Remember how progressives complained about economic disparity a few years ago? What happened to that?
Nothing, obviously.
As it turns out, economic inequality in the United States has not increased during the past decade. Is this a result of hikes in the minimum wage and large New Deal-style public spending programs? No, it is due to the most effective social welfare program ever devised: a tight labor market.
Aside from the recent layoffs in Silicon Valley, things have been looking up for US employees as labor demand has outpaced supply, resulting in greater earnings, more benefits, and superior working conditions. In spite of significant economic headwinds, such as COVID-19, geopolitical uncertainty, and inflation, the median “real” (inflation-adjusted) household income increased by almost $10,000 over the past decade, according to the Federal Reserve.
The Federal Reserve reports that the typical household income in the United States has increased by $10,000 over the past decade.
And there is also positive news for those at the bottom of the income distribution curve: According to data from the U.S. Department of Labor examined by The Wall Street Journal and Professor Nathan Wilmers of MIT Sloan, the pay of the bottom 10% of U.S. workers are, on average, a third greater than their states’ minimum wages. In other words, while politicians bicker over adopting legislation to increase the minimum wage, the economy has increased earnings on its own.
Politicians believe the minimum salary is whatever they say it is, but the legal minimum wage is only that amount. The economic minimum wage, often known as the real minimum wage, will always be $0.00 per hour. When the minimum wage becomes so high that the cost of employing a worker is no longer economically viable, that worker does not receive a raise; rather, he is fired.
According to MIT economist Nathan Vilmer, the nation’s lowest-earning workers are paid one-third more than their states’ minimum wage.
Although the consequences are frequently exaggerated, economists as diverse as Milton Friedman and Paul Krugman have proven the intuitive thesis that higher minimum wages tend to raise unemployment, particularly among the least skilled employees.
Krugman once remarked that progressives “want to believe that the price of labor… can be set based on considerations of justice, as opposed to supply and demand, without undesirable side effects.”
The District of Columbia’s minimum wage is $16.10 per hour, which is significantly less than the $70 per hour needed to live comfortably in Washington, D.C., as Krugman so clearly stated.
In states like Florida, corporations like Amazon can pay up to $18 per hour, which is significantly higher than the state’s $11 minimum wage.
In part because so many Americans have left the labor force totally, workers are in a strong bargaining position, which is a major drawback. In 2001, two-thirds of Americans of working age participated in the labor force; by 2020, that proportion had fallen to sixty percent; it has since rebounded slightly, but only slightly. Some of these former workers are stay-at-home parents whose families do not require a second income, while others are aimless youths who have prematurely abandoned the workforce.
Nevertheless, even with the essential limitations in mind, this is a terrific time for employees, especially those in professions that we consider minimum-wage occupations but which pay significantly more than minimum wage today. In Florida, for example, the minimum pay is $11 per hour, yet the beginning rate in an Amazon warehouse in Florida ranges from $14 to $18 per hour. From Staten Island to The Bronx, fast-food establishments are already offering wages higher than New York City’s minimum wage of $15 per hour.
To boost the earnings of blue-collar workers such as these construction workers in Washington, DC, the government must restrict competition from unauthorized immigrants.
If politicians wish to pursue a really pro-worker agenda, they should forego legislating greater wages through minimum-wage increases and instead promote policies that would boost the real worth of a salary. What lower-income employees in locations like New York City need most is not just a higher minimum wage, but also affordable housing, dependable public transportation, cost-effective health care and education options, and safe neighborhoods. Construction and hospitality workers would likely prefer less illegal immigrant competition, but there is little prospect that the Biden administration will address this issue.
Positive data from the Federal Reserve demonstrates that the greatest way to increase household purchasing power is for the government to stimulate job development rather than wage increases.
Politicians are usually eager to increase their own salaries through legislation, as New York legislators just did. But supporting good economic growth and the high demand for labor demands the type of clever, continuous efforts that are much more urgently essential for those without Wall Street-level salaries to throw at daily challenges. Strangely, individuals who yell the loudest about “social justice” frequently neglect the challenges that the poor and normal workers must endure – concerns that the wealthy largely hear about in the news or observe through limousine windows.
The Center for Population, Inequality, and Policy’s David Neumark told The Wall Street Journal, “I don’t want to say the minimum wage has become irrelevant, but it has certainly become less relevant.” The optimal policy would be one that renders the minimum wage even less significant in the future, along with an economy in which high pay are not a gift from politicians, but rather the consequence of highly productive people in a highly efficient and flexible labor market.
For their part, politicians prefer the patronage model, which is why no one should entrust them with their livelihood.
»Jobs, not government intervention, are the true solution to wage growth«