Economist Dean Baker:
“If workers at the bottom had continued to share in the economy’s growth in the years since 1968 as they had in the three decades before 1968, we would be looking at a very different economy and society. If the minimum wage had risen in step with productivity growth, it would be over $16.50 an hour today. That is higher than the hourly wages earned by 40 percent of men and half of women.
It shouldn’t seem strange that the wages of workers at the bottom rise in step with productivity, after all they do for many other workers even when the work has not in any direct way become more complex. For example, when a realtor is selling a $400,000 home rather than a $200,000 home it does not necessarily require any greater effort or skills. After all, if we were talking about the years of the housing bubble, it may just be the case that the same home had doubled in price. Yet, the commission will be twice as much.
There would be similar stories in many other occupations where the growth of the economy by itself would tend to make wages rise. After all, it is not obviously more difficult or time-consuming to sell 1000 shares of stock or credit default swaps at prices that are twice as high, yet the commissions going to the brokers are likely to be twice as large.
Doctors, lawyers, and other highly educated professionals have also been positioned to benefit from the growth in the economy. We have left those at the bottom out. This has been by design and nowhere is that more clearly the wage with a minimum wage that has been set at level that has not even kept pace with the cost of living.
As a practical matter we couldn’t possibly raise the minimum wage any time soon to $16.50 without serious disruptions to the economy. One result would also be higher prices in the economy. Of course this is also the result of having doctors who average $250,000 a year and Wall Street bankers who can pocket many millions of dollars a year. Their income is a cost to everyone else.
Somehow the issue of higher prices and inflation is an important point when we discuss the wages of people getting $7.25 an hour to wash dishes but it is not supposed to enter into polite conversations when we talk about the most highly paid workers. That is a political choice, not an economic one.”
I am divided on this kind of thing. On the one hand it is obviously unjust, it is practically theft, that the working class is seeing so little of the wealth created by the economy it supports. On the other hand I am swayed by the criticism that any wage pricing that is not based on pure supply and demand will distort the economy in a way that will be deleterious across the board. Simply put, a supply and demand based wage price leads to labor being spent where and how it is most valued, and anything else distorts that. It seems to me that the kind of redistribution we seek could be more beneficial if it were not through raising wages artificially but through raising the purchasing power of wages by taking some costs of living off the table. Health care and education for example obviously do not work as free market commodities. Almost no one makes a rational decision about where to seek medical care, what treatments to get, and how much to pay because we make those decisions in moments of emergency with few choices available and almost no expertise on the subject. Likewise for education, not many 18 year olds are capable of thinking about how best to invest 4 years and $100,000 so as to make a good return over a 50 year period. Subsidizing personal expenses like that and investing in infrastructure that raises the standard of living like public transit, agricultural and medical research, etc. seems like a more productive way to redistribute workers’ portion of the economy than intervening in wage markets.