A minimum wage hike would reverse 40-year pay stagnation for working people

Marc Stier |

Originally published in The Morning Call on March 11, 2021

Raising the minimum wage is about helping low-income workers do better — but not just that. It is about changing the rules of our economy so that we all do better, now and in the future.

To all do better we must reverse the 40-year trend that has seen skyrocketing incomes and wealth for the owners and executives of the largest corporations while income for working people and the middle class has been stagnant.

This transformation was not the necessary result of a free market economy. The economy is a human creation subject to the rules we choose.

Political and legal changes made at the behest of the corporate elite deliberately tilted the economy to their advantage and against the working and middle classes, as well as small businesses.

Activists near the Capitol in Washington on Feb. 25 appeal for a $15 minimum wage.

What were those changes?

First, lawmakers allowed the value of the federal minimum wage inflation to decline sharply. Relative to workers’ productivity, the federal minimum wage today is now only about a third of its 1968 value. Had it risen with productivity, it would be $24 per hour today.

Second, changes in labor law and regulations have made it harder for unions to organize.

Third, corporations were allowed to grow larger and combine, which empowered them to raise prices and hold down not just wages but what they pay small business suppliers. Corporations can make higher profits by paying less, even if that means employing fewer workers and producing less.

There would be no businesses complaining about not being able to hire enough workers if they were willing to sacrifice profits to pay more.

Corporate power affects unskilled workers, as chains like Jimmy Johns require workers to sign noncompete agreementspreventing them from jumping to work at Subway for an extra quarter an hour. It also affects technologically skilled workers. Major technology companies were recently forced to pay back wages that were held down by their agreement to not “poach” workers.

Though changes in the rules boosted corporate profits, they have not given us faster economic growth any more than cuts in corporate taxes did. Stagnant wages lead to stagnant consumption, which, because personal consumption is 70% of the economy, leads to slow economic growth.

Though low interest rates and a rising stock market have created an historically low cost of capital, slow growth in consumption retards business investment. Businesses have no reason to invest in productivity-enhancing technology if wages are stagnant, which has led to stagnant productivity growth.

Raising the minimum wage would pay not only those below the new minimum, but those immediately above it. We estimate that 1.6 million Pennsylvanians — a quarter of the work force — would get a raise if the minimum wage reaches $15 an hour.

And, no we wouldn’t lose jobs. Corporations with market power relative to workers and suppliers would be likely to employ more workers and produce more while holding prices steady. Small businesses would be able absorb some of the higher wage cost because they would reduce turnover and training costs and boost morale, increasing productivity.

And because wages are only a portion of their costs, prices would go up far less than wages.

If the minimum wage goes to $15 per hour, $6 billion in additional wages would be spent, in large part at the small businesses of Pennsylvania.

A number of cross-state studies, including one by the Federal Reserve Bank of New York that compared jobs and employment along the New York-Pennsylvania border, found that both employment and wages in low-wage industries actually grew a bit faster in New York as its minimum wage went up.

Rising wages may lead to fewer checkout clerks. But is that really a problem if there are far more better jobs that pay better wages for those who design, produce, install and service the machines that replace them?

The corporate-sponsored changes in our economic rules have hurt everyone except the richest people in our country.

We should return to the mid-20th century rules in which rising wages for an increasingly educated workforce drove investments that increased productivity and economic growth. And we should start by raising the minimum wage.

Doing so would not only benefit those with the lowest wages but all of us as well. Even the owners of huge corporations might do better, but they would have to be satisfied with a smaller share of a growing pie, not the larger share of the collapsed soufflé that is the American economy for the working people and the middle class today.

Marc Stier is the director of the Pennsylvania Budget and Policy Center, which provides analysis on tax, budget and related policy matters.