# 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.

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Madness. It all mine I tell you.

Hey put down that pitch fork!

Or we could just let the banks fail and have the 1% adjust automaticaly.

For them its bad, for us not so much....

I'd like my minimum wage in gold mr bossman

Heard about it on channel ZH

methinks mdb posted this... well played!  wage and price controls for all!!

Minimum Wage is the minimum level of skills for which a company is legally allowed to hire.

In other words, it is the level at whcih the government deems people's skills to be too low to hire.

In other words, the higher the minimum wage, the less people in the workforce.

Or to put it another way, minimum wage generates unemployment.

The real problem is not that wages are too low, it's that the cost of living is too high, and the reason for that is because our economic system is designed to give the fruits of the "invisible hand" to the bankers through our fraudulent debt-based fractional reserve monetary system.

I agree with both your points: minimum wage increases destroy jobs and the true solution is to reduce the cost of living.  Ironically, Charles Hugh Smith got that right in his post yesterday.  I don't understand why this new article misses the point that minimum wages (and price controls in general) are another form of (bad) central planning .

I don't understand why he believes in minimum wage either since it is a concept that has been thoroughly debunked as a statist myth.

Charles Hugh Smith wants to raise minimum wage by 20%. Why not raise it by 200% and see what happens - or is there some sort of Keynesian "sweet spot" that he believes it should be at - not too hot, not too cold?

When I got my first minimum wage job in 1967, working at a gas station, the minimum wage was \$1.40 per hour.  We sold gas that summeras low as 19 cents per gallon.  This is complicated math but stick with me please.  In the summer of 1967 a gallon of gas cost me 14% of my hourly wage.  With gas today at \$3.50 per gallon a minimum wage earner pays 48% of his hourly wage for a gallon of gas.  The same is true for nearly every necessity of life we purchase.

The fuzzy thinking which argues “low-wage earners” will be better off if we use political coercion to force their rich bosses to pay them more is a fantasy like most of the progressive, liberal, collectivist dogma.

If a minimum wage law lifts low-wage earners out of poverty why stop there?  Why not set the minimum wage at \$200 or even \$500 per hour and make everyone rich?  For thinking people the answer is obvious.

First the earned income tax credit was supposed to subsidize the working poor.  Second, we tried to round up all the potential competition for low-skill jobs and dump them into college courtesy of student loans.  Now, here we are again screwing with prices directly with the minimum wage.  A sorry state of affairs.

The high minimum wage existed back then because there was a lack of global competition. Manufacturing was centered in the US after WWII and global trade was lower due to the residual effects of the depression era trade barriers created.

With more open trade, comes lower salaries for the bottom 50%.

You want higher minimum wages, then re-enact the depression era trade policies.

That's the elephant in the room.  I don't think it came up in the Republican debates. They said that lower corporate taxes would make American companies more competitive globally.  Like that will make up for \$1 or 2\$ an hour labor with no benefits or rules. The "American" companies would be paying too much in taxes to bring their profits back to the U.S. to build factories.  I'm hoping China confiscates their factories and resources at some point. There's no tweaking the whole mess anymore, it needs to explode.

You want higher minimum wages, then re-enact the depression era trade policies.

+100

The pulling forward of demand over the last 20 years caused the housing bubble and the dot.com bubble and the student loan bubble and the money-printing bubble.  Now prices are too high and wages too low.  Increasing wages will not slow down the increase in cost of living.  The continued drumming up of an economy that is all smoke and mirrors (consumerism) is not the answer.   On the contrary it is the problem.  We Americans should reject this centrally planned attempt to reboot this economy.  It is a dead model.

Deleveraging is the answer for all of us.  For the individual, for the family, for the munis, for the states, for the feds.  EVERYONE needs to deleverage.  There are NO other answers.  Cut back, survive, and prosper at a later time when the environment for calculated risk-taking is friendlier.  The added benefit of delevaraging is that it makes you flexible and able to handle many stresses due to lower costs (monetary and otherwise).  Taleb describes this well in an upcoming book called "Antifragility".  Just my humble opinion.

