The Minimum Wage Debate Explained

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Every few years, and pretty much constantly over the last four years or so, the US enters a cataclysmic debate over the federal minimum wage. Some people think raising the wage would destroy businesses and raise prices for goods and services, others think it’s essential to keep up with inflation and rising housing prices. Both sides firmly believe that their position is the one supported by hard data and evidence, but there are certain realities surrounding this debate that are never addressed. So, in this episode, I’m going to address them. Hopefully by the end of this video, you’ll be more informed on the minimum wage debate, but more than that, you’ll have a new understanding of why it’s such a divisive issue in the first place. 

 

Let’s start with some basic history. Once upon a time, there were no regulations regarding how much bosses had to pay their workers. This was back in the early 1900s, and because of this wild west of a labor market, those who owned the factories could pay their workers as little as they wanted, and if those workers didn’t like it, they could quit and other starving Americans would gladly take their place. This worked out wonderfully for the owner class. They knew that a desperate working population would have little choice but to accept the tiny wages they offered, because the alternative was abject poverty and starvation. Over the years, labor laws were established to help prevent this predatory behavior, and, in 1938, the Fair Labor Standards Act established the country’s first minimum wage, a system that had already been implemented in other developed nations. This legislation also banned the use of exploitative child labor, which had been an incredibly lucrative practice for early 20th century business owners. The owner class was not happy about this, but millions of parents across the country were relieved that they would receive better wages, and their children would no longer be torn to pieces by the massive, dangerous machines the business owners forced them to crawl into to fix. Almost thirty years later, in 1966, an amendment to the fair labor standards act raised the federal minimum wage to $1.60 per hour, and extended coverage to federal employees and some farm workers for the first time. This particular amendment is a critical bit of historical evidence, because, as we’ll see later, a recent study made some important findings regarding the minimum wage and employment. 

 

Now, let’s take a look at how the minimum wage has changed over time. Six decades ago, in 1960, the minimum wage was one dollar per hour. Over those sixty years, the wage has steadily risen, today sitting at seven dollars and twenty five cents. Taken by itself, this graph looks pretty good. The line goes up. Here’s the problem. Just listing dollar amounts without historical context does not give an accurate depiction of what those amounts mean. Let’s look at the same line adjusted for inflation. That’s a lot less impressive. These peaks and troughs represent each time the minimum wage has been raised, and inflation wiping out those gains. Taken as a whole, we can see that compensation for minimum wage workers is actually significantly lower today than it was sixty years ago. This peak here, representing the 1966 amendment to the fair labor standards act, marked the high point of the US federal minimum wage. A dollar sixty an hour in 1966, adjusted for inflation, equates to almost thirteen dollars an hour today, nearly twice our current minimum wage. Okay, so we know that real compensation for workers is lower than it was in the past, but this is where we get to the crux of the matter. Many people don’t care that it’s lower because they believe that a minimum wage should not be a living wage, that you should not be able to support yourself on this wage because jobs that pay that little are meant to be beginner jobs, or things to keep retirees occupied. Let’s talk about that. 

 

Do students and other young people make up the bulk of minimum wage workers? Yes. Are they typically able to rely on parents for housing? Yes. Does this mean that they do not “need” more money in order to simply survive? In many cases, yes. Does that mean we should allow their compensation to slip so far behind the rate of inflation that their pay has next to no value? No. Justifying poverty wages simply because many minimum wage workers are students is not a valid reason to keep paying so little. And the minimum wage is a poverty wage. According to several studies, there’s not a single county in the entire nation where a minimum wage earner could afford a one bedroom apartment. If the minimum wage had simply kept up with inflation and productivity gains since 1968, it would be over 24 dollars per hour today. That’s a lot of surplus labor value that’s been taken from workers, and given to their bosses. Specifically, it’s an additional 32,160 dollars per year that should be going to the people actually doing the work. Unsurprisingly, the owner class is almost uniformly opposed to raising the minimum wage at all. But what’s more disappointing is seeing people who make 16 dollars per hour fighting with people who make 7.25 an hour, when their bosses make thousands of dollars per hour. There’s a certain mindset in America where people believe, if I just scrimp and save enough, if I work enough overtime, if I do what I’m told, if I just work hard enough, one day I’ll be the one making thousands of dollars per hour. Of course the owner class is thrilled by this. When the working class is divided, those who make twice the minimum wage fighting against lower wage workers earning even a single dollar more, it makes the capitalist’s job that much easier. Remember, the people making 16 dollars an hour are still making less than what the minimum wage should be if it had just kept up with inflation and productivity. But let’s set this aside for now, and address some of the common objections to raising the minimum wage. 

