Electoral issue: minimum wage

“The test of our progress is not whether we add more to the abundance of those who have much; it is whether we provide enough for those who have too little.” ― Franklin D. Roosevelt

It has been over a year since I have written for Weapons of Reason, before the presidential election had begun.  In the past, I always invited controversy.  Now, it is time to leave my door open to it.  isidewith.com has a quiz that compares your opinions on political issues with the candidates in the race.  I suggest everyone should use this resource to help to decide who to vote for in the election.  In the coming months, I will write about several of the issues that appear as questions.  I can only write about so many, though.  Every citizen should spend time investigating these issues.

I don't believe in suspense.  Assuming my position on these issues does not change radically, and you agree with these opinions, you should consider voting for either Hillary Clinton or Jill Stein.  I cannot be more specific than this, because I only have only answered the fifteen questions that I will write about.  You will have to answer the other questions based on your own judgement.

Question: Should the government raise the federal minimum wage?

Yes.

In the United States, 2.4 million workers over the age of 20 are paid at or below the federal minimum wage.  At the poverty threshold, wage earners in a typical American household earn $609 per person per month.  A typical household which consists of minimum wage earners provides only $584 per person per month.  An often cited reason for the minimum wage is the elimination of poverty among the poorest workers; however, it clearly is not succeeding in this goal.

An increase of as little as 5%—to $7.61 per hour—could eliminate the discrepancy between minimum wage and poverty, but most proponents call for much greater increases.  For example, taking the increase in prices due to inflation into account, the minimum wage in 1980—$3.10 per hour—would be worth $9.07 per hour today, and the minimum wage in 1968—$1.60 per hour—would be worth $11.07 per hour.  In 2014, a coterie of six hundred economists called for the minimum wage to be raised to $10.10 per hour by 2016.  Of course, the 15Now campaign calls for the minimum wage to be increased to $15 per hour.

Neoclassical economics—the dominant school of economics—predicts that high minimum wage negatively affects employment.  The argument is, essentially, that the price of labor (wages) will equilibrate supply of labor and demand for labor.  A business looking to hire workers will offer the free market wage and will hire a number of workers—or rather, will purchase a number of hours of labor—until the amount of revenue generated by more labor equal the cost of purchasing that labor.  If the model is correct, this will maximize the profits of the business.  The argument is that artificially increasing the cost of purchasing labor will necessarily reduce employment.

However, there are some difficulties with this approach.  First, it assumes that there is no cost associated with rejecting a job offer.  This ignores the reality of opportunity cost and negative financial consequences associated with unemployment.  It is often the case that the employer has naturally greater bargaining power.  Second, the model assumes that all labor—or that all laborers—are interchangeable.  This also creates an inequality of bargaining power.  An unskilled laborer has the choice of spending time and money seeking training, but that worker doesn't have the ability to choose between a low-paying unskilled job and a higher-paying skilled job until those resources have been invested.  Furthermore, empirical studies have revealed that the economic effects of increasing the minimum wage tend to be benign, without negatively impacting employment, but also not showing conclusively positive effects.

That being said, the issue of raising the minimum wage.  Since the '70s, the income of American workers has been mostly stagnant, but productivity has nearly doubled.  The median income in 1973 was $12,050 per household.  If inflation is taken into account, but income were also distributed as equally as then, today's median income would be on the order of $130,000 per household.  Businesses derive profit from the disparity between productivity and wages, which has grown in the past decades.