minimum wage, therefore, becomes animportant countervailing institution to empower them againstemployers unwilling to pay an appropriate wage. Low-wage workers arealso least likely to be represented by a union. In fact in somecountries, unions tend to be ambivalent about workers that appear tobe over-represented in low-wage jobs (33). Unfortunately, women havebeen on the receiving end of such ambivalence because they are theyare the majority on down the income scale. Others are agencyworkers, people are in unstable casual employment, migrant workers,and part time workers. However, some countries have had tremendousimprovements the way correcting the income inequalities that continueto be entrenched in other western developed countries as a result ofthe reduced bargaining power of unions and increased employer powerthat has been brought about the current economic conditions wherejobs are few and they have a monopoly of the jobs.

Anotherexplanation to the continued rise in income inequalities is thatlow-wage workers lack the discretion of job mobility. Unlike thehigh-wage workers who can easily switch from one job to another dueto access to information and the skills that make them attractive todifferent employers. For example, working mothers are likely tochoose a local job with low pay so that they can have more time withtheir families. Other low-wage workers are restricted in the choiceof jobs they may decide to be engaged by the transport facilities adhigh levels of local unemployment that are typical of modern economicrecessions. Such circumstances have gradually increased monopsonypower for employers where they pay less and enjoy very high employeeretention. A minimum wage, therefore, compels such employers totransfer a significant proportion of the economic rent to employees.

Inconclusion, the fall of the American labor and that of other westerncountries is significantly responsible for rising wage inequality. It is clear that, Industrialization has caused degradation in theliving wage because all classes of workers worked at a considerablylower than they previously earned before production was mechanized.Today, labor unions do not have the strong political power theypossessed during the 1970s, 80s, and 90s. It has ceased being apolitical institution and the trend is gradually moving towards anapolitical working class. Workers are currently less connected toeach other apart from the workers they work with in their respectiveorganizations. Workers have also become less connected to theireconomic prospects. When the number of workers registered with unionsdeclined, even the nonunion members are likely to report belonging toa union for public relations purposes. The result is that incomeinequality increased across the board because employers on adhere tostatutory minimum wage requirements without much attention to livingincome. The economic interests that drive the labor market havebecome increasingly dispersed and the incentives the policy makersexploited to strengthen the role of the unions have also become fewerthan ever before in history. The result of losing political power isthat the economic rewards of production continue being inequitablydistributed across the labor market. Those on the receiving end ofthese developments are women, migrant workers, and workers takingcasual jobs. The logic market is increasingly replacing unions inrationalizing the minimum wage and the living wage. Logic wage isalso increasingly defining the nonunion labor further increasing wageinequality in the modern economy.

WorksCited

Lemieux,Thomas. &quotThe changing nature of wage inequality.&quot Journalof Population Economics21.1 (2008): 21-48.

Luce,Stephanie. Fightingfor a living wage.Cornell University Press, 2004.

Western,Bruce, and Jake Rosenfeld. &quotUnions, norms, and the rise in USwage inequality.&quot AmericanSociological Review76.4 (2011): 513-537.

Appendix

Table1: Trends in Unionization and the Minimum Wage Inequality

1973-1984

1985-1995

1996-2007

Male workers

N

U

N

U

N

U

Log Hours

Mean

2.84

3.05

2.81

3.04

2.87

3.07

Variance

0.29

0.12

0.32

0.14

0.35

0.19

Level of Schooling

Less than high school

0.2

0.33

0.1

0.17

0.08

0.1

High school graduate

0.47

0.48

0.4

0.48

0.32

0.36

Some College

0.22

0.14

0.29

0.22

0.33

0.3

BA or more

0.11

0.05

0.2

0.13

0.27

0.23

Demographic characteristics

White

0.84

0.74

0.81

0.68

0.76

0.64

Black

0.09

0.16

0.09

0.18

0.09

0.16

Other

0.07

0.1

0.1

0.14

0.15

0.2

Age years

35.59

38.83

36.41

40.05

39.2

42.5

Female Workers

Log Hours

mean

2.46

2.66

2.56

2.74

2.67

2.82

variance

0.19

0.12

0.24

0.18

0.29

0.23

Level of Schooling

Less than high school

0.2

0.33

0.1

0.17

0.08

0.1

High school graduate

0.47

0.48

0.4

0.48

0.32

0.36

Some College

0.22

0.14

0.29

0.13

0.27

0.23

Demographic characteristics

White

0.84

0.74

0.81

0.68

0.76

0.67

Black

0.09

0.16

0.09

0.18

0.09

0.16

other

0.07

0.1

0.1

0.14

0.15

0.2

age years

35.59

33.83

36.41

40.05

39.2

42.05

Key:

N:Non-unionized workers

U:Unionized Workers

Source:(Western &amp Rosenfeld 523)