 

We’ll begin with the objection that raising the minimum wage will increase housing prices. I would start by asking those people, when was the last time you rented an apartment? I imagine it was quite awhile ago. It’s understandable, then, that these people are a little out of touch with the realities of housing prices in the rental market. The federal minimum wage has not been raised since 2009. Between 2010 and 2020, the average apartment rental price has increased by 40%, and by much more than that in some areas. Let me repeat that, the price for housing has increased by 40%, while the minimum wage has increased by 0%. So, to the people saying raising the minimum wage will increase housing prices, that has already been happening without raising pay to a living wage. The minimum wage has nothing to do with rising prices in housing, or in any other area. When people say your Big Mac will cost 30 dollars if the wage goes up, they’re clearly not familiar with McDonalds pay in Denmark. If you work at a McDonalds in Denmark, your starting pay is 22 dollars per hour. You also get 6 weeks paid time off, life insurance, a year of paid maternity leave, and a pension plan. Their Big Mac costs 27 cents more than in America. 27 cents is apparently the difference between respecting your workers, and considering them stupid, morally deficient, low-skill workers. The argument that raising the minimum wage will increase prices on housing and goods has no basis in reality.

 

Let’s move on to probably the most common example – raising the minimum wage will drive companies out of business. On the surface, this is a valid concern. Many companies do operate on razor thin margins, and an increase in employee compensation could in theory make their business untenable. Let’s return to that study I mentioned earlier. In September of 2020, a new report was published that examined the effects of the minimum wage increase as part of the 1966 fair labor standards act amendment. Their findings? Earnings rose sharply in all affected industries, the racial wealth gap was significantly diminished, and, most importantly for this discussion – there was no adverse effect on employment. Businesses could afford to pay their workers more, they just didn’t want to. It’s no stretch of the imagination to assume that the same is true today, especially when tax breaks for businesses and the wealthy have increased dramatically since the 80s, coincidentally, the period since which worker compensation has stagnated. So, based on historical precedent, there’s no reason to assume that increasing the minimum wage would drive companies out of business, especially when some of the largest employers of minimum wage workers are hugely profitable mega-corporations like WalMart and McDonalds. But let’s return to the scenario that’s so often used on pro-business news outlets – the mom and pop, family business that simply couldn’t afford to pay their workers any more. Here’s the thing. If you cannot afford to pay your workers a living wage, you should not be in business. This is how the free market is supposed to work, remember? Your business is at the mercy of the market. If you don’t make enough money to cover your expenses, by free market logic, you should not be in business. Paying your workers is the most basic expense of all. Again, the minimum wage should be over 24 dollars per hour. If you can’t pay your workers a third of that rate, that means the only reason you’re in business is because you’re exploiting people by paying them poverty wages. This is the whole reason for the existence of the gig economy. We’re so used to devaluing workers that companies like Uber no longer even classify their workers as employees, so they can get away with paying them nothing at all. But let’s give small business owners the benefit of the doubt here. I’m going to assume that you genuinely want to run an ethical business that pays its workers fairly. I can understand how it would be a challenge to raise your workers’ pay from wherever you’re paying to 15 dollars per hour all in one chunk. Wouldn’t it make more sense if instead of having to raise the minimum wage by large amounts every decade or so, we chose to raise the wage every year based on inflation and other metrics? This would make the change more gradual and manageable, the workers would be paid fairly, and it wouldn’t put undue stress on you, the business owner. Other countries already do this. Instead of leaving the minimum wage in the hands of politicians, countries like France and Australia, economic commissions re-evaluate their minimum wage every year, raising it to match critical economic signifiers. It’s no coincidence that countries that take this common sense approach also have a higher minimum wage relative to the average worker’s salary. Unsurprisingly, the US ranks dead last by this metric.