More borrowing is the TPTB's one and only cure for our economic ills. Increased wages inevitably result in increased leverage, because no matter what ones income level one borrows as much as the bank allows in order to obtain the good life as painlessly as possible. Higher wages and higher taxes portend greater consumer and government debt - NEVER less debt!

"...or is there some sort of Keynesian "sweet spot" that he believes it should be at - not too hot, not too cold?"

Of course, it's important that wise rulers be able to set the minimum wage because, being wise, they know what the sweet spot is.

Yep. The "vast wealth creation" of the past decades that raised living standards has paralleled a vast debt creation. Much of the wealth the rich posess is not land, gold, and gemstones but obligations from individuals, corporations and governments that are claims on fantasy future income. And when that debt is not paid back then trillions of dollars in "wealth" evaporates and we get a deep depression. When that happens current minimum wage levels will be middle-class pay in this country and people will be glad to get it.

That's exactly right, but it cannot be emphasized enough--everything financial out there is designed to sell you the idea of living the good life while simultaneously making it impossible to achieve that lifestyle because it is all really designed as a conduit for wealth concentration at the top.

http://en.wikipedia.org/wiki/Anomie

...an individual suffering from anomie would strive to attain the common goals of a specific society yet would not be able to reach these goals legitimately because of the structural limitations in society. As a result the individual would exhibit deviant behavior. Friedrich Hayek notably uses the word anomie with this meaning.

I just got a retirement report from my company and it claims that I will need \$1.7M in savings to retire at age 65 assuming I need 80% of what I make now in order to live.  That is never conceivably going to happen, barring hyperinflation, of course.  Do I really need 80% of my current annual income when I'm 65 and up?  Damned if I know.  It seems unreasonable, though.  But again, here are these financial wizards planting ideas in people's heads.

I think we're going to see a big uptick in suicides as Boomers are forced into retirement with no money to sustain themselves.  Many will be living with their children, which seems like an oxymoron given that many children of Boomers never left the nest.  Regardless, there's going to be too many broke Boomers and not enough places to put them.

well a 1% return on 1.7M is only 17K. In our new age of ZIRP for ever, i think you will need more like 5M

Exactly. Unintended consequences of misguided political pandering.  Markets aren't perfect, but will naturally gravitate towards equillibrium.  Governments are FAR less perfect and generally gravitate to those with money to line their pockets.  Charles Hugh Smith, you demonstrated complete ignorance of economic principles in this article.

To what equlilibrium are you talking about?

Satisfaction of market participants through voluntary interaction.

Which isn't perfect by any means, but it is way safer than central planners picking the winners and losers like we have right now.

How about the equilibrium that should exist between real pay and real-productivity.  The KSA's (Knowledge, Skills, and Abilities) of a college grad of 2012 are at best on par with those of a high-school grad of 1969, so all else being equal the current minimum wage of \$7 or so is probably too much for a lower-skilled worker.

When I see "should" I dismiss the rest of the comment, it's meaningless.

None of the "should" stuff is gonna happen without a full-on revolution ending the present government (and Fed banking system), then creating a new constitutional government (without the Fed banking system)

...and that's not gonna happen.

"Should" is nonsense.  It ain't gonna happen.

Our Constitution is fine.  Its the politicians that are fucking things up pandering so that they can extend "their welcome" in office.

I suspect unemployment has been increasing all on it's own with no help from the minimum wage for a while now.

Wow, by your logic war is peace, ignorance strength...

Bingo. The only thing minimum wage laws do is make more and more jobs illegal.

How does making jobs illegal help anyone?

If we could eliminate poverty by making the minimum wage \$10, why the hell don't we make the minimum wage \$500/hr and ensure everlasting prosperity?

OH Charlie, I see you are in favor of price fixing. Yes let's fix the price of labor, fix the price of money (interest rates) this whole statist centralized control approach is sooo effective, we need more of it. Screw the free market, supply and demand be damned, we need price-fixing for everything. It worked really well in Russia! /sarcasm

if you consider raising the minimum wage price fixing, wouldn't putting a minimum on wages at any price be price fixing.

