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Thursday, March 25, 2010

Is a maximum wage ratio the way to realize the goal of a living wage?

During my campaign for Seattle City Council, one of my top priorities was fighting for fair wages and benefits. The driving reason was the realization that the state’s minimum wage isn’t enough to reasonably afford to live in the city. Not only does it impact the lives of workers who struggle to make ends meet, this growing economic disparity has the potential to affect everyone, transforming Seattle from a thriving multi-income city to a very slanted shadow of itself.

I, along with others, supported at the time something called a Living Wage Ordinance, which would require employers in the city to pay what it actually costs to live in the city. I knew that this idea was especially popular among the shelter workers that I knew or worked with.

Even as I supported it, I questioned the practicality of the answer. My shelter already worked with fewer staff than our services required in order to meet budget demands; higher costs would reduce our services.

While trying to wrap my head around an answer to a living wage, we were beginning to hear horrible reports about top executives giving themselves hefty bonuses while employees at the bottom were struggling to put food on their family’s tables. Around then I heard people talking about something called a maximum wage ratio.

The answer, while strange at first glance, would not only increase wages at the bottom to enable people to afford to live in the City of Seattle, but it would also curb our region’s rapidly growing income disparity.

Rather than enact legislation that would make companies increase the bottom rung, which may be possible for some (Bank of America) and extremely difficult for others (homeless service providers already struggling), it would limit the ability of companies to get away with underpaying their most valuable employees.

With the maximum wage ratio, the minimum wage for a company is set as a percentage of the earnings of the highest paid individuals in the organization.

What this accomplishes is that it allows for each company to budget their bottom line while keeping the wages locked in fairness. This also helps to reduce the necessity of adjusting the minimum wage, allowing the minimum wage to keep better pace with the prevailing economic climate.

One other thing that it slows is the steady increase in upper management raises that do not trickle down to lower-paid workers. A CEO of a company can feel free to raise his salary any time he wants, but he has to stay within the ratio.

Although some object that this penalizes executives, such a scheme may still be quite generous. For example, at an 8 to 1 ratio a CEO can still make a very high salary, but now his employees will be receiving a wage they can live on.

Obviously, this solution isn’t completely perfect and answers to some tough questions will need to be figured out... such as how to count internships or those pesky bonuses we’ve heard about (or what to do in the case of executives who pay themselves almost nothing but get other benefits). It’s a start, though, and an idea that could restore some form of income equality, as well as preventing such a striking disparity from redeveloping in the future.

Comments:

Blogger mookie said...

For more on maximum wage ratios as a route to real living wage progress, check this analysis that appeared in Too Much, the Institute for Policy Studies weekly online newsletter on excess and inequality:
http://toomuchonline.org/for-a-living-wage-america-cap-the-top/

March 27, 2010 6:38 AM  
Blogger Sarajane46th said...

According to Wikipedia, living wage laws have been enacted in San Francisco, Santa Fe, Albuquerque and Washington, D.C. "In 2007, there were at least 140 living wage ordinances in cities throughout the United States and more than 100 living wage campaigns underway in cities, counties, states, and college campuses."

King County Democrats support a living wage in their platform. From a policy standpoint, a living wage is a stronger moral argument than limits on maximum pay differentials. We would be better off ensuring that every full time worker is paid enough to live on.

March 30, 2010 1:09 AM  

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