When the Minimum Wage Debate Lost its Way

Minimum Wage

With all of the minimum-wage attention currently given to the actions of cities like Seattle, Berkeley, NYC, as well as states enacting their own versions of minimum-wage hikes, it’s easy to lose sight of the broader wages context, which, frankly, is quite bleak not only for those on the bottom of the pay scale, but also: middle-wage earners, college educated employees, skilled laborers, and others.

Since the minimum wage in the US is not indexed to inflation, increases are subject to the whims of Congress and the president. As a result of not only the somewhat arbitrary minimum wage hikes over the decades since Franklin Roosevelt enacted the first federal minimum wage, but also due to a plethora of other factors, real wages – or the buying power of wages – have essential stagnated for the middle class (up 6% since 1979) and significantly declined (down 5%) for the lower class of wage earners since peaking in 1960 – almost half a century ago.

Most of the observed gap between productivity, wages, and inflation, has occurred since 1979, as prior to that year both minimum wages and median wages had been more or less keeping up with inflation and cost of living increases. Since 1979, however, that trend has changed, with wages for the bottom 90% of earners increasing only 15% in actual terms, while inflation increases have been significantly higher.

Incredibly, this increasing gap has occurred during a period of unmatched productivity in the US labor force. Until 1973, wages and productivity, economically defined, were nearly perfectly correlated and saw corresponding increases over time. From that year on, however, productivity maintained its linear increase (the reasons for increasing productivity year over year are no doubt too complex to consider in detail in this article, but are nonetheless fascinating), while the growth rate of wages became nearly 0, i.e. nearly total wage stagnation in real dollars. To summarize this reality in simple terms, productivity simply doesn’t pay like it used to.

The irony of this situation is that critics of higher minimum wage laws often claim that minimum wages are fair recompense for unskilled labor, yet the data indicate that at all levels of employment, the productivity of the average worker reaches new and unprecedented levels, while being compensated at 1973 salary levels. Very simply, an hour of your labor today isn’t worth what an hour of your grandparents’ labor was worth half a century ago.

Another argument proffered by critics of minimum wage increases goes something like this: the market does a reliable job of establishing worth, when it comes to labor, skillset, education level, etc, but – again – the data indicate a troubling, contrary narrative. On average, college graduates today earn less in real wages than their parents did one generation ago. Using company-sponsored health insurance as a proxy for overall compensation, we can observe that in 2015, the percentage of recent college graduates who had employer-sponsored health insurance dropped from 61% in 1989 to 29% in 2015.

Although the situation is undoubtedly much more complex than one article can make it seem, these data points spell out a disturbing reality in which neither productivity / effort / work ethic, nor skills, nor formal education are likely (much less guarantees) to secure a quality of life even on par with previous generations, much less an improved one. Although the discussion typically revolves around minimum-wage earners and the sometimes drastic measures taken on the state and local level, the reality is that the minimum wage issue is merely one branch of a much more complex web of labor trends and realities that speak to other, systemic challenges that we can’t afford to ignore any longer, such as: education costs, spiraling healthcare / insurance costs, the relationship between employer and employee, the regulatory role (or lack thereof) of the federal and state governments in the marketplace, and others.

Were Americans (at all levels) in 2016 to be compensated for their labor at a similar rate as their grandparents previously did, minimum wage would be over $18. That shouldn’t be taken as blanket support for an $18 dollar federal minimum wage, but it does mean that when averaged out across all industries, low-wage employment is providing their corporations and small businesses with over $18 dollars of productivity an hour, but only being paid for $10.89 of those dollars (the real wage of the average hourly worker).

In closing, I would like to draw attention to the moral / ethical issues associated with this issue that I would like to further explore in subsequent articles, issues like: what is fair / just compensation for labor? What exactly is the relationship between employee and employer? Should the “market” be the driving force that determines many of the labor realities that we have discussed presently, or is there a role for governmental, regulatory action? What impact does the labor reality in the US have on other, societally-impactful issues?

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The opinions expressed in this commentary are solely those of the author and are not not necessarily either shared or endorsed by iPatriot.com.

Matty Mattson

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