Minimum wage mythology

Nothing beats getting lectured by White Guys in Suits about how they scrambled up the ladder by paying for college with their minimum wage jobs. Apparently they didn’t take any economics classes that might have explained inflation to them or even a math class that went over how percentages work:

Sen. Thune was born in 1961, so adjusting for inflation, his $6.00 per hour wage in the late seventies (when the minimum wage, incidentally, was around $2.90 per hour) would be about $24.00 per hour today. So a $15.00 minimum wage doesn’t even bring us close to parity with that.

As Timothy Burke notes, tuition at K-State has grown more than 11 times what it was when Sen. Marshall graduated, while the federal minimum wage has only doubled.

Some other things that have increased much faster than the minimum wage and might be considered critical parts of basic existence:

  • $500 worth of groceries in 1981 would cost about $1,400 today, an increase of nearly 190 percent.
  • Rent for a one-bedroom apartment in Port Huron, Michigan (the county seat of St. Clair County, where I live) was $150/month at the low end in 1981; today the low-end of similar apartment rents is $650/month – an increase of 433%.
  • Community college tuition in St. Clair County increased by 735% ($18.50 per contact hour in 1981 vs. $136.00 per contact hour in 2021); university tuition at Central Michigan University (my alma mater) went from $31.50 per hour in 1981 to $417.00 per hour this academic year, an increase of 1324%.
  • Admittedly, the doubling of the minimum wage has allowed consumers to keep pace with the price of some common items: gasoline prices are about 90 percent higher today than in 1981 (adjusted for inflation); new car prices are up only about 55% over the last forty years; the price of technology-related items have, in many cases, actually gone down.

My point, however, is that the cost of basic life necessities – housing, food, and education – have grown well beyond the ability of the minimum wage to keep up. The $3.35 per hour federal minimum wage that was in effect when I started college in 1981 would need to be $9.64 today. And that $9.64/hour wage would result in an annual income for an individual of $20,051.20, assuming 40 hours per week times 52 weeks. The cutoff for eligibility for the Supplemental Nutrition Assistance Program (SNAP) is 130 percent of the federally-established poverty guideline, which works out to $16,744. So you’re above the poverty line, you’re not eligible for SNAP or many other assistance programs, but you’re supposed to live on about $1,670 per month.

A minimum wage shouldn’t just be a “subsistence wage.” It should be significant enough to allow for a decent living standard, some savings, some room for investment in education or other self-improvement. Reducing economic insecurity would have positive impacts on many social problems, including crime.

We hear, usually from the White Guys in Suits, that raising the minimum wage would cause small businesses to cut jobs to compensate, or that the additional costs would be passed on to consumers. These effects can happen, but may also be offset by having more money in the pockets of both current and potentially new customers. Henry Ford, hardly a social progressive (to put it mildly), did have it right when he observed

The owner, the employees, and the buying public are all one and the same, and unless an industry can so manage itself as to keep wages high and prices low it destroys itself, for otherwise it limits the number of its customers. One’s own employees ought to be one’s own best customers.

Henry Ford, 1926

Why do we assume that it’s a zero-sum game? If we pay people better, doesn’t that give them more money to spend in the overall economy?

When the federal Fair Labor Standards Act was passed in 1938, the minimum wage was 25 cents per hour, and the intent was for that to be not just a “minimum” but a living wage, as described by President Roosevelt at the beginning of the Great Depression:

It seems to me to be equally plain that no business which depends for existence on paying less than living wages to its workers has any right to continue in this country.

Franklin D. Roosevelt, 1933

I’d like to be charitable and assume that Sens. Thune and Marshall are just not experts on the history of labor and compensation, but that’s why they have staff, so I’m more inclined to think that they’re being intentionally obtuse because they hope their constituents will take their “pull yourself up by your bootstraps” nonsense to heart. But nearly 60% of Americans are in favor of raising the minimum wage, either all at once or gradually over several years, to $15.00 per hour.

While many states and cities have their own, higher, minimum wage, the federal standard of $7.25 per hour hasn’t changed since 2009. It’s long overdue to be adjusted to an amount that reflects not just the value but the dignity of all work and all workers.