As we enter 2015, three million low-wage workers in 21 states will gain a small increase in their wages, thanks to increases in state minimum wages. People you know will see a wage increase — your neighbor, your teenage kid, the person who serves you coffee and donuts.
The minimum wage increase is a good thing because it increases income in a small way to the workers on the low rungs of our economy. A stagnant minimum wage redistributes income from workers to owners and managers and, ultimately, shareholders and customers. As the minimum wage has failed to keep up with inflation and productivity increases, our political economy has redistributed significant income from low-wage workers to owners over the past 40 years. One reason this happened is that workers have no leverage vis-à-vis corporations. They are price takers for their labor.
Increases in the minimum wage reverse this redistribution so that workers win back a little bit of what they have lost. Minimum wages should be associated with value added instead of the powerlessness of workers to demand higher wages. But minimum wage workers are not compensated for the value of their work for their employers. Raising the wage begins to remedy that undercompensation. If the wage goes too high, then employers will not hire workers, because their compensation exceeds the value of their work. But as we have seen, this is not the case with minimum wage increases, which simply means that for the past decades workers have been paid less than the value of their work for employers.
How does increasing the minimum wage redistribute income? An increase in the wage results in a decrease in the payments to managers and profits for the establishment. That’s redistribution. We can argue that this might not happen because of productivity increases by the worker, but that merely means that the productivity increases (or a portion thereof) that might have gone to the employer instead go to the employee — hence redistribution from owners to workers. Redistribution also can occur between worker and customer. If a restaurant increases prices due to an increase in the minimum wage, in an attempt to avoid a decrease in profits, then the customers pay more. These customers have the disposable income to patronize restaurants. We can make the assumption that the customers have greater incomes than the people who wait on them. Thus, an increase is again redistributive, with the increase coming from increased prices paid by customers.
Imagine: In Seattle an Amazon IT person goes out to lunch. (It feels like they all do.) Instead of paying $15 at the Skillet truck, they pay $17. They have lost $2, and the Skillet truck workers will have seen an increase in their wages. Redistribution to minimum wage workers is good for them and pushes up the floor for the bottom half of all wages.
We too often equate increasing the minimum wage with living standards and poverty levels. This is dangerous for several reasons, including the fact that it sets a precedent for slicing and dicing the minimum wage: Do you have dependents? Do you pay for your own health insurance? How old are you? Are you paying for tuition yourself? All these are important questions, but taken to their logical conclusion, they move the minimum wage into welfare policy, so that an 18-year-old student could get paid less than a 25-year-old who is on her parents’ health insurance, and she might get paid less than a single mom with one kid, who could get paid less than a spouse in a household with three kids, etc. These are life situations best handled by social policy, social insurance and the appropriate provisions of public goods and services. But a focus on the minimum wage as welfare policy debases the fact that we should be raising the minimum wage because we should be insuring that workers are paid the value of their work. That is, such a focus disrespects workers as workers.
A lot of liberals don’t want to call increases in the minimum wage “redistributive.” It brings the reality of class conflict too close to the surface, apparently, and portrays workers as workers, not as victims. But in order for workers to not be victims, they must be compensated for the value of their work. That is not happening now, not in these United States. These state minimum wage increases begin to reverse the damage, precisely because they are redistributive, from the owners of capital to the workers they employ. That is a good thing — and an excellent beginning for the new year!