Recently, Americans have had the pleasure of experiencing some phenomenal economic milestones, including the longest stock market boom and longest economic expansion in U.S. history. It’s surprising then, to learn of another economic milestone that bucks the trend of all this good news: the longest period in history without an increase in the federal minimum wage (which was last adjusted over a decade ago).
If the minimum wage had kept up with inflation, workers would be earning 17% more (about $3,000 per year) than they were in 2009. That’s 2-3 months of rent for most people. The story becomes harder to swallow when you expand the time horizon: the federal minimum wage is worth 38% less than it was in 1968, even after taking inflation into account. In other words, a minimum wage-earner in 1968 had almost 40% more money than the same wage-earner today - even though the wage-earner in 1968 was earning less real dollars.
And this is the whole problem with digesting the impact of wage devaluation over time: humans can intuitively understand real numbers (quantity) a lot easier than percentages. My first job in 1997 was a minimum wage job. I made $5.15 an hour. Today the federal minimum wage is $7.25 an hour. That’s an increase of more than $2 dollars - a nearly 40 percent jump. Seems like a lot right? It isn’t. Because inflation has risen collectively at high rates as well. Therefore that $7.25 buys you about 30% less than what an equivalent amount would have been able to purchase in 1997. Even though a minimum wage worker in 2019 may be earning a couple of bucks more, that’s not enough to keep up with currency devaluation. If I had the same job today, its as if my minimum wage was only $5.75 rather than $7.25.
People find it hard NOT to see things in nominal terms. If you put a dollar in a drawer and you take it out 10 years later, you think - “hey it’s a dollar!” - but in reality, due to inflation, it’s only 85 cents.
So Why Hasn’t the Minimum Wage Kept Up With Inflation?
There’s a lot of reasons.
Part of the explanation for why the minimum wage hasn’t risen is because post-recession workers have just been willing to work for a lot less. In the immediate aftermath of the crisis, some considered themselves lucky to just have a job in the first place. A lot of that spirit persists a decade later.
Higher wage earners can advocate for their salary, stock options or tax benefits by electing people who support their positions. Minimum wage workers are often barred from being able to engage in the political process. For instance, minimum wage workers are younger. Younger people vote less often and minors can’t vote at all. Minimum wage workers may also be undocumented, or recent immigrants who are unfamiliar with the U.S. political and advocacy process.
This is one of the pernicious effects of wage discrimination: those who need higher wages the most spend the majority of their time trying to earn enough rather than advocating for a wage that would free up their time.
But perhaps most importantly, minimum wage workers are often time-starved. They sometimes have to work two jobs to make ends meet (you tell me how a “full-time” job at a cafe where you make about $400 a week after taxes lets you afford rent, utilities, a car and a cellphone). Pressuring employers for a raise or their elected representatives for minimum wage reform are secondary to earning enough to survive. This is one of the pernicious effects of wage discrimination: those who need higher wages the most spend the majority of their time trying to earn enough rather than advocating for a wage that would free up their time. Meanwhile, those who make more (such as myself) can “buy” time with our money, freeing us up to show up to marches, call our congresswoman, or even go vote.
Solutions Aren’t As Easy You Think
There are a number of civil society groups advocating for a fairer minimum wage. And they are backed up by most Americans. A Pew Research poll found that two-thirds of Americans support a $15 hourly federal minimum wage.
But what about employers? Are they able to absorb an increase in the minimum wage? Or will they just pass it down to consumers? Not all businesses are created equal and smaller businesses have a harder time with the minimum wage than larger ones. Generally, smaller businesses are dealing with the same income inequality problems as their workers. Inflation is slowly diminishing their profits and forcing them to work longer or charge more for products and services. Like their workers, small business owners running on fumes are a slow-moving train wreck of increased mental and physical health issues. House Democrats have recently attempted to pass legislation to increase wages, but congressional research staff have found that because many of these small businesses wouldn’t be able to absorb the salary hikes, a number of minimum wage earners at small businesses would lose their jobs if the federal minimum wage were increased to $15.
Larger businesses, on the other hand, can easily absorb these costs. Most Fortune 500 corporations are experiencing unprecedented profits. Many, like Apple, have cash hoards so large they could finance entire countries for years. Many large organizations would also benefit from an increased minimum wage. Stanford University, for instance, is losing employees because they cannot afford to live within driving distance of campus. A reasonable minimum wage would allow Stanford to recruit qualified labor.
Large companies could set the economic (and perhaps moral) standard by increasing the minimum wage for their workers.
Instead, many are investing in automation and AI, which is ending the jobs of minimum wage workers. McDonalds is using kiosks for meal ordering and self-checkouts are the de facto standard at most retail and grocery outlets today. Though many of these businesses would argue against a minimum wage increase (despite devaluation), they are well on their way to transitioning their businesses to a point where low-wage workers aren’t even necessary.
There are other options on the table: basic income for everyone (which Andrew Yang champions), tax credits, or expansion of new mega-industries such as space exploration. But all of these options are long-term solutions that will take decades, maybe even a century, to implement.
In some ways having a minimum wage encourages employers to just keep salaries low - why pay more when the federal government has already set a low standard? It may be worthwhile to see whether a market economy would encourage a minimum wage more flexible and perhaps higher than that set by the government.