Our Minimum Wage Economy

Poor RetireeOne of the first jobs I had was as a baker for the pretentiously titled Cafe Des Croissants. And I remember that one of the owners had worked for the post office. He told me that he believed as his old employer that wages should go up only as productivity increased. I thought that sucked, because I was making minimum wage. That was way below the going rate for a real baker and there were not really any opportunities for productivity increases.

Despite all of that, the minimum wage that I was making then (about 30 years ago) was far better than the minimum wage today. This is because the minimum wage hasn’t kept pace with the rate of inflation. But that’s the least of it. If the minimum had gone up at the rate of worker productivity, it would now be over $17 per hour. This result comes from the Center for Economic and Policy Research (CEPR), which has been publishing a lot of interesting stuff about the minimum wage recently. According to their research, the minimum wage in real dollars peaked in 1968.

In another paper, they provide the following table that ought to make everyone in our country ashamed:

Characteristics of Low Wage Workers

What this table shows is that low wage workers are getting older and more educated. So all that stuff that we are told about work experience and education being key to getting good jobs, in as much as it was ever true, is less and less true. I think it is an indication that having a good job was always mostly a question of birth luck and as time has gone on, the few governmental safeguards against this have been greatly limited. Employers might say that they will raise wages at the rate of productivity growth, but the truth is altogether different. If an employer can simply keep more profits and share none of the productivity gains, he will. And that is why unions and minimum wage laws are so important.

Matt Yglesias wrote a thoughtful article last week. He started by noting that the data on the effect of raising the minimum wage are mixed. Some studies say it hurts employment and others say it doesn’t. To me, the studies are very clear: raising the minimum wage tends not to hurt employment, but if it does, the effect is small. That really ought to be the end of the story. Yglesias (as is his way) doesn’t even consider that. But he looks at the history: the 1960s to be exact. And he doesn’t see any hit from having a higher minimum wage. He asks the question, Why Would the Minimum Wage Pack More Disemployment Punch Today Than in the 1960s? He can’t come up with any answer to that, so he concludes that it wouldn’t.

I think I can explain why especially now raising the minimum wage wouldn’t increase unemployment. Businesses are more profitable today than ever. They are sitting on piles of cash. So are the rich. As a result of all that wealth just sitting around, millions of people are not being employed. Raising the minimum wage would move money from the rich (who aren’t spending it) to the poor (who will). The extra money spent by the poor would increase demand, which would create more employment. (And it would not increase prices by an equal amount.)

Raising the minimum wage is an obvious thing the federal government should do. It won’t be done, of course. The Republicans are totally against it because they still believe all that nonsense about supply side economics. And really, if the last 30 years haven’t harmed their faith in that kind of crank economics, nothing will. So I’m looking toward 2017. Or 2019.

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About Frank Moraes

Frank Moraes is a freelance writer and editor online and in print. He is educated as a scientist with a PhD in Atmospheric Physics. He has worked in climate science, remote sensing, throughout the computer industry, and as a college physics instructor. Find out more at About Frank Moraes.

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