So in other words if you want totally free markets there would be no minimum wage. We could then insistently compete with China and India for manufacturing jobs.

the quality of life issue is always important to consider.

Cardboard box, Thompson Surface Sealer and something for the nest on cold nights or a wife.

Ya know, it's funny, but the wife and I start out around the middle quintile (gross), but after Fed Income, State Income, FICA, health insurance, 401k loan and hospital bill deduction, end up around the 4th quintile.

Then, after housing (small mortgage), gas to get to work, car insurance, license plates, food to survive, car repairs, electric bill, phone bill, radiology bill, home insurance and land taxes, we've got about enough to pay for internet, a night out on the town, and either a purse for her or an ASE for us....

....yeah, definitely living better than my parents, when my dad worked and my mom stayed home and took care of me and my brother, with enough left over for two cars, two snowmobiles and a summer trip.

Life is good....

We'd have to eliminate the evil "social safety net" in order to compete--even at matching wages you'd need workers without options to accept the working conditions and terms appropriate to their stations.

Neoliberal Express: All Aboard!

First Stop: Prosperity Mountain in the Land of Unfettered Unicorn Capitalism.

Liberty--First, Last and Always!

Ron Paul, 2012

Freedom is bad, lock me up if I interact voluntarily with others, 2012!

Ooops!  Problem is when money is used as a weapon and most people are unarmed.

That's not freedom.  That's tyranny.

Slogans are nice, but reality really has to be accommodated.

reality really has to be accommodated.

The statist believes that his ability to centrally plan for billions of others is greater than reality although reality must on occasion be "accommodated."

But the truth is that reality always supersedes the plans of men. We must accommodate ourselves to reality and not the other way around. And reality dictates that as each man has his own will he must needs be his own sovereign. Reality demands it and will accept no accommodation while some individuals presume to undertake the direction of others against their will.

Chapter and verse, the Book of Liberty?

What the labor class knows is they've gotten screwed and neoliberal "economics" has been the means.

Any paradigm, however sophisticated or earnestly idealistic, that justifies it is just self-serving bullshit. imo.

I don't worry about ideals but I do have principles. The most important principle to me is self determination. Each individual has a right to be free to strive for his own betterment.

I used to vote Democrat and think liberally in furtherance of those principles. But one day I realized that statist policies do not support those principles and in many cases undermine them. I saw that I had to stop supporting many policies which I had long believed in in order to continue to be true to my principles.

I'll leave idealism to the statists who actually believe in ideals which can be promulgated from on high. Us regular folks are more interested in the mechanics of living in the real world rather than hearing more about how the bright boys in Washington know better about how we should live our lives than we do ourselves.

Get real.

Like it's only the "statists" who are caught up in bullshit!  Looks like you've swung to just a different extreme.  I think the Buddhists are onto something important with their "middle road" philosophy, fwiw.

Good luck, CA.  :-)

Typical left/right black/white linear thinking. "I don't like what you're saying, but I don't like the status quo, so the answer must lie somewhere in the middle!" Pathetic.

You've got it right, CA. It's a simple algorithm that logically flows from the Non-Agression Principle. The use of force is wrong; the State is DEFINED by the use of force; therefore the State is wrong.

Just like it would be WRONG to point a gun at someone and tell them they must have sex with you (we call this RAPE):

• Pointing guns at people and telling them what they can and cannot pay people for their labor, is WRONG.
• Pointing guns at people and telling them that they must fork over a hefty portion of their income is WRONG.
• Pointing guns at people and telling them who they can and cannot marry is WRONG.

And so on.

Nice to see you've got it figured out CA. The most important conversation about these topics is currently taking place at www.freedomainradio.com. THIS is the next step people; aren't you tired of flailing about in the moral world, relying on opinions and sophistry to determine truth from falsehood? I mean christ, if that's the best Steve Jobs could do, instead of an iPhone we'd have a pile of transistors glued to a circuit board and wrapped in whipped cream. It's time to apply some god damn SCIENCE to questions of the State, of Religion, of Philosophy, of Economics, of Parenting, of HUMAN INTERACTION.

