The Great Minimum Wage Debate

Will increasing the federal minimum wage result in lower profits for businesses, lost jobs for employees, and an overall negative impact on the American economy? Will keeping the minimum wage at its current level continue to shrink the middle class, increase the income gap between the super-rich and the rest of us, and leave us with a stagnating economy unable to significantly grow? Before we delve into these questions, it’s imperative to point out the facts as of January 2017.

Employers must pay workers the highest minimum wage set forth by the federal government, their state government, or local law. The federal minimum wage currently is $7.25 per hour, and has been since July 2009. There are 29 states that have higher minimum wages than the federal rate. The states of Massachusetts and Washington are tied with the highest minimum wage at $11 per hour. There are 14 states that have the same minimum wage as the federal government, 2 states that have a minimum wage less than the federal government, and finally 5 states that do not have a minimum wage in place.

On the local level, many cities nationwide are setting minimum wages higher than that of their states and of the federal government. For example, San Francisco is projected to be the first city to reach the $15 per hour minimum wage mark on July 1, 2018, New York City’s minimum wage will be $15 per hour by the end of 2018, and both Los Angeles and Washington, D.C. will reach $15 per hour by 2020. Using real terms by incorporating 2014 inflation-adjusted dollars, the federal minimum wage peaked near $10 in 1968.

There are obviously two camps with opposing views on the federal minimum wage: those who think it needs to be increased, and those who believe it does not need to be raised. However, even in the “raise the minimum wage camp”, there remains questions and conflicting views: just how much does it need to be hiked up to? $10? $12? $15, or even more? That’s where economic studies, research, and other forms of evidence becomes relevant and invaluably helpful. Especially considering that at some point, inevitably after nearly 8 years and counting, the federal minimum wage will be increased. So, it begs the question, increased to what amount?

Unfortunately, a lot of the research on the federal minimum wage is limited to rate hikes of $3 or $5, to $10 or $12 per hour nationally, and not double the current rate, to $15 per hour, which many protesters and even some politicians are advocating. An escalation that large certainly increases the level of uncertainty for politicians, businesses, employees, and consumers. In 2014, the Congressional Budget Office estimated that a rise of the minimum wage to $9 would produce a loss of 100,000 jobs, but a climb to $10.10 would mean five times more jobs (500,000). In regards to a minimum wage hike to $15 per hour, Gary Burtless, an economist with the Brookings Institute, said the potential adverse effects are “likely to be considerably bigger”. An important distinction to also consider is the fact that, per PolitiFact, “the negative impacts could be especially big in lower-cost rural areas…$15 is one thing for bigger cities where the cost of living is more expensive; these are the places where the movement has flourished in recent years.”

Still, there are economists that support the $15 minimum wage if it’s gradually phased in over a certain number of years. Economists Andrew Zimbalist of Smith College and Steven Fazzari of Washington University stated they would still support a $15 per hour minimum wage. Fazzari explains that not raising the minimum wage extensively could leave many workers “without the ability to afford a decent life, despite working hard at a full-time job…this situation also fuels the kind of social frustration and unrest that we have seen…” Fazzari also purported that the risk of job losses would be less severe if implemented nationally rather than locally: “a national policy limits the ability of employers to relocate to dodge the requirement. A national policy levels the playing field.”

A lot has changed recently in the American political and economic landscape. Yet the great minimum wage debate that has lasted numerous years, affecting millions across the nation, endures. Whether the federal minimum wage increases by a few dollars, or virtually doubles to $15 per hour, basic economics would argue that at some point after nearly eight years, the rate will need to rise. Clearly, we’ve seen more and more states take matters into their own hands by upping the rate incrementally, or through their own inaction akin to the federal government. As years go on and inflation naturally takes its course, undoubtedly tensions will only intensity to greater heights. We’ve already seen massive protests around the country within the first couple months of the year, and those kinds of demonstrations will continue until real change is achieved at the federal level. Political inactivity will only add more gas to a fire that has been engulfing America into flames. The country is deeply divided now by countless political, economic, and social issues, whether originating domestically or tied to foreign affairs. However, the minimum wage dispute is truly one conflict that is able to sum up a struggle that many Americans face daily: the continuous battle between the ‘haves’ and ‘have nots’.


