History tells us that the fundamental law of economics is
that owners of land and other capital have immense power over workers. Unless some mechanism created by society
intervenes, capitalism will drive wages for workers down to a subsistence level. Society has fought back in two ways. The first is to provide a means for workers
to unify and bargain with capital for higher wage levels. In some countries, and at some times, this
process has worked. However, for
countries without national unions covering essentially all workers, the best
and only way to provide a wage floor that keeps workers out of poverty is by
establishing a national minimum wage. In
many cases this wage is indexed to be some fraction of the national median
wage.
The United States established a minimum wage beginning in
1938. It has been increased occasionally
as inflation has eroded its value, but since the 1960s, it has not kept up with
inflation. An article by David Cooper
for the Economic Policy Institute (EPI), Raising the federal minimum wage to $15 by 2024 would lift pay for nearly 40 million workers, provides
background on the topic.
“Yet since the late 1960s,
lawmakers have let the value of the minimum wage erode, allowing inflation to
gradually reduce the buying power of a minimum wage income. When the minimum
wage has been
raised, the increases have been too small to counter the decline in value that
has occurred since 1968, when the minimum wage hit its peak in
inflation-adjusted terms. In 2018, the federal minimum wage of $7.25 was worth
14.8 percent less than when it was last raised in 2009, after adjusting for
inflation, and 28.6 percent below its peak value in 1968, when the minimum wage
was the equivalent of $10.15 in 2018 dollars.”
A bill has been proposed that would gradually raise the
national minimum wage to $15 in 2024.
Thereafter its value would be indexed to the national median wage.
“On January 16, 2019, Sen.
Bernie Sanders (I-Vt.) and Rep. Bobby Scott (D-Va.) announced that they would
introduce the Raise the Wage Act of 2019, a bill that would raise the federal
minimum wage in six steps to $15 per hour by 2024. Beginning in 2025, the
minimum wage would be “indexed” to median wages so that each year, the minimum
wage would automatically be adjusted based on growth in the median wage.
The bill would also gradually increase the subminimum wage for tipped workers
(or “tipped minimum wage”), which has been fixed at $2.13 per hour since 1991,
until it reaches parity with the regular minimum wage.”
Raising the minimum wage will affect more than just the
workers currently earning less than the new value. There will be a ripple effect as workers just
above the new minimum will demand higher wages to avoid the poor optics of earning
little more than the minimum wage.
“All told, raising the minimum wage to $15 by 2024 would
directly or indirectly lift wages for 39.7 million workers, 26.6 percent of the
wage-earning workforce.”
A
significant redistribution between capital and labor would occur.
“Over the phase-in period of the increases, the rising wage
floor would generate $118 billion in additional wages, which would ripple out
to the families of these workers and their communities. Because lower-paid
workers spend much of their extra earnings, this injection of wages would help
stimulate the economy and spur greater business activity and job growth.”
EPI
projects that when the $15 level is reached in 2024, a single worker with a
family of four would have risen in income above the poverty index for such a
family.
One
of the issues that had to be considered in formulating this proposed
legislation is whether the climb to a level of $15 made sense for states in
which prevailing wages were much lower than national averages. EPI concluded that regional variations were inappropriate,
and a firm national minimum was the correct approach. Its reasoning can be found in The federal minimum wage should be a robust national wage floor, not adjusted region by region. This is the EPI logic.
“Regional
minimum wages bake in low wages to already low-wage places. Rural
counties and Southern cities—where wages have been depressed for a variety of
social, racial, political, and economic reasons—would effectively have their
low-wage status locked in by a regionally adjusted federal minimum wage. For
example, in many low-wage areas, the predominant employers of low-wage workers
are big national businesses, such as Walmart and McDonald’s, who can afford to
pay far better wages than they do. Their position as the predominant employer
in many rural or small-town areas gives them monopsony power and allows them to
essentially set wages not just for themselves, but for all low-wage jobs in the
region.”
The low-wage southern states have long played a role
analogous to that of China in using a cheap labor supply, lax environmental
regulations, and anti-union actions to lure companies and jobs from higher-wage
regions within the United States. This
would be a good thing if economic benefits from such transfers had led to equilibration
of wages and policies between the various regions. Instead, southern politicians have strived
successfully to maintain the South as a permanent low-wage, anti-regulation
region. This situation is not healthy
for the nation and it is not healthy for southerners. Gradually forcing southern and rural low-wage
regions to change via a national minimum wage is one way to address this issue.
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