 

Okay, so let’s assume you’re on board with the idea that workers should at least be paid a living wage. That inevitably leads us to the next objection – if the minimum wage goes up, they might make more money than other low-paid workers, like teachers. I’m going to ask you to think about that statement for a moment. If minimum wage workers earn more money, say, 15 dollars per hour, still less than what the minimum wage should be, they might make more money than teachers. I would suggest that there’s an easy solution here. It’s not to demand that the minimum wage stays the same, it’s to demand that all low-paid workers get a raise. This goes back to the strange American delusion that one day you’ll be rich. No, if you’re a teacher, a janitor, if you work a trade, if you’re in retail, if you sell hours of your life for a wage, you’re in the same boat as minimum wage earners. You both deserve to be paid more. In 2020, the federal government spent over 720 billion dollars on the military, and that was just the base budget. When you account for other aspects of the so-called “defense” budget, you get numbers that are alarmingly close to one trillion dollars. One trillion dollars, in a single year. More money than the next ten nations combined spend on their militaries. There’s not a country on earth that could even come close to threatening the US, and yet we spend all this money on submarines and aircraft carriers and billions of tons of bombs. We have the money to fully fund our schools, invest in new public projects, and improve the lives of all Americans, our priorities are just out of alignment with what the country actually needs. Walmart made over 129 billion dollars in profit last year. Supermarket chains saw an increase of over 39% in their profits during the pandemic, while their workers, whom the companies labelled “essential” saw little to no increase in pay, despite putting their lives on the line for their employers. Jeff Bezos, Elon Musk, and a handful of their billionaire friends increased their net worth by a trillion dollars over the same period. These people make more money in a single hour than the average person will earn in a lifetime, and we’re squabbling over giving our lowest paid workers an extra 7 bucks an hour? There is a sickness in America that has been programmed into us over the last four decades. We are conditioned to be hyper-competitive, to see earning a living as survival of the fittest, to rely only on ourselves and see others’ hardship as evidence of some moral failing. This pull yourself up by your bootstraps mentality has seeped into our national consciousness and completely poisoned our outlook on labor. Like most discourse around money, the minimum wage debate boils down to the fact that Americans are so conditioned to be entirely individualistic that they feel personally attacked when someone else’s income inches even a cent closer to their own. It’s hard to overcome this mindset. The propaganda of suicidal self-reliance and hyper-individualism makes it incredibly difficult to watch other people succeed, because, deep down, whether we’re consciously aware of it or not, watching our fellow workers succeed makes it feel like we have failed. At its core, the minimum wage debate isn’t just about the minimum wage, it represents a sort of proxy for all class consciousness in America. There’s no easy answer here. The process of deprogramming an entire population will be a massive undertaking. But the first step must be a renewed understanding of class struggle. If you are a worker, whether you’re in retail, food service, transportation, whether you’re young or old, from New York or Alabama, whether you’re a republican or a democrat, if you sell hours of your life for a wage, you are working class. The owner class, the people that own the massive corporations, the restaurants, the car dealerships, the people who pay your wage and make million dollar donations to corrupt politicians, they have a vested interest in paying you as little as possible, because that will maximize their profits. The struggle is not you versus your fellow workers, but all workers versus the obscenely wealthy owner class who refuse to allow America to become the country they claim it is. A country that works for all Americans, not just those at the very top.

 

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