A price floor that helps you afford a ceiling
Life, liberty and the pursuit of happiness—ideals the Declaration of Independence outlines are fundamental to all Americans. Yet, as company profit and wages grow increasingly divorced, and minimum wage fails to keep up with inflation, more and more Americans are being denied these fundamental rights as they face shrinking bank accounts that can’t keep up with the rising prices of food, water, shelter, healthcare and more.
The most obvious solution is to raise the minimum wage; and, in surprising consonance with Occam’s razor, it’s also the most effective. A calculated minimum wage hike would immediately increase the amount of money people have, and allows them to live life, enjoy economic liberty and pursue happiness while being more economically productive.
Perhaps the biggest argument for the minimum wage isn’t related to the concept of a “living wage.” A calculated hike would allow millions of people to get off welfare (either by raising their wages enough they no longer qualify, or incentivizing others to look for jobs), and allow them to instead begin spending their own money, stimulating an economic expansion through increased spending (a non-monetary version of the Fed’s 2008 actions). Such is also doubly-beneficial; inefficient deficit spending harms economic growth in aggregate. In addition, the American Public Health Association concludes “there is an international consensus that income is a determinant of health,” meaning an increase in the minimum wage allows for a company’s workers to be healthier, take fewer sick days and increase overall productivity, which would jumpstart a soon-to-be lagging economy.
Yet, many argue a minimum wage hike will cause lost jobs, a rhetorically persuasive argument, but one that quickly falls apart with further analysis. Basic economic theory holds firms hire until cheaper substitutes exist for the same labor (the “we’ll be replaced by robots” argument). Yet, the specifics of the robot argument ignores the lack of close, (cheaper) substitutes. No academic research exists that finds significant decrease in jobs as wages increase (due to both unions and the inelasticity of demand), and the fact companies aren’t already replacing workers with robots shows those robots are expensive, and a small minimum wage hike won’t trigger the forecasted apocalyptic unemployment scenario. Companies are currently under-hiring, not over-hiring—Bloomberg reports “increasingly, researchers are converging on an answer: The labor market isn’t free.” This means large companies like Amazon have monopsony power (think monopolies, but for employees) that allows them to pay lower wages and hire less people than the free market would naturally decide. The way to remedy this, then, is to “shift marginal cost right”—fancy economic talk that just means increasing the minimum wage. It’s a beautiful irony that those same individuals who argue a minimum wage would interfere with the free market (and therefore cause lost jobs) fail to understand the minimum wage would, in fact, allow for the levers of supply and demand to be correctly balanced and the market freed from its monopoly overlords.
It’s inevitable different industries will have different circumstances. Amazon, for instance, has more market power for online shopping than Gucci for handbags. To best account for these differences, then, a uniform minimum wage isn’t the answer; instead, we should assemble a panel of nonpartisan labor economists to quantitatively analyze complex factors inherent to each industry (monopsony power, elasticity of demand, etc.) to return optimal minimum wage processes by industry and to best correct for corporate consolidation and maximize aggregate wages distributed. Such a solution will best allow for a mathematically correct and perfectly efficient system that creates an economy which lifts up everybody.