Why isn’t the minimum wage today $22?

I am sick of hearing people opposing a rise in the minimum wage because it would be an intolerable burden on business that would cause them to lay people off or prevent them hiring workers or that it would cause rampant inflation. Suring a hearing of the Senate Committee on Health, Education, Labor and Pensions, senator Elizabeth Warren takes apart a restaurant owner David Rutigliano who tries to shiftily make this argument.

First she points out that the minimum wage has not kept pace with productivity gains. She then gets some data from Dr. Arindrajit Dube, a University of Massachusetts Amherst professor who has studied the economic impacts of raising the minimum wage. He says that if the minimum wage had kept pace with the growth of incomes of the top 1%, then it should be around $33 now and that raising the minimum wage would have a negligible impact on inflation.

She then uses that information to quiz Rutigliano and debunk the claims that it would cause layoffs and cause inflation. It is a nice piece of questioning.

Warren is not bombastic nor a grandstander. She is very sharp while being soft-spoken, a good combination.

(Thanks to Crooks and Liars.)


  1. jamessweet says

    I’ve heard a pretty good argument that the productivity thing is not really an apples to apples comparison… that basically, a lot of the improvement in productivity has come from automation — so some of the $14.75 has gone towards capital investment to facilitate the automation, and some of it has gone towards goods just plain being cheaper.

    However, as the second statistic makes clear, a good chunk of it has also gone straight into the CEOs’ and bankstas’ pockets. Is $22 or $33 really an appropriate value for the minimum wage? Possibly not. It depends on what kind of society we are trying to build (e.g. maximize productivity at the expense of personal well-being, or the other way around). But the present value of $7.25 is just shameful. It doesn’t accomplish either goal very well.

  2. fivupmushrume says

    I’m split on the whole minimum wage thing. On one hand I believe it is socially and economically imperative that an adult should get paid enough to live on, even if they are performing a low-skill or no-skill job. Therefore, I believe that the minimum wage should be raised.

    The other hand remembers that when he was 15 and working part-time as a helper to a day camp counselor, 4.25 (early 90’s) was ample at the time. If that same kid made the amount of money that is proposed in many of the minimum-wage battles he would have been very very over paid, and the park district would have had a difficult time filling in the odd-hours when counselors were handing over responsibilities to each other.

    How do you rectify that gap between an adult trying to live a life and make ends meet and a kid just entering the workforce who just wants to buy a bike or save up for POS car?

    If I were forced at gunpoint to make the decision, I wouldn’t hesitate with going with the higher minimum wage, but it seems like there are more nuances needed in the law so that local park districts, small retail businesses, et al don’t have to shell out twice as much cash just to have a warm body in a chair and businesses that are hiring full-on adults pay them appropriately. Perhaps that nuance is government welfare?

    Although, perhaps 4.25 wasn’t enough, for the time, for a kid, and I was being underpaid to keep an eye on the snot-nosed children.

  3. invivoMark says

    fivupmushrume, keep in mind that what was “ample” for you, who likely had parents paying for a majority of your expenses at the time, would not be ample for anyone with lesser parental support. It would also be less than ample if you had to pay your own way through college.

    You make a valid point, but I’m not convinced that it’s an important one compared to the much bigger issues of living wages and skyrocketing student debt.

  4. Drew says

    I think Sen Warren is missing something here. Even if the difference in what they must charge to make up the difference at, say, McDonalds of her MW increase would really only equate to a roughly 0.5%, McDonalds would actually increase their prices by 10-20x times that (~5-10%) because if the rubes have more money why not go ahead and take it from them.


  5. smrnda says

    In balancing the needs of working adults with kids who want to get a little pocket cash in the minimum wage debate, I think the needs of working adults matter, and kids who want to score for some pocket cash aren’t really important in the discussion. If minimum wage increases, lots of a parents will have more money and then their kids will have less need of the low wage jobs for extra cash.

    Something about minimum wage increases is that the less you make, the higher the % of your money you spend. Consumer spending drives growth. When most of the revenues go to the wealthy, they don’t spend that much money but use it to buy up existing businesses and consolidate their ownership, which means a decrease in competition between firms which leads both to price increases and wage stagnation.

