How to find out how high the minimum wage should be
There used to be a link between minimum wage and worker productivity, but this has diverged since the 1960’s. It’s time to bring this back.
Anyone can be making minimum wage. It’s like that Bill Hicks quote: “Anybody can be a bum; all it takes is the right girl, the right bar, and the right friends.”
You’re not superior to others if you make more money than they do, and you are not inferior to others if you make less. Your income is not your life score.
Why do we need something called a “minimum wage”? It’s because otherwise, companies would pay workers an unlivable wage.
“But wait, Mike,” you say. “Isn’t minimum wage an unlivable wage as it is?”
Yes, the federal minimum wage of $7.25 an hour is literally impossible to live on without other assistance. (That turns into roughly $14,500 a year, when worked full time.)
Now, imagine what companies would get away with if they could pay less. Actually, let’s not.
So we need a minimum wage optimally so that companies don’t prey on their workers. What should the minimum wage be?
There’s been a lot of debate on this subject, but the most convincing argument I’ve found says that we should look to productivity over time to find the answer.
So let’s start there.
Summer of Love, Summer of Productivity
I found an amazing article written by someone at the Center for Economic and Policy Research, a think tank.
Its title is simple and no-nonsense: This is What Minimum Wage Would Be If It Kept Pace with Productivity.
It notes that from 1938 to 1968, the minimum wage “not only kept pace with inflation, it rose in step with productivity growth.”
This period is significant as it coincides with one of the greatest economic boom times in modern American history. I’ll leave that as a correlation and move on.
But since 1968, this trend has diverged. The minimum wage has not only not kept pace with inflation and productivity growth, it has actually become less over time even in adjusted dollars.
This is, of course, shameful. It is generally accepted that life is more expensive today than ever before, so a minimum wage should at least be as high as it used to be before everyone had to pay for internet access.
So what would the minimum wage be if it had kept pace?
Look at this chart and weep:
So if we wanted life to be as good as it was for workers making minimum wage in 1968, we would have to pay them $24 an hour. Anything less is backsliding.
I should note that this analysis was published in January 2020, so it’s before the pandemic happened. So recent trends might be screwy, but in two years, it’s hard to imagine that we haven’t hit the $25 mark, if not more.
What happened to $15 an hour?
You’ve no doubt heard about the fight for $15 minimum wage. Some places have started to implement it (such as the city of Seattle), while others are pushing back hard.
But before we start to applaud too much for these wins for workers, let’s recognize that $15 is not what it used to be.
In fact, we’ve been arguing for so long about giving workers a $15 minimum wage, that a $15 minimum wage is now no longer enough.
So when companies acquiesce to this demand, it isn’t the win it should have been.
Indeed, if we want to demand that workers earn what they did in the 1960s, we need to start to demand $25 an hour. Minimum.
$25 or walk
This is just what is starting to happen.
I don’t know if you’ve seen the hashtag #25orwalk recently, but it’s started popping up. Expect to see it more as time goes on.
It means exactly what you think it does: Demand a $25 wage or refuse to work at the job. It appears to be centered on McDonald’s, as labor agitation often is, but I wouldn’t be surprised to see it championed by more people in the months ahead.
(See this post on Reddit for more information.)
I don’t know whether the folks promoting this idea are familiar with the economic underpinnings of their demand, but it’s hard not to note the coincidence with the CEPR report.
Is $25 so high?
If you’re used to punitive wages to workers, the idea of $25 might seem egregious.
But is it?
$25 an hour turns out to be roughly $50,000 a year.
Maybe that’s rich in Alabama or Nebraska, but let’s try living on that wage in California or New York.
In fact, according to a recent study, in 93% of U.S. counties, workers earning minimum wage can’t afford a modest one-bedroom apartment.
In most places, the requirement is $15 or higher.
So even if minimum wage was half what it was, and we expected everyone to shack up with another person also earning minimum wage, the two of them still wouldn’t be able to afford a 1BD.
But we couldn’t do this, of course
Even the author of the CEPR study says that we can’t just raise the minimum wage to what it should be in one go.
“[W]e can’t imagine that we can just raise the minimum wage to $24 an hour without serious disruptions to the economy, many of which would have bad effects (i.e., unemployment) for those at the bottom…It is quite reasonable to have a target where the minimum wage returns to where it would be, if it had tracked productivity growth over the last 50 years. But we will have to reverse many of the institutional changes that have been put in place over this period to get there.”
I’ll say.
Check your privilege
At this point, how you feel on this topic depends a lot on your personal privilege.
The complaints I hear range from the histrionic (“ all companies would go out of business”) to the tone-deaf (“ if you don’t want a minimum wage job, go get a better job.”)
Some might argue that business can’t afford to pay workers any more than they do, to which I will quote Ed Zitron: “If your success is predicated on paying people less than a livable wage, then your business should die.”
And sure, we all should seek to earn a living wage. But rather than blaming the person who isn’t able to make that happen, shouldn’t the companies responsible for the current system shoulder some of the responsibility for this?
In the end, I’m arguing for this simple rule:
If you work a full-time job, you should be able to afford to put a roof over your head, and enough food and living supplies to survive.
And the way I see it, the best and most efficient way to ensure that someone can earn a living with a full-time job is to make it illegal not to.
Let’s just hope that by the time $25 or walk becomes a reality, we don’t need to be talking about $50.
Originally published at https://empathicfinance.com on December 20, 2021.