You'll never get good at poker by just playing poker; you have to read some books on strategy, you have to engage with the game on every level and with a scientific and statistical approach. These issues are NO DIFFERENT, and until we get rid of this RETARDED SOPHISTRY - and  I say this as a regular reader of Chuck's work - we will go exactly NOWHERE.

Again, people, please: join the conversation. www.freedomainradio.com. The conversation is happening, and you are MISSING IT.

We don't need to regulate a minimum wage.  What we need to do is to remove all the factors that artificially jack up the cost of living, so people can afford to live decently on market-based wages.

This means we stop the credit-based inflation of prices throughout the economy, in housing, college tuition prices, health care, etc and get rid of all of the financial parasite rentiers' profiteering.

Excellant! Actually, that's  King Bossman now - I brought the Kingdom of Illinois for 1 fake gold coin and a packet of gravel from a former Governor there

I will pay you 30 - also a very  traditional  sum - to hunt down our former slavers

Increasing the minimum wage is the stupidist idea ever.  What really needs to happen is we need to eliminate the minimum wage.  Minimum wage, and the increases thereof, are actually one of the biggest job destroyers ever.  I'm sorry, but some jobs just flat out are not worth \$10/hr.  There used to be jobs that younger kids could pick up that would be "worth" less than minimum wage, yet they still provided money for young teenagers and provided a service to people and business owners.  Sweeping a shop up in the evening is just not worth \$10/hr.  Now, because of "minimum wage" these jobs are gone, because the job was never worth what the minimum wage was.  So now, instead of having young teenagers working and making SOME form of money and learning valuable lessons, we instead have them sitting around at home getting fat, or worse.  The amitious ones will go do free internships to boost their resume.  In the mean time, we have businesses utilizing LESS employees and asking these employees to work MORE because they can't afford to hire another person at \$10/hr whereas they might have been able to \$5 an hour.

Honestly, where is the sense of responsibility and selfworth in our society any more.  Do we honestly need the government to tell us what a job is worth?  It would seem that if someone offered a job at \$5/hr, and NOBODY took the job, than obviously the wages offered were just flat out too low.  If you have TONS of people clamoring for even a \$5/hr job, then they obviously decided that even at \$5/hr, the job is better than nothing.  Free market baby, all the way...

Kids can and still do work for below min. wage.  Nobody is stopping enterprising young kids from doing their neighbors yard work or other under the table work.  And here in WA state, with the \$9/hr we have one of the healthiest economies nationwide.  We still make stuff here.

Great.  So you can move the labor outside the official economy into the cash economy.  Works for some.  But there is no arguing the fact that Minimum Wage is price fixing and the necessary result of price fixing is shortages if the market clearing price is lower than the artificially set price.  Add to that the fact that our liberal facist nanny-state overlords will come into your back yard to stop it if they can or into your living room to take away the babysitter.  After all they know what is best for you in every facet of life and you are not capable of making your own decisions, like what size soda to have if you live under Iron Mike in NYC.

When I was young I worked at a place called Pauls Landing which was basically a boat rental place.  We got paid peanuts.  But it was invaluable experience.  Now I am pretty sure Paul wanted to write those salaries off on his tax return as a business expense, which he would not be able to do if he paid us in the cash economy.  I am also pretty sure that raises in the minimum wage put him out of business.  The shortage of labor that results when the centrally planned price is higher than the market clearing price hurts both the potential employees who find there are no jobs as well as the small businesses that could scrape by if they could pay the market clearing price.  Net result is lower level of economic activity.

School kids have worked in the cash economy since there's been school.

So when the Greeks go black market to avoid the banks and taxes the Zero Hedge crowd roars in approval.  But a high school kid mowing lawns for cash?  Job killing pimple faced punk.

In case you haven't noticed, the official economy is presently fucked about seven different ways.

But it's illegal to sell lemonade now. It's all over the news, kids being arrested, lemonade confiscated etc.

To me it's funny, because that shit happened in Iowa, and Georgia.  While the neighbor kids up the block from my house run one every summer in communist Seattle without issue.

I swear the biggest problem is people have lost their minds and threw common sense out the window in exchange for reactionary bullshit.