Bank of America (BAC) has announced its plans to raise the company's minimum hourly wage to $23 in October. The objective is to achieve a minimum employee wage of $25 by the year 2025. Currently, the federal minimum wage stands at just $7.25, though Senators have proposed a bill that would gradually raise the minimum wage to $11 over the next four years. Yahoo Finance's Rachelle Akuffo speaks with Public Policy Professor Betsey Stevenson of the University of Michigan's Ford School to discuss the big difference between federal and corporate minimum wages, and how factors like inflation could impact wages.
"While legally you can get away with paying somebody $7.25 an hour," Stevenson says, "you're gonna have a very hard time finding very many people who are gonna wanna do work for you at $7.25 an hour."
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RACHELLE AKUFFO: Well, this week, Bank of America announced that it would boost its minimum hourly wage to $23 USD in October. Now, the bank's overall goal is to raise hourly pay to $25 USD by 2025, but the discrepancy between corporate and federal pay is wide. The federal minimum wage has remained at just over $7 since 2009. Well, last week, senators introduced a bill that would gradually raise the minimum wage to $11 USD over the next four years.
Let's bring in professor of public policy and economics at the Ford School University of Michigan, Betsey Stevenson, to discuss more. Thank you for joining me this morning, Betsey. So I first want to-- want to look at the discrepancy that we're seeing here between some of these corporate pay and the minimum wage. It's going to be the scheduled increase, according to this bill, if it passes here, but why are we still seeing such a divergence here?
BETSEY STEVENSON: Well, market forces have simply pushed wages up at the bottom of the distribution, and so while legally you can get away with paying somebody $7.25 an hour, you're going to have a hard time finding very many people who are going to want to do work for you at $7.25 an hour. If you can't hire anyone there, why not take the publicity of being able to announce it's actually a policy change?
You know, Bank of America back in 2017 announced a $15 minimum wage. By moving that up, part of what they're doing is just adjusting for inflation. You know, it would be-- if they had said, we were always going to index that for inflation, it was going to keep up with inflation, it would already be around $19, so they are increasing it more than just inflation, and that actually tells us something that's even more important, which is that what Bank of America is doing is saying, you know, we're getting richer as a country, we're getting more successful as a company, and we're going to share that with people at the bottom.
So I think it's really important to be looking at what people are willing to pay, not just relative to what they're required to pay and not just relative to what we need to keep up with inflation, but also whether workers are getting a share of the kinds of productivity gains that are leading to big profits at the top.
RACHELLE AKUFFO: So then what about some of these companies who are saying, look, we can't afford to compete with, you know, these sorts of wage increases, because then we'll have to pass, you know, costs on to consumers and other things like that? How do they navigate that then if they want to be able to retain workers in a tight labor force but they can't compete with the Bank of Americas of the world?
BETSEY STEVENSON: You know, the question is, is it worth being able to hire talent and being able to sell your product? I don't think we want to create some kind of fear that this will create, you know, wage price spirals and we'll end up getting inflation if we're-- if what we're talking about is minimum wages, the wages at the very bottom.
Look, the pandemic has done more to narrow the gap between what people at the bottom make and what people at the top make than we've seen in a really long time. In fact, you know, if somebody had told me when the pandemic started that the pandemic was going to be one of the best things to reduce inequality, I would have thought you were crazy, but that's in fact what happened. Market pressures pushed wages up at the bottom relative to the top.
I don't think that's made companies really anti-competitive or unable to keep up, and we know that's not what fueled inflation. So I guess, you know, the bottom line is, if you think your company can't survive unless you're paying people $7.25 an hour, then I think you do really need to ask, what's the value proposition your company's offering to customers?