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Dean Baker
Published: Tuesday 19 February 2013
While giving a raise worth more than $3,000 a year to the country’s lowest paid workers is definitely a good thing, it is hard to get too excited about a situation in which these workers will still be earning less than their counterparts did almost 50 years ago.

Minimum Wage: Who Decided Workers Should Fall Behind?

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It was encouraging to see President Obama propose an increase in the minimum wage in his State of the Union Address, even if the $9.00 target did not seem especially ambitious. If the $9.00 minimum wage were in effect this year, the inflation-adjusted value of the minimum wage would still be more than 2.0 percent lower than it had been in the late 1960s. And this proposed target would not even be reached until 2015, when inflation is predicted to lower the value by another 6 percent.

While giving a raise worth more than $3,000 a year to the country’s lowest paid workers is definitely a good thing, it is hard to get too excited about a situation in which these workers will still be earning less than their counterparts did almost 50 years ago. By targeting wage levels that roughly move in step with inflation we have implemented a policy that workers at the bottom will receive none of the benefits of economic growth through time. In other words, if we hold the purchasing power of the minimum wage fixed through time, as the country as a whole gets richer, minimum wage workers will fall ever further behind.

It is important to realize that this was not always the case. The federal minimum wage was first put in place in 1938. From that year until 1968 when its value peaked, the purchasing power of the minimum wage increased by more than 140 percent. As a result, minimum wage workers saw a sharp increase in their living standards. Over this 30 year period, low wage workers shared in the gains of the economy as a whole as the minimum wage rose in step with productivity growth.

If workers at the bottom had continued to share in the economy’s growth in the years since 1968 as they had in the three decades before 1968, we would be looking at a very different economy and society. If the minimum wage had risen in step with productivity growth it would be over $16.50 an hour today.That is higher than the hourly wages earned by 40 percent of men and half of women.

It shouldn’t seem strange that the wages of workers at the bottom rise in step with productivity, after all they do for many other workers even when the work has not in any direct way become more complex. For example, when a realtor is selling a $400,000 home rather than a $200,000 home it does not necessarily require any greater effort or skills. In fact, if we were talking about the years of the housing bubble, it may just be the case that the same home had doubled in price. Yet, the commission will be twice as much.    

There would be similar stories in many other occupations where the growth of the economy by itself would tend to make wages rise. It is not obviously more difficult or time-consuming to sell 1,000 shares of stock or credit default swaps at prices that are twice as high, yet the commissions going to the brokers are likely to be twice as large.

Doctors, lawyers, and other highly educated professionals have also been positioned to benefit from the growth in the economy. We have left those at the bottom out. This has been by design and nowhere is that more clearly the wage with a minimum wage that has been set at level that has not even kept pace with the cost of living.

As a practical matter we couldn’t possibly raise the minimum wage any time soon to $16.50 without serious disruptions to the economy. One result would also be higher prices in the economy. Of course this is also the result of having doctors who average $250,000 a year and Wall Street bankers who can pocket many millions of dollars a year. Their income is a cost to everyone else.

Somehow the issue of higher prices and inflation is an important point when we discuss the wages of people getting $7.25 an hour to wash dishes but it is not supposed to enter into polite conversations when we talk about the most highly paid workers. That is a political choice, not an economic one.

We have structured our economy so that we can get cheap restaurant meals because of low-paid workers. Hotel stays cost less because we ensure a plentiful supply of workers at near the minimum wage. And convenience stores stay open 24 hours because the people working the midnight shift get paid almost nothing.

There is no economic reason why those at the bottom should not share in the gains from economic growth. And there is no economic reason, why those at the top should be such disproportionate beneficiaries. We rigged the deck this way more than three decades ago. We can restructure the rules so that money no longer flows upwards. A minimum wage that again follows in step with productivity growth would be a large part of this reversal.



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ABOUT Dean Baker
Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He previously worked as a senior economist at the Economic Policy Institute and an assistant professor at Bucknell University. He is the author of several books, including Plunder & Blunder: The Rise and Fall of the Bubble Economy, The Conservative Nanny State: How the Wealthy Use the Government to Stay Rich and Get Richer and The United States Since 1980. He was the editor of Getting Prices Right: The Debate Over the Consumer Price Index, which was a winner of a Choice Book Award as one of the outstanding academic books of the year. He appears frequently on TV and radio programs, including CNN, CBS News, PBS NewsHour, and National Public Radio. His blog, Beat the Press, features commentary on economic reporting. He received his B.A. from Swarthmore College and his Ph.D. in economics from the University of Michigan.

