Wage should approach value of labor

January 30, 2014 | John Burbank

john-featured-croppedLast week Snohomish County state representatives Mike Sells and June Robinson, D-Everett, Cindy Ryu, D-Shoreline, Derek Stanford and Luis Moscoso, D-Shoreline, and Mary Helen Roberts, D-Edmonds, joined Jessyn Farrell, D-Seattle, in proposing to increase our state’s minimum wage to $10 in 2015, $11 in 2016, and $12 in 2017. It is about time. Our minimum wage has steadily fallen away from its high point in 1968. That was 35 years ago. And yet, worker productivity has almost doubled since then.

Up to 1968, increases in the minimum wage kept up proportionately with productivity increases. That made sense, as the gains in productivity were in that way equitably shared between employers and employees. Workers could increase their everyday purchases and businesses could increase their investments (or just enjoy greater profits). But after 1968, minimum wage increases tailed off, while productivity continued to increase.

In fact, the minimum wage has actually fallen in value when you take into account inflation. The value of the minimum wage 35 year ago, in today’s dollars, was just about $11 an hour. So even though Washington has the best statewide minimum wage in the country ($9.32), a worker earning the minimum wage here starts out $1.68 behind what she would have made in 1968.

A bit of history is helpful: In 1998, voters passed Initiative 688, which increased the minimum wage from $4.90 to $5.70 in 1999 and $6.50 in 2000 and linked increases thereafter to inflation. In the two decades leading up to Washington’s minimum wage policy change, the bottom 10 percent of income earners, who earned near or at the minimum wage, experienced an eight percent decline in real earnings. Since implementation of I-688, that decline has been reversed, underscoring the importance of a solid wage floor.

But we have a long way to catch up. If the minimum wage had kept up with increases in productivity, it would be over $17 an hour. It isn’t, and while wages for the top fifth of workers have grown, everyone in the middle and below has actually lost ground. The bottom 10 percent of workers, compared to the bottom 10 percent 35 years ago, actually make 25 cents less per hour. The worker in the middle makes about $18 an hour, a 15 cent per hour decline.

The decline in wages didn’t just happen. It is a conscious result of public policy decisions over the past 30 years, especially at the federal level. Our legislators know that they have the power and responsibility to reverse this impoverishment of workers. That’s what a minimum wage increase can begin to do. Plus these workers spend their earnings in the local economy. A $1 increase in the minimum wage equals a $2,000 increase in annual income. With 20 percent of our state’s total workforce benefiting, they would have over $1 billion more to spend in local businesses.

That’s what the historical evidence shows us. Low wage workers spend their earnings in the local economy, in retail businesses. As spending goes up, employers meet the demand by hiring more workers. This trend is particularly reflected in service sector jobs, which have a greater share of minimum wage workers than the overall economy. So it should be no surprise that when the minimum wage increases, jobs increase as well. In 1999, our minimum wage increased by 55 cents, employment in restaurants and hospitality in Washington grew by 6,400 jobs, and overall employment grew by 54,000 jobs. In 2000, the minimum wage increased another 70 cents, hospitality employment grew by another 4,700 jobs, and overall employment grew by 63,000 jobs.

A better minimum wage increases incomes and jobs for workers, their families, and our economy. It is a public policy that works … for all of us. And the bottom line is that low wage workers deserve a wage that approaches the value of their labor.

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Posted in Minimum Wage

Comments

  1. Richard Jauch says:

    Something that has been left out by the media and lots of others is the fact the employee, young, starts out about minimum wage and as his/her experience increases gets more pay. The MAJOR problem is that when the employee gets to a certain level the jobs above low wage size are all in China. You can thank the non-thinking folks in the Federal Government for this. If you want more money for your job consider working on a commission basis. No sales, no cash. Or start your own business, that will give you a very good idea of what it takes to create a job for someone else. The answer is not simple, but the minimum wage should be geared to the cost of living index. I could go on.

    • Economic Opportunity Institute says:

      Richard, that’s a common misconception about the age of minimum wage workers. Actually, almost 90 percent of minimum wage workers are at least 20 years old; almost 70 percent are in families with incomes below $60,000 per year; over half work full time; and more than one-fourth have children. (More on that here.)

      Today’s minimum-wage workers are also far more educated most people realize. While only 16.8 percent of low-wage workers in 1968 had gone to some college or had a college degree, that group had grown to nearly half (45.7 percent) by 2012. The bottom line is that minimum wage in 2013 is far less now than it was in 1968 despite the economy’s productivity more than doubling, and low-wage workers attaining far more education. (More about that here.)

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