- Paul Constant is a writer at Civic Ventures and co-host of the “trident economics” podcast.
- In a recent episode, he spoke with economist Dean Baker about how the minimum wage has lagged behind.
- If the minimum wage kept pace with productivity growth, Baker says workers should earn $27 an hour.
- This is an opinion column. The thoughts expressed are those of the author.
When President Biden asked Congress by raising the federal minimum wage to $15 an hour in his State of the Union address last month, he was not promoting a far-left agenda. A Pew survey from last year indicates that 62% of all Americans approve of a federal minimum wage of $15. But even with that popular support, we now live in the longest period in history without an increase in the federal minimum wage since the minimum wage was established in 1938 as part of the Fair Labor Standards Act.
Fortunately, state and local governments have taken over from Congress by raising wages on their own. In Seattle, which was one of the first cities in the country to animate the “Fight for $15” a decade ago this fall, the minimum wage has continued to rise with annual cost-of-living increases and is now at $17.27 an hour for almost all employers.
But while President Biden’s call for a $15 per hour minimum wage far exceeds the recommendations of the last two Democrats at the top of the presidential ticket, the fact is that it has been 20 years since the $15 minimum wage became a rallying cry. In the intervening 10 years, families have seen skyrocketing prices and exorbitant increases in housing costsand now it’s close impossible for a family of four to survive on a minimum wage of $15 in any state.
When it comes to minimum wage, simply choosing a figure and sticking to it is an unsustainable practice
On the latest episode of “Pitchfork Economics”, Dean Baker, senior economist at the Center for Economic and Policy Research, made a good argument that the minimum wage in the United States should be linked to productivity.
“Actually had a minimum wage that kept pace with productivity growth since when was it created [in 1938] until 1968, that is, for three decades,” Baker said. “And of course the economy did very well in that period. I’m not saying that’s the reason, but obviously it didn’t stop the economy from doing very well.”
At a very basic level, it makes sense to link the federal minimum wage to worker productivity; after all, workers should be reimbursed for the value they create for a company, and productivity it is a direct measure of a firm’s output relative to input. But the productivity of the workers has grown three and a half times more than the salary of the workers since 1979, with an increase in productivity of almost 60% and an average salary of less than 16%.
If the federal minimum wage had grown by at the same rate as productivityBaker said, “We’d be above $27 an hour, if we added inflation and productivity growth.”
How a $27 minimum wage would boost the economy
“Imagine you have a worker who works 40 hours a week, 50 weeks a year, at $27 an hour,” Baker said. “That worker is making $54,000 a year. Imagine our lowest paid worker (people who clean bathrooms, people who clean tables in restaurants) making $54,000 a year. If you had two minimum wage workers as a couple, $108,000 a year would be his family income.”
Those families would not only be able to afford to live in the communities where they work, but would also have money to spend: on food, clothing and household items, on their children, on educational and small business opportunities for themselves. That increased demand would be a boon to local businesses, which would have to hire more workers to cope with the influx of customers.
Baker is clear that simply raising the wage is not enough to fix the massive inequality that has grown with the lowering of the minimum wage. He said regulations that address the top end of the income scale, including “downsizing our financial sector” and “fixing corporate governance” would help bring the gap between the haves and have-nots to a level more sustainable, as it was. in the decades after World War II when our economy was at its strongest.
But the fact is that you can’t address the incomes of the poorest Americans without repairing their direct economic relationship with the richest Americans. TO studio 2020 by global think tank Rand showed that over the past five decades, economic growth has primarily benefited the wealthiest Americans and cost the bottom 90% of all workers $2.5 trillion.
Only when we ensure that money flows throughout the economy, and not just accumulates at the top, will we be able to address the real damage caused by 50 years of trickle-down economics.