Guest Post: Income Disparity Solution: Restore The Minimum Wage To 1969 Levels
Submitted by Charles Hugh Smith from Of Two Minds
Income Disparity Solution: Restore the Minimum Wage to 1969 Levels
If we want to lessen income disparity, the solution is easy: restore the minimum wage to levels considered reasonable 43 years ago in 1969.
There is much hand-wringing about the vast income disparity in the U.S. between the top 5% and the bottom 25%, and precious little offered as a solution. Once again we are told the problem is "complex" and thus by inference, insoluble.
Actually, it's easily addressed with one simple act: restore the minimum wage to its 1969 level, and adjust it for the inflation that has been officially under-reported. If you go to the Bureau of Labor Statistics Inflation Calculator and plug in $1.60 (the minimum wage in 1969 when I started working summers in high school) and select the year 1969, you find that in 2012 dollars the minimum wage should be $10 per hour if it were to match the rate considered "reasonable" 43 years ago, when the nation was significantly less wealthy and much less productive.
The current Federal minimum wage is $7.25, though states can raise it at their discretion. State rates runs from $7.25 to $8.25, with Washington state the one outlier at $9.04/hour.
In 40 years of unparalleled wealth and income creation, the U.S. minimum wage has declined by roughly a third in real terms. "Official" measures of inflation have been gamed and massaged for decades to artificially lower the rate, for a variety of reasons: to mask the destructiveness to purchasing power of Federal Reserve policy, to lower the annual cost-of-living increases to Social Security recipients, and to generally make inept politicians look more competent than reality would allow.
The full extent of this gaming is open to debate, but let's assume inflation has been under-reported by about 1% per year for the past two decades. That would suggest the minimum wage should be adjusted upward by about 20%, from $10 to $12/hour.
All those claiming such an increase will destroy the nation (or equivalent hyperbole) need to explain how the nation survived the prosperous 1960s paying the equivalent of $10-$12/hour in minimum wage. Exactly what has weakened the economy such that the lowest paid workers must bear the brunt of wage cuts?
To understand the modest scale of such an increase in the context of total household income and wealth, consider these charts. Let's start by recalling that 38 Million Workers Made Less Than $10,000 in 2010-- Equal to California's Population. (Why the Middle Class Is Doomed April 17, 2012).
There are about 140 million jobs in the U.S., including part-time and temporary, and roughly 40 million workers earn less than $10,000 a year. This is the vast population earning minimum wage, and their earnings constitute a small share of total income.
The bottom 90% have seen their wages stagnate for 40 years, but the bottom layer earning minimum wage have seen their real earnings decline by roughly one-third (not counting entitlements they might qualify for as members of the "working poor.")
In the good old days of more widely distributed incomes, the bottom 20% who generally earn minimum wage actually saw significant increases in income. That has reversed in the financialization era.
Those earning minimum wage hold a tiny sliver of the nation's wealth.
Apologists for low wages claim we must "get competitive" with low-wage nations, as global wage arbitrage has cut wages everywhere. This claim overlooks the fact that the vast majority of minimum-wage positions are precisely the jobs that cannot be outsourced: cleaning offices, fast-food jobs, pizza delivery, agricultural work, and so on.
Other apologists claim that since these positions are "low productivity," they "deserve" lower wages. If we as a nation reckoned them worthy of $10-$12/hour 40 years ago, then why are low-productivity jobs less deserving now?
Still other apologists claim that raising the minimum wage would 1) destroy small businesses and 2) trigger painful increases in food and other prices.
The only way the minimum wage can hurt small business is if some small businesses are allowed to cheat and pay illegally low wages as a way of lowering the cost of their service. If the law were uniformly and aggressively enforced, for "black market" and above-market wages alike, then those cheating their employees would slowly be eliminated from the economy via heavy fines.
Once everyone is paying $10-$12/hour, even for informal work, the "playing field" will be leveled at a higher scale.
Given the modest share of the national income earned by low-paid workers, claims that costs would skyrocket are groundless. Yes, costs would rise, but not by enough to impoverish the nation.
What all those decrying restoration of a reasonable minimum wage overlook is that the working poor will spend most of their increased wages, and that will actually aid the economy where it counts. Aren't we tired yet of Federal Reserve policies that enable more skimming by the top 1% while giving nothing to the bottom 50%? The simple, straightforward way to correct the vast income imbalances is to restore the minimum wage to 1969 levels and adjust for under-reported inflation.
What about the wealthy? Shouldn't they pay more than the rest of us? Well, actually, they already do, for the most part: the top 25% of taxpayers--34 million workers out of a workforce of 140 million--pay almost 90% of all Federal income taxes. But we'll address that aspect of income disparity tomorrow.