The current federal minimum wage has held steady at $7.25 since 2009. Many states and localities have higher values, and a national effort has been aimed at raising the minimum to $15. That push has been controversial because $15 might be fine for expensive urban areas, but it is far above prevailing wages in many parts of the country. Given the political environment, it can be assumed that bipartisan support will not be coming. An article by Michael Sasso in Bloomberg Businessweek suggests legislation might not be necessary: Tight U.S. Labor Market Makes $15 an Hour De Facto Minimum Wage.
“An analysis of jobs posted from spring 2019 to spring 2021 from a sampling of cities shows many service-sector industries crossed above a $15 starting wage during the period, often by significant margins, according to Emsi Burning Glass, an analytics firm that tracks job postings to glean labor market insights. The trend seems to have gathered steam in the recovery from the Covid recession, with several large employers, including Walmart, Target, Best Buy, and Chipotle Mexican Grill, bumping up starting or average hourly pay to $15 or more. Amazon.com Inc. recently announced it was boosting average starting wages for open logistics jobs to $18 an hour.”
The service sector was hit hard by the Covid pandemic. It consisted mainly of relatively low-wage work dealing with the public. From the employers’ perspective, many workers had to be let go because business had dropped considerably. From the employees’ perspective, it was low-wage activity that had become risky. For whatever reason, when businesses tried to reopen and get back to pre-pandemic levels, many workers were not waiting in line to get their old jobs back. Economic pundits seem to be offering the explanation that fear of the virus is causing workers to hesitate. Another possibility is that people were sick and tired of performing crappy jobs for crappy wages when those jobs have also become dangerous. Perhaps time will provide the answer, but meanwhile we are seeing a fascinating experiment in our labor market: workers, acting independently, are waiting for wages to rise, and they are getting their way.
“The tight labor market has empowered workers to demand higher pay and improved conditions. The number of job vacancies exceeded new hires by 4.3 million in July, the most in data going back to 2000. Meanwhile, workers’ average hourly earnings climbed 0.6% in August, twice as much as forecast.”
Sasso provides some examples of what the demand for labor is doing to wages.
“Fifty miles northeast of Atlanta, John Culpepper keeps boosting the average wage at his Braselton, Ga., staffing agency, which caters to the area’s big crop of distribution centers and manufacturers. It was $13.39 in the summer of 2020 and has since climbed 25%, to $16.80. Chalk it up in part to aggressive recruiting tactics by employers in the area. For instance, deep-discount retailer Ollie’s Bargain Outlet has taken to emailing its customers and offering $1,000 bonuses and jobs paying up to $20 an hour for warehouse work in nearby Commerce.”
“Two years ago the lowest wage advertised in job postings for cooks in Phoenix averaged $10.71 an hour, but that jumped 80%, to $19.24, two years later. In Philadelphia 88% of employers that offered less than $15 two years ago for laborers and material handlers had moved above that figure by 2021.”
“Then there’s Chicago, where an ordinance took effect in July requiring employers with 21 or more employees to pay at least $15 an hour. The wage gains in some low-paying industries in the city have outstripped the new minimum, says Emsi Burning Glass chief economist Bledi Taska. For example, half of Chicago employers that offered less than $15 for personal-care aides two years ago were above that figure by spring 2021, with the average low wage in job postings climbing from $13.28 an hour to $17.78.”
These results are remarkable. They beg the question as to whether the gains will persist or return back to the pre-pandemic situation. We do have history to provide us with some perspective.
Walter Scheidel has produced the book, The Great Leveler: Violence and the History of Inequality from the Stone Age to the Twenty-First Century. Scheidel tells us that history suggests that as soon as it was possible to acquire more sustenance than was necessary for daily needs, the unequal accumulation of that surplus would begin. Further, the larger the surplus, the greater the degree of inequality. That should surprise no one. The disturbing part is his conclusion that only massive levels of violence and widespread death were capable of leveling that inequality significantly. Peace and stability only served to increase inequality. Once the catastrophe had passed, inequality would grow back.
We are currently experiencing change induced by a pandemic. The worst pandemic in recorded history, the Black Plague, provides an example to consider. The plague seems to have originated in the Gobi Desert around 1320 and gradually spread over much of the world. It would come and do its damage then subside only to return again in cycles that persisted over several generations. The extent of population loss was remarkable.
“By 1350 the plague had run its course in the Mediterranean, and by the following year it had abated all over Europe—if only for the time being. Little would be gained by recounting the casualty numbers proffered by medieval witnesses who struggled to measure the immeasurable and often fell back on rounded or stereotypical figures. Even so, the 23,840,000 plague deaths calculated for Pope Clement VI in 1351 need not be wide of the mark. Modern estimates of overall losses range from 25 percent to 45 percent. According to the latest reconstruction by Paolo Malanima, Europe’s population fell from 94 million in 1300 to 68 million in 1400, a drop of more than a quarter. Attrition was most severe in England and Wales which may have lost almost half of their preplague population of close to 6 million and which did not reach preplague levels until the early eighteenth century, and in Italy where at least a third of the people perished.”
Such a huge loss of life would tilt labor markets in favor of workers. Scheidel provides this anecdote to illustrate the degree of change that occurred.
“According to the Chronicle of the Priory of Rochester attributed to William Dene…’such a shortage of laborers ensued that the humble turned up their noses at employment and could scarcely be persuaded to serve the eminent for triple wages’.”
But what would ultimately be the fate of this beneficial labor market?
“The linkage between demographic change and real incomes is striking: in all the cities under review, real wages peaked a little after population numbers had reached their low point. Demographic recovery reversed wage growth, and in many places, real wages continued to decline after 1600 as population kept expanding.”
The lesson from Scheidel’s study is that boosted wages were temporary and would eventually fall for two reasons. First, employers would use their wealth and power to drive wages back down using public policy when possible; second, population was growing fast enough to provide workers in numbers that allowed employers to keep wages low.
How does this relate to our current situation? We have yet to see a response by employer-friendly politicians to this wage escalation, but one should expect there to be one. For the wage gains to be maintained over time, a demographic change will have to occur. Somehow, the number of applicants for these low-wage jobs must remain low.
Could there be some kind of demographic change taking place? We should note that the US and nearly all wealthy countries are experiencing birth deficits. Young adults are not producing enough babies to replace themselves. Net population in some countries is already falling, with more to follow. The US population is only growing because of immigration. We tend to think of immigrants as people desperate for a job who will keep wages low. However, official policy is to encourage immigration by skilled, well-educated people and discourage the types who have traditionally crossed our borders illegally. We pay little attention to the number of immigrants in the former category, but it is significant. If the demographics of our immigrants are changing, then the nature of our low-wage workforce will also change. The people coming to our southern border now are no longer strictly economic refugees. Many are fleeing political and climate threats. They are not necessarily the people we expect them to be.
It would not be a disaster if the price of a hamburger increased. Let starting wages climb and push all wages
higher. Perhaps we are seeing the
beginning of a long-term trend that no one predicted. Realistically though, as history tells us, we
should freeze in those higher wages with a healthy federal minimum wage.
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