Very recently we passed the 12th anniversary since the last minimum wage hike was approved by Congress, lifting working class pay to $7.25 per hour. The twelve-year gap represents the longest stretch of time between increases since the minimum income standard was adopted by Congress over 80 years ago.
To mark the occasion, let’s take a look at the two most commonly plied arguments against raising the minimum wage:
- Increasing the minimum wage will lead to loss of jobs.
- The minimum wage should be abolished — it’s keeping wages down.
Considering argument number one comes from supply side charlatans, it should be dismissed out of hand since it’s an argument made in bad faith; an intellectually dishonest rationale. The very same crowd wouldn’t bat an eyelash if laying off employees meant fattening a company’s shareholder value.
As for argument number two, I think comedian Chris Rock said it best: It’s called minimum wage because if ‘job creators’ could pay you less, they would.
Minimum Wage and Productivity Gains
The purpose of all the minimum wage, described within the Fair Labor Standards Act of 1938 (FSLA), was “to create a minimum standard of living to protect the health and well-being of employees.” Without laboring the point, minimum wage abolitionists are comfortable with the idea of people working for wages that keep them impoverished.
I find it agreeable that the Fair Labor Standards Act plied the phrase “minimum standard of living” because it renders what I would call a moral benchmark that should have kept working-class wages at a tolerable standard of living.
These days, however, the minimum wage marks how far behind the standard of living of both the working- and middle classes, has fallen.
(I have chosen to focus on the minimum wage as a baseline for a discussion of wage suppression that has clearly afflicted middle-class earnings, as well.)
The following chart reflects data for compensation (wages and benefits) since 1948. On or around 1973, notice that productivity continues to rise while hourly compensation goes on to flatline.
The year 1971 marks the occasion when President Richard Nixon launched an economic strategy that could be compared to a defibrillator. The U.S. economy had arrived at a condition known as stagflation — inflation combined with falling demand and high unemployment. In response, the Nixon administration deployed an economic policy maneuver that became known as the “Nixon shock.” Among the policy directives adopted were price and wage freezes for a period of 90 days.
Needless to say, prices recovered their upward trajectory. Not so, as far as wages were concerned. Compared with productivity gains that followed the “Nixon shock,” wages remained stagnant — eventually losing ground to the rising cost of living.
Congress Finally Acts
During the 116th U.S. Congress, the House passed a bill called Raise the Wage (HR 582). The legislation would not only have raised the minimum wage to $15 by 2024, it also would have indexed subsequent minimum wage increases to the growth of the median wage (as determined by the Department of Labor).
What’s truly enlightening about this legislation is the report (House Report 116–150 Raise the Wage Act) on the history of the minimum wage that accompanied it.
Several times the report refers to the “bargaining power” of low wage workers — and the statements are not flattering to employers. The document reasserts the FSLA’s conviction that low wage laborers have no bargaining leverage when negotiating a salary with an employer.
A fair wage — a living wage — standard must prevail to prevent exploitation of labor.
Take almost any comparison of today’s minimum wage with its inflation-adjusted antecedent 30, 40 and 50 years ago, you’ll observe a benchmark gradually but decisively being crushed by increases to the cost of living. The math is unmistakable.
If the minimum wage had been indexed to track productivity gains enjoyed by this nation’s executive class, the minimum wage today would be $24.
From the year the minimum wage became law in 1938 until 1968, Congress consistently passed minimum wage increases on parity with nationwide productivity gains.
The Debate, Retooled
This simple argument should stand as the framework of any discussion about wages and economics. Again: the last time the minimum wage had kept pace with productivity gains was 1968.
Sticking to this point will force defenders of wage suppression to acknowledge the how and why of fallen wages; contrary to claims by income suppressors, it hasn’t come about by the workings of impersonal market forces nor as a result of impartial economic trends. They would love nothing more than for wage earners to continue believing the inevitability of their own work’s deflating value.
The House report acknowledges Congress’s culpability for the sorry level of compensation paid to low wage workers: “[O]ver the last 40 years Congress has failed to sufficiently raise the federal minimum wage enough to maintain a standard of living. This, combined with a 10 year lapse in the last increase in the federal minimum wage, has severely eroded the value of the minimum wage.”
One could observe that the business community baked wage suppression into the American economy, beginning in the 1970s, to the extent that no economist or domestic policy maker could recognize commerce functioning any other way. Knowing the actual history of the dwindling minimum wage illustrates for the middle- and working classes that they are under no obligation to accept the prevailing economic conditions.
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This post was previously published on Equality Includes You.
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