Common Cents: Increasing minimum wage
Published: Monday, August 26, 2013
Updated: Monday, August 26, 2013 18:08
In times of economic hardship and low demand, Henry Ford actually raised the wages of his factory workers.
It was this sage understanding of aggregate demand that helped make Ford such a success in the early days of the automobile manufacturing industry.
Ford realized that if his workers couldn’t afford to buy his vehicles, his demand would suffer, and his workforce would shrink as a result.
Of all the pressing political issues that the summer presented, the state of America’s low wage working class is clearly the most consequential - and arguably the most obvious in terms of setting a course for decisive policy action.
Minimum wage has increasingly lagged behind inflation since the 1960s, and the effect it has on demand helped to foster the recession of 2008 and hinder the recovery of the US economy post-recession.
Mcdonalds and Walmart both made headlines this summer with the poverty wages they’re legally allowed to pay their employees.
Mcdonalds added significant insult to injury with its detached and sardonic attempt at financial planning for its minimum wage workers.
They used an online pamphlet form budget which assumes workers will have a second full time job, and miscalculates the costs of a myriad of real expenses that the American working class face.
The economic rationale for resisting minimum wage gains is relatively straightforward; that companies will hire less workers as a result of the higher cost of labor.
Unfortunately for the academic work of the Intro to Macroeconomics textbook authors, the real world employment effects of minimum wage gains seem to be non-existent.
The work of John Schmitt and other collaborating researchers have empirically denied these impact claims, drawing on a number of real world American experiments such as the differing minimum wage rates from state to state.
The reasons for this are arguable, but are likely related to the fact that humans aren’t bushels of wheat and the hiring/firing process is considerably more complicated than the idea of commodified labor allows for.
This is why abolishing the minimum wage is such a laughable policy idea, and one that no serious policy maker would ever be caught dead speaking on behalf of.
A decrease in the income of working class families means a decrease in demand, and that means any benefits of paying workers like slaves would be instantly mitigated by the workers inability to spend their money at other businesses.
If the theory worked in practice, countries like Somalia would have booming markets, and countries like Luxembourg would be destitute.
Companies like Walmart are using the American taxpayer to subsidize their profits when they don’t pay their workers enough to live assistance free, and the voters are starting to notice.
Nearly three quarters of Americans support an increase in the minimum wage, and it turns out it’s a pretty bipartisan crowd - and for obvious reasons.
Strengthening the middle and working class and increasing demand for American businesses isn’t a Red or a Blue solution, it’s the right solution.