Wells Fargo: A Major U.S. Bank Loses Credibility

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Wells Fargo & Company, commonly known as Wells Fargo, is an American international banking and financial services holding company headquartered in San Francisco, CA. Today, Wells Fargo is the world’s second largest bank by market capitalization and the third largest bank in the US by assets. Wells Fargo is one of the “Big Four Banks” in the United States along with JPMorgan Chase, Bank of America, and Citigroup. In 2014, The Banker and Brand Finance named Wells Fargo the world’s most valuable bank brand for the second year in a row.

Given all of the above-mentioned exceptionally positive indicators, awards, and praises, one would think that Wells Fargo is not only one of the most financially successful banks in the world, but also one of the most ethically and responsibly sound firms globally. However, this past September, it was found that Wells Fargo committed a momentous theft. Since 2011, 5,300 Wells Fargo employees had secretly created about 2 million phony, unauthorized bank and credit card accounts. These counterfeit accounts netted the bank unwarranted fees and allowed Wells Fargo employees to fraudulently enhance their sales figures to make more money. Richard Cordray, director of the Consumer Financial Protection Bureau (CFPB), found that “Wells Fargo employees secretly opened unauthorized accounts to hit sales targets and receive bonuses.” The bank confirmed to CNNMoney that employees even went so far as to make up fake PIN numbers and fake email addresses to enroll customers in banking services.

Additionally, Wells Fargo employees moved funds from customers’ existing accounts into new, fake accounts without their knowledge or approval. Apparently, this scandalous practice wasn’t concentrated to a particular bank or region; the CFPB described the illegal activity as “widespread”. To generate more revenue for the bank, Wells Fargo employees would charge these customers for insufficient funds or overdraft fees because there wasn’t enough money in their accounts. Finally, these employees submitted applications for 565,443 credit card accounts without their customer’s knowledge. About 14,000 of these accounts accrued over $400,000 in fees.

Wells Fargo claims they will pay full restitutions to all customers affected by the extensive scandal. The CFPB, founded in 2011, will issue its largest ever penalty to Wells Fargo: a $185 million fine, along with $5 million to victims of the crime. David Vladeck, a law professor at Georgetown University and former director of the Federal Trade Commission’s Bureau of Consumer Protection, said of the $185 million fine, “it sounds like a big number, but for a bank the size of Wells Fargo, it isn’t really.” Vladeck’s exactly right, that $185 million fine makes up just about 0.2% of Wells Fargo’s $86 billion 2015 revenue alone. Again, that fine only accounts for two-tenths of a percent of the bank’s revenue just from last year. Wells Fargo took home about $23 billion in profit from 2015, and the $185 million fine is only 0.8% of that figure.

On October 12, CEO John Stumpf retired effective immediately, and sources close to the matter confirmed that it was Stumpf’s decision to resign. After Stumpf appeared before a Senate hearing on September 20, Jeffrey Sonnenfield, an authority on corporate governance at Yale, observed that Stumpf was basically a “deer caught in the headlights with a tin ear in understanding, addressing, and communicating the problem.” This would surprise many because in a 2015 Fortune interview, Stumpf stated that he was the “keeper of our company’s culture.” Additionally, Stumpf was even named Morningstar’s CEO of the Year in 2015 for “shunning activities that put profits ahead of customers.” What makes this scandal worse is that all of the prominent accolades and praises that Stumpf received just last year couldn’t be farther from the truth. In fact, according to CNNMoney, “former Wells Fargo employees believe it was precisely the bank’s pressure-cooker sales environment that spurred staffers to open thousands of fake accounts.” For example, nearly a half dozen workers told CNNMoney they thought they were fired because they called the ethics line about inappropriate sales procedures. Bill Bado, who was fired in 2013 for “tardiness” after alerting HR about the fake accounts said, “They ruined my life.”