  6. unbound says

    Keep in mind that minimum wage back in the 80s (and into the 90s a bit) was still considered low at that time. Also keep in mind that minimum wage was typically being earned by teenagers. Finally, a family making $50k a year back in the mid-80s had more buying power than a family making $100k a year does today.

    McDonalds, et al, was more than happy to use teenagers for a summer or a year back then. Now McDonalds, et al, are increasingly looking for career workers for that same low pay. There are now families that are relying on that minimum wage to survive in lieu of it being a teenager’s supplemental income.

    if the minimum wage was increased to a living wage, prices would certainly go up; but hardly at a 10x to 20x increase that was mentioned above.

    In the end, the real issue is the inequality of the system overall. Government and unions were the only things that kept the truly rich (top 0.001%) somewhat in check. Now that those rich have increasing controls over the government, and they have successfully turned the unions into boogiemen, there are no real checks left. Expect this trend to continue until we become, economically at least, the next Mexico.

  7. jamessweet says

    As to fivupmushrume’s point, I think one could make a strong case that a simple flat minimum wage is not an ideal system. For one, a living wage in Manhattan is not the same as a living wage in Fargo, for example. For another, yeah, there are people in different circumstances where a lower wage could potentially make some sense (although then that maybe undercuts others, so it’s not clear whether that really makes sense or not).

    Still, though, what’s clear is that under the current system, of a single flat federal minimum wage (though some states do have higher minimum wages, but the federal is the absolute minimum), $7.25/hr is waaaaaay too low.

  8. Cathy W says

    I know for certain that Australia gets around the problem of paying teenagers trying to save for a car the same as adults trying to support a family by having a tiered minimum wage, where teenagers still receiving parental support can be paid less -- I’m not sure what the numbers are, though. This makes a certain amount of sense, and you could probably even justify it in light of the restrictions on underage workers. (A possible unintended consequence: if teenagers are drastically cheaper, low-end employers might preferentially seek out teenagers -- but they can’t work during school hours and can’t perform certain duties…)

    As far as unemployment / inflation? I think increasing the minimum wage up to a certain point would decrease unemployment (ditto maintaining unemployment benefits and increasing food stamps), because if you take people whose income doesn’t meet their basic needs and give them each an extra $50/week, they will use that money to purchase more goods and services than they were previously. Even the teenager saving for the car, or pocket money -- the whole point of pocket money is that you spend it, right? The teenager saving for college or student working to pay tuition will have a smaller student loan balance in the future, meaning more money for buying a car, buying a house, starting a family, saving for retirement. And voila! The economy grows because of increased demand.

  9. lanir says

    The concern for fivupmushrume’s park being able to pay him was addressed in the video when they referred to increases in minimum wage not causing any overall lowering of employment in the restaurant industry over time. It is also vitally important that children NOT be paid less than adults for doing a normal job. Businesses go where the money is. There is no reason to make child labor artificially attractive.

  10. Timothy says

    I agree with lanir.

    Respectfully, (and — full disclosure, the father of a teen working at McD’s for the past 1.5 years), I think bringing teens into this discussion is a red herring. In agreement with lanir, people should be paid for doing a normal job. Teens included. At $11/hour, or $22/hour, or $33/hour, my son (and other teens) could be saving more for college, or paying off his car sooner, or even thinking of moving out of the house (!) and getting an apartment at 18. None of these things are possible on his current wages. My wife and I have been financially subsidized our children far more than our parents subsidized us as teens in the 1980’s.

    Another issue that would be interesting to address is the severed depression of wages in middle class America. If $22/hour is about $45,000 (2,080 X $22), then there are many middle class Americans who are not earning even that amount. Should the minimum wage in America rise to such heights, you’d see enormous pressure of American business to increase salaries — many American would probably gladly take a minimum wage position paying $45,000 over a ‘professional’ position that currently pays $30,000, $35,000 or even $40,000 (if they can find it).

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