The minimum wage discussion is remarkably complex. The Biden administration has proposed a gradual increase from the current federal minimum of $7.25 to $15/hr. The word gradual has been ignored by critics who would have us believe that a radical, sudden move is being made to $15.
A few facts:
• Nationally, there were only 392,000 persons in 2019 earning the $7.25 minimum. That was a tiny 0.47 percent of the 82.3 million wage and salary workers.
• The minimum wage is the lowest rung on the wage ladder. The lowest ten percent of private sector workers earned $10.06/hr or less in 2019. The median private sector worker earned $17.64/hr and the top ten percent were up at $46.64 or more.
• $7.25 is the minimum wage in 21 of our 50 states. Indiana and Kentucky are included, but not neighboring Ohio ($8.80), Michigan ($9.65) nor Illinois ($11.00).
• Washington State ($13.69) has the top minimum wage. In all, 29 states exceed the federal minimum.
These four facts indicate we already have a flexible system, adjusting the minimum wage to individual state circumstances. Then why do we have to raise the federal minimum wage?
The answer is imbedded in another question: What is the purpose of the minimum wage? That purpose is twofold:
1. to provide all workers with a wage sufficient to support him/herself at a basic level of health, safety, and comfort, and
2. to end various supplemental benefit programs for the working poor.
The current $7.25/hour minimum does neither.
An increase in the federal minimum is necessary to overcome the reluctance of 21 laggard state legislatures to recognize changes in economic and cultural expectations.
Typically, legislators are ensnared by small businesses which pay low wages because their market size does not accommodate upgrading facilities and compensating workers at contemporary standards. These businesses have great cumulative political power.
In addition, legislators have to trust people to provide for themselves both in the present and the future. Neither Democrats nor Republicans have such trust. Libertarians, those irrepressible idealists, believe people will make mature decisions.
When wages are low, workers live from paycheck to paycheck. Yet, we could raise hourly wages for the lowest 10% of private sector workers by $2.31/hour (23%) immediately with one simple change.
How? Employers pay for employee benefits (pension plans and health insurance, for example). Slowly we are seeing this practice from WWII disappear. Companies cannot be allowed to stop paying the money managers and insurance companies without putting equal amounts in the workers’ paychecks. That money must increase workers’ pay so they can allocate those funds as they choose. It’s not an adequate solution, but a step in the right direction.
Workers might prepare for tomorrow, if they were paid adequately today. Tomorrow, however, is still a luxury, even at $15 per hour.
Morton Marcus is an economist. Reach him at firstname.lastname@example.org. Follow his views and those of John Guy on Who gets what? wherever podcasts are available or at mortonjohn.libsyn.com.