Politicians Cannot Afford to Ignore the Minimum Wage

05 May 2015 12:51 PM | Deleted user

The nation has been witness to more and more day long strikes for a minimum wage of $15.00 an hour. The Economic Policy Institute in Washington is calling for a $12.00 hour minimum by 2020 as an essential means of raising America’s pay. Of course, by 2020 the value of the federal minimum wage will have only eroded more. Still, that there are more and more calls for a higher minimum wage suggests an issue that politicians in the next national election really cannot afford to ignore.

These calls for higher wages would appear to be a logical response to several different forces. The first is that wages in America, especially for the middle class, have been stagnant for more than three decades. The second is that median household income has declined. The third is that there has been growing wage inequality with more wealth being concentrated at the top. The fourth has been the disappearance of the manufacturing sector, which was a source of middle class jobs. Replacing these jobs has been the low-wage service sector. The fifth has been that the minimum wage labor market has grown in size and is no longer defined by teenagers or so-called secondary earners.

Critics have long pointed to the fact that the minimum wage is really not an effective anti-poverty measure because most minimum wage workers are in families that aren’t poor and those who are tend to be out of the labor force. And yet, herein lies the crux of the problem when it comes to the current minimum wage debate.

When talking about the minimum wage a distinction has to be made between low-wage workers and those living in poverty. Here the critics are right. A minimum wage isn't going to help those in poverty, and it is for this reason that the anti- poverty focus of those arguing for minimum wage increases is problematic and misplaced.

The minimum wage historically was never viewed as an anti-poverty issue, but as a labor management issue. Of course, it was intended to assist low-skilled workers who either weren’t members of a union or lacked the bargaining power that more skilled workers had. We conveniently forget that the better paid manufacturing sector, before being unionized, also was considered to be unskilled work at one time.

The issue isn’t that low-wage workers lack skill; it is that they lack bargaining power, and as a labor-management issue the minimum wage was intended to correct for the asymmetrical power imbalances in the labor market. In the early days of the minimum wage critics would talk about how the minimum wage violates a worker’s ability to negotiate his or her pay and working conditions. What ability? The only market power that workers had was to either accept or reject the low wages they were being offered. Even Adam Smith recognized that employers had the market power to collude in order to suppress wages.

Again, the question is why? Here the answer is simple. Free marketeers argue that wage rates are set by market forces that are allegedly natural. But they are really set by power dynamics that appear to masquerade as natural forces. In the language of economics employers are wants traders while workers are needs traders. An employer does not need to hire workers, but can hold off until the price of labor drops to the point that they are willing to purchase it. A worker, however, does not have that luxury and because he or she needs to eat is forced to accept whatever wage is offered. The claim that workers are not worth a wage higher than the current minimum is merely a rationalization of a set of power dynamics that result in workers getting low wages while the companies that pay them hoard massive profits at their expense.

In my last column, I noted that paying workers costs the nation $152.8 billion in public support for working families. As much as consumers enjoy purchasing cheap goods, they are nonetheless paying for those cheap goods through higher taxes to provide those supports. In short, all of us are subsidizing the profits of companies at the expense of workers.

Meanwhile, more and more studies, including from the Congressional Budget Office, note that raising the minimum wage would be a tremendous boost to the economy because it would benefit more workers than simply those who earn the statutory minimum wage. I have also been making that argument for several years now by pointing to the wage contour effects. Here is where it is critical that we recognize that the minimum wage is more about workers’ wages and really has little to do with poverty. Yes, it will assist those in poverty to the extent that a rising tide lifts all boats. But that isn’t the point.

We should assume that employers have long recognized the wage contour effects of the minimum wage. Otherwise, why would an issue that only affects 2 percent of the labor market evoke such strong emotion and often be such a contentious issue of political debate? One would think that if it really is such an insignificant segment of the labor market, nobody would care. But it is always so heated. Clearly, it affects a larger segment of the labor market.

Most polls show that 65-70 percent of Americans favor raising the minimum wage. Is this a statistic that politicians on either side of the political aisle can really afford to ignore? And yet, to couch this issue as just another type of anti-poverty issue ultimately undermines the importance of the issue, not least of which because our American culture of individualism and equality of opportunity has long stigmatized the poor.

Politicians who claim to speak in the name of the middle class need to begin with the minimum wage and explain why it will through wage contour effects boost the incomes of the middle class, arrest wage stagnation, reduce the wage gap between the top and the bottom, and ultimately drive the economy through the increased aggregate demand for goods and services that greater purchasing power affords,.

It really should be a no-brainer that the issue is non-partisan. The Democrat that continues to only talk about the minimum wage as an anti-poverty measure has to be assumed to be the typical limousine liberal who perhaps doesn’t really care about the middle class. Or at least it would be fair to say that this person has no real understanding of the middle class. But the Republican who continues to offer up the same bromides that a higher minimum wage will cost jobs or it raises prices in the face of data showing the huge social costs, only demonstrates that his or her true allegiance is to corporate America. Now you will know whom not to vote for.

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