There is no excuse for not just Stumpf, but for any executive, senior manager, or any other leader in this massive corporation to not know or do something about the widespread scam that was occurring. Undoubtedly, people in this company knew exactly what was going on and while some tried to report it, others swept it under the rug or fired those that spoke out. Stumpf and his team of executives, board of directors, and other senior managers ruined the lives of not just their customers, but their own employees, and the sanctity of their company. They should all be punished severely for putting profits and sales numbers above formal laws, codes, and regulations, and unequivocally having no concern for customer service, respect for their employees, or any hint of corporate responsibility. Once again, the financial services industry disregards any consequence for their improper and illegal activities while chasing more and more wealth and power. Has anyone learned from the Great Recession of 2008? Certainly not Wells Fargo.

The Student Loan Debt Crisis in 2016

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I’m sure the vast majority of the readers of this article can relate very well to the title and subject of this piece. There’s no doubt student debt in this country is a very commonplace hardship for many young adults in this country. While the range of debt for students varies widely, many postgraduates find themselves in an extreme amount of debt that influences their every economic decision on a daily basis, and will for the foreseeable future. For many, this punishment and barrier represents a harsh reality that colleges and governments don’t exactly want you to know about: enrolling in a four-year college in this day and age is one of the most costly investments you’ll ever make. Today, college is a luxury that many working and middle class families cannot afford on their own, which is why many of them are forced to take out student loans.

Just how costly is going to college these days? According to the College Board, the average cost of tuition and fees for the 2015-2016 is $32,405 for private schools, $9,410 for in-state residents at public colleges, and $23,893 for out-of-state residents at public colleges. And that’s not everything, that just covers tuition. Colleges also charge fees for library, transportation, and athletic facilities services. Additional expenses include room and board, as well as books and supplies necessary for any offered college course. Other essentials such as transportation, clothing, entertainment, and personal items cap off the remaining costs. All in all, the College Board reported that a so-called “moderate” budget for in-state public colleges averaged $24,061, and at private universities, the budget averaged $47,831 (to give perspective: at CMU, tuition alone is a measly $65,895)[i].

What do individuals give up by not going to college? A 2014 study by the Pew Research Center indicated that among millennials, age 25 to 32, median annual earnings for full-time working college-degree holders are $17,500 greater than those with high school diplomas only. The earnings gap between college-degree holders and those only with high school diplomas has steadily increased since the silent generation of the 1960s. One of the more telling quotes referring to this study came from executive vice president of special projects at the Pew Research Center, Paul Taylor: “There’s a reason we call this report ‘The Rising Cost of Not Going to College’”. Taylor is right, the ever-increasing salary gap isn’t about college graduates getting paid more, it’s about high school only graduates doing worse than before. “The real story is the collapse in economic opportunity for people who do not continue their education beyond high school”, Taylor declared[ii].

Given the fact that going to college compromises four “easy” payments of about $35,000, just how bad is student loan debt? Probably worse than you already think. Student loan debt has tripled since 2005 according to the Wall Street Journal. In October of 2015, the WSJ reported the national figure for student debt: $1.19 trillion according to the Federal Reserve Bank of New York (FRBNY). The report also cited that nearly 7 million Americans have defaulted on their student loan repayment, meaning they haven’t made a payment toward their outstanding debt, which is remaining, unpaid debt, in one year. According to The Institute For College Access and Success’ Project on Student Debt, 69% of new college graduates from public and private, nonprofit schools in 2013 had student loans. The average debt for these borrowers was $28,400. The FRBNY also found another trend in student loan debt: it’s only getting worse. The FRBNY found that student loan debt had surpassed not only credit card debt, in 2010, but also auto loans, in 2011. This made student loan debt the largest form of consumer debt in America outside of mortgages. Since the peak of consumer loan debt in 2008, no other form of debt had grown other than, you guessed it, student loan debt[iii].

