Minimum Wage

I was never cut out to be an economist. I took undergraduate economics in the early 1970s. When I took economics in graduate school in the late 1980s, many economic theories had swung 180 degrees. Up was down and down was up, but that’s not too surprising since they’re all theories, not facts.

One of the theories of economics is that as the economy improves, it helps everybody–“a rising tide raises all boats.” This would be great if true, but to this non-economist, it does not seem to be so. The current discussion of minimum wage is one such example. It’s complex, since people who work for minimum wage include entry level workers, such as high school students who have a part time, after-school job, as well as adults. When I pick something up at a fast food restaurant I usually see a number of adults. Although I can’t say that they are working at minimum wage, I doubt that they are at the median US income of $68,400.00. Median, as you recall, is a number that reflects the point where half of the population is above that number and half below.

Adults at minimum wage may include those without the skills for better employment. However, the pandemic has thrown so many people out of work that those with advanced education or skills may work at a minimum wage job since that is all that’s available.

Below is a chart of non-farm productivity. In the United States, the productivity of nonfarm workers is measured as the output of goods and services per hour worked. Labor productivity is calculated by dividing an index of real output by an index of hours worked of all persons, including employees, proprietors, and unpaid family workers.

United States Nonfarm Labour Productivity

Productivity has obviously increased significantly over the past 10 years, but productivity is measured as a percentage. To find out how much money this reflects, we can look at a different measure. Gross domestic product (GDP) is a monetary measure of the market value of all the final goods and services produced in a specific time period. (The following chart is in billions of dollars.)

Both charts reflect the same period of time and show an increase in both productivity and GDP, yet for the same period, minimum wage has remained at $7.25 per hour.

To this non-economist it appears that the rising tide missed at least one boat.

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