Again we see Obama getting

Again we see Obama getting credit for weakly calling for far too little far too late, all while elites like Obama himself accumulate ever more wealth.

The term "inflation" I feel

The term "inflation" I feel is bantered about too casually, like it's some natural condition of any economy, akin to aging, that's just going to happen. When in fact it's the largest form of taxation, one that's beneficial to the super rich (i.e., those counterfeiting or benefiting directly from counterfeiting and thereby inflating/diluting the currency) and steals from everyone else. If inflationary counterfeiting (by the Fed) isn't stopped, artificially fiddling with prices, wages and interest rates will just hide, forestall and increase the problem.

Mountainman23, as usual you

Mountainman23, as usual you are correct. Those with much will always take more. And more is never enough for such folks.
Meanwhile those with an under-developed acquisitive impulse, happy to get by with a 2-car garage house in the suburbs, a two-week paid vacation, and a decent pension, will eventually lose even these hard-earned minimums to our betters who set minimum wages for everyone else but no maximums for themselves.
Unlike Henry Ford who created his own market by paying his workers enough so that they could afford his cars, "our betters" insist on squeezing the last ounce of blood and sweat and cent from the submissive, uncomplaining worker.
With no discretionary income left in the wallets of working men, all markets--beyond survival necessities (food, shelter, clothing)--get strangled.
Ralph Nader told us there's be days like this...

As all economics are

As all economics are political, Mr Baker has expressed a more humane set of political parameters in this piece. However, the nation has always had an underclass of workers,previously slaves and the indentured and now the working poor as part of the political and societal paradigm that the elites have always maintained, past and present, with their control over almost all legislative processes.

The problem today is that the American elites who had whole heartedly adopted fascism in the 1920's and 30's, while obviously out of favour through the 1940's to 70's, have finally reasserted themselves. While almost all traces of fascism became for all intent and purpose extinct after WWII in Europe, it was not destroyed in American. What we have now in American and striving for global dominance is not neo conservatism or feudalism, but rather neo fascism, funded and pursued with great vigour as the way forward by the current dominant majority of the ruling elite class....they are fascists plain and simple. Fascism is the climax state of capitalism....Hitler was eighty years premature. If arriving today he would find an ally in present day America amongst the extra patriotic set, the elites, and their courtiers, and therefore the entire resources of the nation.

The filthy rich billonaires,

The filthy rich billonaires, millionaires, and Fortune 500 corporations comprising the 1%ers depend on the programmable idiots to vote against their own interests for political support, and the right-wing owned media like Rush Limbaugh and Rupert Murdoch's Fox Noise propaganda concubine program the useful idiots.

If the programmable idiots ever get a clue, the Party of Stupid goes the way of the dinosaurs.

Not everyone with a

Not everyone with a professional degree does well, only those working for corporate america, typically. If you aren't an employee, but are self-employed, and you aren't kissing up to the Big Boys but trying to serve the 47%, the peak minimum wage adjusted for inflation ($16.50/hr) sounds awfully good, and there are dry spells when even a steady $9/hour would be tempting. I think the time has come for our country to recognize that not every person with a college education is automatically one of the "Parasitic Elites" cited below. The 1% has long made a big media push to convince us all to hold "an enemy among us mentality" based on differing social viewpoints, when we are all victim to their divide and conquer schemes. In some ways the folks in soviet USSR were better off, for with only one party, they could clearly see that the oligarchs and the ruling party were the enemy, and they consequently rose up in civil disobedience against them. Here, most folks are convinced that the enemy is the political party they are not a member of, not seeing that neither of the two main parties has their own best interests at heart, but instead work for the corps- 1%.

psst .. tell the Parasitic

psst ..

tell the Parasitic Elites that raising the minimum wage of Working Americans will put more money in the economy for the Parasitic Elites to steal from the rest of us

.. they'll go for that!

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