The collected data and statistics on American student loan debt is disturbing, disheartening, and baffling to say the least. From a young age, we are told by our parents, teachers, guidance counselors, administrators, and virtually every other adult in our lives that going to college is the next step of our education after high school, and failing to reach and achieve that critical step will cripple any thought of a successful career. They’re not wrong; a bachelor’s degree is the needed foundation for any chance of a prosperous and growing career in any field. Higher education establishes the groundwork for an economically, socially, technologically, and medically advanced society that benefits us all. Yet how can we, as a nation, continue to punish those that are only doing what is asked of them in the first place? In what other country are young adults financially penalized for trying to achieve their goals by getting an advanced education? In what era were these kind of college tuition prices, which are steadily increased each year, found to be acceptable?

There are plenty of opinions and ideas that focus on trying to solve the student debt crisis we have in America. 2016 presidential candidates offer their own perspectives and policy plans that aim to take on and solve the student loan problem. Democratic Candidate, Senator Bernie Sanders, has supported a plan to make public colleges and universities tuition free, significantly lower student loan interest rates, and allow students to refinance at low interest rates. Sanders’ plan would also require public colleges and universities to meet 100% of the financial needs of the lowest-income students in order to make college debt free. Sanders’ $75 billion plan would be fully paid for by imposing a tax of a fraction of a percent on Wall Street speculation. Sanders cites that more than 1,000 economists have endorsed the speculation tax, and that around 40 countries around the world, including Britain, Germany, France, Switzerland, and China, have already introduced a similar tax[iv].

clinton-collegeDemocratic Candidate and former US Secretary of State, Hillary Clinton, proposed a college affordability and student loan plan, costing $350 billion over 10 years, that would help millions of students pay for college and lower interest rates for those with student loans. Clinton’s plan, called “The New College Compact”, would make community college tuition free, call on states to reinvest in higher education funding, force the federal government to stop profiting off of student loans, and hold colleges and universities accountable for affordable tuition and other costs. Clinton proposes that the plan will be funded by “limiting certain tax expenditures for high-income taxpayers”, or in other words, cutting tax deductions for the extremely wealthy individuals in this country[v].

On the Republican side, presumptive nominee Donald Trump has not made it particularly clear what he plans to do about the student loan debt crisis in this country. However, he has said he believes it’s terrible that the government has profited off of student loans in the past. Knowing Trump’s history it’s difficult to know whether that’s a belief he still holds true today, or one he will tomorrow, or next week. Regardless, it’s an idea that is actually commonly shared on the Democratic side. Another shared idea among all three candidates is the opportunity for college graduates to refinance on their loans. Trump has said it’s unfortunate that graduates come out of college having borrowed so much money to get a degree, and yet find a scarce job market. Once again, the presumptive candidate of the Republican Party for the 2016 Presidential election, an anti-establishment business mogul-turned politician, ironically has supported solutions to the student loan crisis that line up with Democratic Party standards[vi].

Regardless of your party affiliation, or the candidate you support, student loan debt is undoubtedly a national crisis. Major national legislation at the federal and state level needs to be passed in order to substantially change the way that students across the country, irrespective of socioeconomic background, are able to attend college and move forward in their postgraduate careers without having to be handcuffed with momentous debt. Each candidate offers his or her own solutions to the debt crisis, many of which are similar. However, there are clear distinctions between Senator Sanders’ tuition-free plan at public colleges and universities, and Hillary Clinton’s plan to hold colleges and universities accountable for affordable tuition. It’s up to us as voters to choose the candidate that we believe supports and advocates for the most effective policies that can help students of the future, and of the past, reduce or even eliminate the burden of loan debt. Our country’s technological, medical, cultural, and overall societal progress depends on our ability to invest in and provide affordable and quality higher education to every willing student nationwide.