"$12 By '20": Democrats Seek 70% Increase In Minimum Wage

As regular readers are no doubt aware, wage growth in America has never been higher — for your boss. If however, you belong to the 83% of the US workforce that falls under the BLS’ “non-supervisory” category, you haven’t been so fortunate and in fact, your wages are now growing at a measly pace of 1.5%, down from more than 4% before some folks on Wall Street — who, statistically speaking, make between five and six times as much as you do on average — built a financial Frankenstein which promptly murdered most of its creators before escaping the lab and running amok through global capital markets until it was finally brought down by central banker monetary bazooka fire.

In a happy coincidence for the 17% of Americans who are “supervisors,” the policies which (temporarily) kept the Wall Street-borne crisis from destroying the entire global financial system have also served to inflate the assets most likely to be held by those who make more money, which helps to explain why, as the St. Louis Fed recently pointed out, the Middle Class is rapidly disappearing in the post-crisis era. 

 

And while Hillary Clinton’s “everyday Americans” wait not-so-patiently for Ben Bernanke’s “wealth effect” to slowly trickle down to them, economic growth is being choked off because when three quarters of GDP depends on consumer spending and consumer spending is almost perfectly correlated with wage growth, policies that work to exacerbate the gap between the haves and the have nots are counterproductive when it comes to economic output. 

Against this backdrop, Democrats are moving on a “$12 by ‘20” pitch, whereby they hope to have the minimum wage hiked to $12 within the next five years. The rationale is simple: restore the purchasing power Americans once had and you will restore robust economic growth. Republicans contend a $12 minimum wage would cause employers to cut jobs. Here’s The Washington Post

Top Democrats laid down their minimum-wage marker on Capitol Hill on Thursday, setting up their party's middle-class-focused economic message heading into the 2016 elections campaigns.

 

Their pitch: "$12 by '20" — a $12 per hour federal minimum wage by 2020, which they say will give a pay raise to nearly 38 million Americans.

 

"This is a key piece of our effort to grow the economy from the middle out not from the top down," said Sen. Patty Murray (D-Wash.), a lead sponsor of new legislation to reset the minimum wage. "It would help the economy grow in a sustainable way, and it’s an important step toward expanding economic security and making sure more families can make ends meet”...

 

But Republicans, with a few exceptions, have grown consistently move opposed to minimum wage increases in recent years, arguing that any hike would tamp down economic growth…

 

Last year, for instance, House Speaker John Boehner (R-Ohio) said he considered any minimum wage hike to be "bad policy" that would hurt minorities and others holding low-wage jobs by eliminating some of those jobs. "When you raise the cost of something you get less of it," he said after President Obama announced an executive order raising the minimum wage for federal contractors…

 

The $12 an hour wage, supporters say, will restore the purchasing power that the federal minimum wage had in the late 1960s, when the American manufacturing economy was at its height, and provide enough income to keep a family of three out of poverty.

Note the latter point there about keeping families out of poverty. Even if Boehner is correct (i.e. if raising the minimum wage causes companies to fire existing employees and/or hire fewer workers), some will likely argue that because more than half of welfare spending goes to working families, many of those who would be subject to layoffs in the event lifting the minimum wage prompts job cuts are already impoverished and dependent upon the government to make ends meet in the first place, so if there’s even a small chance that a $12/hour minimum doesn’t lead to mass layoffs it’s a risk worth taking. Still, overcoming the notion that a near 70% hike in the country’s pay floor won’t cost the country jobs is likely to be difficult.

Here’s more color from WSJ:

Democratic lawmakers are upping the ante on the minimum wage Thursday, pitching a plan to lift the federal pay floor by 66% to $12 an hour by 2020.

 

The proposal appears to be a long-shot—a plan to raise the minimum wage to $10.10 an hour failed last year. But the new legislation helps frame the wider debate around income inequality just as the 2016 presidential campaign gets under way…

 

Republican lawmakers have said a large increase in the minimum wage will cost the country jobs. A report from the Congressional Budget Office published last year showed an increase to $10.10 an hour would cost the economy about 500,000. A smaller increase to $9 an hour was projected to cost 100,000 jobs.

 

Ms. Murray and Mr. Scott’s proposal would also gradually eliminate the lower minimum wage received by workers who earn tips, something not in last year’s measure. Currently, waiters and similar workers are only required to be paid $2.13 an hour, so long as they receive tips to bring their hourly rate in line with the minimum wage (ZH: does this mean the “bartender recovery” is about to become a viable economic concept?) 

 

Thursday’s proposal ties future wage increases to changes in the median wage paid to workers. A specific ratio has yet to be released. The federal minimum wage has not previously been indexed for automatic raises. Congress must vote for the pay increase...

 

Connecting the minimum wage to the median wage of all workers more directly addresses concerns about income inequality. It assures the lowest paid workers don’t fall too far behind the middle...

 

Economic Policy Institute economists said their initial read of the new proposal would bring minimum-wage workers back in line with the 1968 level by 2020.

The proposal “would raise the purchasing power of the minimum wage modestly relative to where it was five decades ago,” they said in a paper released Thursday. It would also restore the relationship between the minimum wage and the wage of workers in the middle.”

In the end, it's difficult to argue with the notion that raising the standard of living for Americans making minimum wage would be a good thing. The problem is that as with all attempts to centrally plan something that would normally be dictated by market forces, there will invariably be unintended consequences and if the extra money earned by those who keep their low-paying jobs after a minimum wage hike is completely offset by the lost income of those who are fired because their employers can no longer afford to keep them employed, then the net result of the entire enterprise will be negative.

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Finally - if that's not clear enough...

 

h/t @DavidJamesJr