The minimum wage has been the subject of some of the most polarizing political and economic debates in the past century. It was once universally accepted that an increase in wages would unambiguously raise unemployment, but new economic research has proven that this once widely-accepted model is wildly inaccurate. While many developed countries around the world have followed the new economic research and implemented higher minimum wages, with many countries even increasing them every year to adjust for inflation, the United States has lagged behind. While there are complex factors that have contributed to the United States’ stagnant federal minimum wage, the political and economic developments of the 1980s were certainly the most damaging and influential.
There is no better personification of the policies of the 1980s than Ronald Reagan, who dedicated his presidency to reversing the progressive change of the 1960s while marketing disastrous economic and political policies as patriotic and “American”. This labeling of destructive political and economic ideas as pro-American is best encapsulated in one of his most famous quotes: “The nine most terrifying words in the English language are: I’m from the government, and I’m here to help”.
As a smooth-talking, wealthy white man who ran a campaign on “making America great again”, Reagan was a godsend for conservatives who were appalled by the racial, political, and cultural progress from the decades before his presidency. It is truly a testament of American politics for a man who was largely responsible for the hollowing-out of the middle class, incredible expansion of the budget deficit, and deregulation that would begin a devastating boom-bust economic cycle to still be praised and portrayed as a patriotic symbol of American achievement
Contrary to the tough, pro-freedom character Reagan is still remembered as he was completely subservient to a growing business class that was (and still is) on a mission to strike regulations and taxes that have been placed against them in order to deliver at least an iota of economic stability and wealth redistribution. Reagan would quickly become the face of the policies that the business class relentlessly pushed for, which included lower minimum wages and reduced workers’ protections.
Unions that were once extremely popular for protecting workers through the power of collective bargaining were met with union-busting laws and branded as unpatriotic and harmful to the economy. Union membership quickly declined throughout the 1980s and middle-class incomes rapidly shrunk.
The damage done against unions wasn’t the only factor responsible for lower minimum wages. Structural economic developments that came largely as a result of rapid, unhinged globalization, which outsourced millions of jobs to countries where labor was significantly cheaper, also played a dominant role in harming middle-class Americans and applied pressure on keeping the minimum wage low.
Today, the political war against minimum wage raises is still fueled by the complete ignorance towards decades of economic research that has demonstrated that the relationship between the minimum wage, unemployment, and inflation is not as inverse-related as older, more simplistic models have suggested it to be. As a matter of fact, economic research suggests that, to a certain extent, the relationship between the minimum wage and other sectors of the economy may not be inverse at all.
Biden’s Treasury Secretary pick Janet Yellen (who I have exclusively written an article about linked here), published a paper in 1990 with fellow economist George A. Akerlof titled “The Fair Wage-Effort Hypothesis and Unemployment”, which suggested that increasing the minimum wage to what certain workers believed was a “fair wage” may in fact increase productivity and therefore increase economic output. This hypothesis was put to the test by economists David Card and Alan Krueger in a groundbreaking study that fundamentally transformed how economists perceived the minimum wage.
Card and Krueger studied wage increases in fast-food restaurants in an effort to understand how employers react to wage changes. They ultimately found that the raised minimum wage decreased the job turnover rate, increased job security, and most importantly, had no negative impact on employment whatsoever (including no cut hours for workers).
The costs of higher minimum wages depended on how employers absorbed the increased labor cost, which Card and Krueger concluded would usually be done through a complex combination of minor price increases and lower profits. Studies conducted in regions that have since increased the minimum wage (Seattle, San Francisco, Chicago, etc.) have found that the economic and societal benefits of increasing the minimum wage far outweigh any of the costs.
Control over the minimum wage has already been put in the hands of economists in many other developed countries such as France, which have seen steady minimum wage increases that have followed inflation and many other economic factors. In the United States, the Federal minimum wage is determined by Congress, where Republicans who have completely sold out to their big-business donors have committed themselves towards producing an abysmally stagnant wage that millions of Americans are struggling to live on every day.
It is no secret that American politics is quite far to the right when compared to the developed world, which has resulted in disastrous economic policies through the past few decades such as the stagnant minimum wage. However, numerous polls have demonstrated that Americans themselves are not as right-leaning as many would naturally assume. Florida has a state government that has been historically controlled by Republicans, yet it overwhelmingly passed a proposition in the 2020 election to raise the state minimum wage to $15 an hour.
Although there is a major disconnect between the values of voters and representatives in the American political system, change is still possible through the will of the people. Through enough commitment and organization, ordinary people can demand what is best for themselves and the general public out of their governments and finally raise the current Federal starvation wage to a Federal living wage.
Title Image: Bloomberg—Bloomberg via Getty Images