The $15 Minimum Wage Is Simply Back Pay

The $15 Minimum Wage Is Simply Back Pay

Wage theft is a real problem in the US.

Wage theft occurs when employers knowingly underpay their employees. Wage theft cost’s workers an estimated $50 billion a year according to the Economic Policy Institute. The current push for raising the minimum wage to $15/hr is usually justified by claiming that no one who works 40 hours per week should still live in poverty, and that’s a valid argument. But there is an additional argument in favor of the $15/hr wage, one which acknowledges that workers have a right to that wage based on their contribution to the long-run increase in national income, and denying that wage could be viewed as a form of wage theft.

When asked why we, as a nation, are wealthy, most people will mention our high wage rates, or salaries. At the family level this answer is correct. But, from a national perspective, wages paid are not the source of national wealth, if simply paying one self a high wage could generate national wealth, poor nations like Bangladesh could instantly escape poverty. Unfortunately wages don’t generate national wealth. They are a reflection of it.

As a nation we are wealthy because we have a long history of being productive, our high rates of labor productivity generated large quantities of saleable output from which business owners could afford to pay workers ever growing wage rates. To be clear, labor is not solely responsible for our productivity, machinery, in the form of investment, education, management skills, and a stable economic and legal system play a role in productivity growth. While one factor may try to can claim sole credit for our productivity, the fact is that it could not have been possible without all of these factors coming into play.

In 1970, the average non farm wage was $3.60/hr. In 2020, the average non farm wage was $25.15. This represents a sevenfold increase in wages over the 50-year period. Contrast this with what happened to the average minimum wage worker. In 1970, the minimum wage was $1.60/hr. In 2020, the minimum wage was $7.25. This represents just a four and one-half fold increase over the same time period. In 1970, minimum wage workers earned 45 percent of what the average non farm workers earned. By 2020, minimum wage workers earned just 28 percent of what average non farm workers earned.

Even though a decline from 45 percent to 28 percent may not sound like much, it has generated vast differences in income over the past 50-years. Today’s minimum wage worker earns $15,080 if he works full time. If their wages had risen as fast as non minimum wage workers, their full time income in 2020 would be $23,649, or $8,569 more than they are currently earning. If we had mandated, as late as 1970, that the minimum wage should rise as fast as average non farm wages, by 2020 it would have already risen to $11.37. The fact that it is not that high, but only $7.25/hr, suggests that the difference between those two figures, $4.12/hr, and $8,569, could be thought of as the wage rate and the cumulative income due minimum wage workers because of government’s failure to adjust the minimum wage over time.

It’s been argued that a one-size fits all minimum wage is bad economics because it does not take into account differing regional costs of living. This argument fails to consider that if the new federal minimum wage is viewed as too low, the states can raise their minimum wage to any level they see fit. This coming year 24 state will raise their minimum wage. The new state minimum wages will range from a low of $8.21 in Minnesota, to a high of $13.69 in Washington state, a state where the minimum wage in Seattle is $15.00 even for small employers.

All business firms have a mix of non-minimum wage workers and minimum wage workers. There is no way to separate the contribution of each type of worker to the company’s annual productivity increase. Yet employers regularly give wage increases to some workers, while waiting on the federal or state government to mandate a pay raise for those we call minimum wage workers. It’s important to remember that the minimum wage is not a maximum wage but a minimum, employers are free to pay their employees more, so why do they insist on holding down wages for some employees, but not for others, in a broader sense, couldn’t this be considered a form of wage theft, and if so, shouldn’t they be justly compensated by raising the minimum wage and indexing it to prevent future underpayment?

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