The Reality of a Fair Wage

Social justice and equity in the workplace are high on the agenda in an array of important platforms, ranging from the media, political landscapes, to both non- and for profit boardrooms. President Obama has been a strong advocate for gender pay equity and for an increase in the federal minimum wage. Pope Francis has made the issue of income and wealth inequality one of his central concerns.

While the U.S. economy continues to see steady economic growth and expansion, wages have been flat or falling for much of the labor force. This dynamic has spurred the most significant wave of action to raise the minimum wage in fifty years, with momentum for considerable increases at the federal, state and local levels. The growing momentum for raising the minimum wage has been fuelled by social movements such as Occupy Wall Street, social justice advocates, union organizations and front line employees.

In the United States, the minimum wage was established in 1938 as part of the Fair Labor Standards Act (FLSA). In addition to mandating the 40-hour workweek, the FLSA established the federal minimum wage to help ensure that all work would be fairly rewarded and that regular employment would provide a decent quality of life. Moreover, regular increases in the minimum wage were meant to ensure that even the lowest-paid workers benefited from broader improvements in wages and living standards.

Due to decades of infrequent and inadequate adjustments, the federal minimum wage no longer serves as an adequate wage floor. Every year that the minimum wage is left unchanged, rising prices slowly erode its buying power. In 2015, the federal minimum wage of $7.25 per hour is worth 10% less than when it was last raised in 2009, after adjusting for inflation. In fact, the real inflation adjusted value of the federal minimum wage in 2015 was 25% below its peak value in 1968. In practice, this means that lifting the current federal minimum wage of $7.25 per hour to $10.10 per hour, as championed by some elected officials throughout the United States, would only give low-wage workers the same purchasing power available to them some 50 years ago.

Over that time, the United States has achieved tremendous improvements in labor productivity that could have allowed workers at all pay levels to enjoy a significantly improved quality of life. Instead, because of policymakers’ failure to improve and enhance the Fair Labor Standards Act, a worker earning the current minimum wage does not earn enough through full-time work to be above the federal poverty line.

In the past few years, thousands of workers have taken to the streets to protest low wages, with fast food workers now being joined by retail, home health care and other professionals in their fight for a liveable minimum wage.  Spurred by this growing and vocal movement, more than 40 states, cities and counties have passed minimum wage increases via legislation or ballot.

As a result, 29 states plus the District of Columbia now have a minimum wage above the current federal minimum of $7.25. By 2017, 13 states and the District of Columbia—representing nearly one-third of the U.S. workforce—will have a minimum wage of $9 or more, and seven states will be above the $10 mark. At the local level, Seattle, Los Angeles, Emeryville and San Francisco have passed laws that will phase in a $15 minimum wage. Cities such as Chicago, Kansas City and Richmond will phase in a $13 minimum wage by 2020.

Professor Zeynep Ton, at MIT’s Sloan School of Business, notes that “Highly successful retail chains—such as QuikTrip convenience stores, Trader Joe’s supermarkets and Costco wholesale clubs—not only invest heavily in employees with higher wages but also have the lowest prices in their industries, solid financial performance and better customer service than their competitors. These companies have demonstrated that, even in the lowest-price segment of the retail sector, minimum wage jobs are not a cost driven necessity but a choice.”

When looking at the overall issue of equity in the workplace, it remains important to spotlight the issue of gender pay equity. In 1963, Congress passed the Equal Pay Act, which requires employers to give men and women employees “equal pay for equal work.” A year later, in 1964, the Civil Rights Act was passed. Title VII of that act bars all discrimination in employment, including discrimination in hiring, firing, promotion and wages on the basis of race, color, religion, sex, or national origin. Yet these legal protections have not ensured equal pay for women and men.

In 2014, women working full time in the United States were paid just 79 percent of what men were paid, a gap of 21%. The gap has narrowed since the 1960s, due largely to women’s progress in education and workforce participation and to men’s wages rising at a slower rate. Based on the progress in reducing the pay gap over the past 50 years, researchers were projecting that we would see pay equity in the year 2058. But progress has stalled in the last decade and the pay gap is not projected to close until the year 2139 based on extrapolation of the data from 2003-2013.

