The World Will Crash Around Us

We’re so foolish –

Effective today, July 24, 2008, the federal minimum wage for covered nonexempt employees is $6.55. The federal minimum wage provisions are contained in the Fair Labor Standards Act (FLSA).

One of the jobs of the Federal Reserve is to keep worker insecurity high. People who are worried about losing their jobs aren’t likely to demand better pay. In fact, worker insecurity puts downward pressure on wages. In the low-wage sector, that downward pressure is ever-present, as there is usually a pool of unemployed workers to take the place of those who are currently working. Therefore, the woman cleaning your office building and the field worker straining over rows of strawberries are chained to the yoke, and have no hope of a better life.

For them, the only protection afforded comes from government in the form of minimum wage laws. Conservatives, who preach the religion of unfettered markets, despise minimum wage laws. They think the market ought to be left to its own in all areas, and that every market outcome, no matter how unpleasant, is the right outcome. To enforce a minimum wage, they say, is to create distortion, and that distortion will manifest in other ways, like loss of jobs as employers cut back, and in rising prices for basic goods that creates inflation, making goods and services more expensive work workers and thereby offsetting any gains in minimum wage.

The problem is, it doesn’t work that way, never has, never will. In the real world, the market easily absorbs minimum wage increases, as workers were probably underpaid anyway, so employers don’t cut back. Conservatives cannot offer up one laboratory where minimum wages have cause increases in prices or increased joblessness. Quite the opposite. Absent data, they merely pontificate on theory.

At the base of conservatives’ concern is the belief that labor costs need to be controlled, and that market forces, aided by the Fed, ought to be the sole determinant. They show no such inclination to control other costs – rent and food and energy are constantly increasing, yet there is no effort to rein in those costs. We merely have to adapt. But with labor, increasing costs are scary, and Wall Street has heart palpitations with every increase in employment numbers.

Minimum wage laws truly benefit the little guy, and every worker up the line gets a bump when MW goes up. Rising wages is a good thing – more money for the working and middle classes is a positive outcome. If it’s a zero sum game, then we’re spreading the wealth by allowing workers to keep more of the wealth their labor creates. But if low-wage earners turn around and spend their new-found wealth on the basics of life, the money comes back to us in multiples.

If every conservative who preached to us about minimum wage had to live for one week on it, they would very quickly set it at $20 and index it to inflation. They are truly out of touch.