The pay gap affects women from all backgrounds, at all ages, and of all levels of educational achievement, although earnings and the size of the gap vary depending on a woman’s individual situation. Using a single benchmark provides a more informative picture of income disparities when it comes to women from various racial and ethnic groups. Because non-Hispanic white men are the largest demographic group in the labor force, they are often used for this benchmarking purpose.

Compared with salary information for white male workers, Asian American women’s salaries show the smallest gender pay gap, at 90 percent of white men’s earnings. The median earnings of African American women were at 63% of white men’s earnings. The gap was largest for Hispanic and Latina women, who were paid only 54% of what white men were paid in 2014.

When we explore other significant issues related to equity in the workplace, the availability of paid family leave is high on the list. The United States is one of only three countries left in the world that does not guarantee paid maternity leave. The others are Papua New Guinea and Suriname.

In 1993, Congress authorized the Family and Medical Leave Act (FMLA), which allows covered employees to take 12 weeks of unpaid, job-protected leave for specific family and medical reasons. Taking time off from work to care for a newborn child or caring for an adopted child falls under this category. FMLA only covers 59% of US workers. The 12 weeks of unpaid family leave offered by this program is for women who have worked 1,250 hours during a year for a company that employs 50 or more people. Two in five women do not qualify for leave under FMLA, according to the Center for Economic and Policy Research. That’s at any level of job—low-wage or high.

According to the Bureau of Labor Statistics, only 12% of Americans have access to paid parental leave, which is considered a benefit by employers. Only 5% of low-wage earners receive paid maternity leave. Unless employees happen to live in five states that offer some form of paid family leave, paid parental leave policies remain up to individual employers.

According to a 2011 study by California’s Center for Economic and Policy Research after the state implemented paid leave, 91% of businesses said it had either a positive effect on profitability or no effect at all—that is, it didn’t show any disadvantages whatsoever. Research also shows that women who have access to paid maternity leave have a higher chance of returning to work. This, in turn, reduces employer’s overall cost to recruit and train new employees.

Companies that are showcasing their leadership in this realm are finding positive results in their progressive policies. Google’s evolving policy on paid parental leave provides compelling evidence that this practice is both good for the employer and the employee. In 2007, Google increased paid maternity leave from 12 weeks to 18 weeks, and as a result, the rate at which new moms left Google fell by 50%. Google also increased paternity leave to 12 weeks.

Over the past year, a number of prominent businesses have improved or enhanced their paid family leave programs. Microsoft expanded their paid maternity leave program from 12 weeks to 20 weeks. New parents at Facebook can take up to 16 paid weeks. New moms at Apple can take 14 weeks of paid maternity leave, and their partners can take 6 weeks of paid leave. Amazon is the latest prominent business to expand family leave benefits by offering 20 weeks of paid leave to new moms, and new dads can take 6 weeks of paid leave.

No conversation about equity in the workplace would be complete without a closer look at the huge discrepancies in employee compensation that relate to the traditional overvaluation of work performed by senior executives and the undervaluation of work performed by employees in the lowest job classifications.

CEO compensation grew strongly throughout the 1980s but exploded in the 1990s and peaked in 2000 at around $20 million, an increase of more than 200% just from 1995 and 1,271% from 1978. This latter increase even exceeded the rapid growth of the stock market—513% for the S&P 500 and 439% for the Dow. In stark contrast to both the stock market and CEO compensation, average private-sector worker compensation increased just 1.4% over the same period.

Using a comprehensive measure of pay that includes base salary, bonuses and the value of stock options exercised in a given year, average CEO compensation for the top 350 U.S. firms ranked by revenue was $16.3 million in 2014. Based on research developed by the Economic Policy Institute, the CEO-to-average-worker compensation ratio, which was 20-to-1 in 1965, peaked at 376-to-1 in 2000 and was 303-to-1 in 2014.

Creating an equitable workplace that fosters fairness, diversity and safety is an important endeavour and a key responsibility for companies to undertake. Extensive research suggests that organizations who excel in creating an equitable and inclusive workplace are able to attract top talent and retain high-performing, long-term employees. In an increasingly competitive global business landscape, the ability to recruit and retain engaged, happy and productive employees will serve as a significant competitive differentiator.