The minimum wage battle and the failure of trickle-down economics
“You know what that means when someone pays you minimum wage? You know what your boss was trying to say? ‘Hey, if I could pay you less, I would, but it’s against the law.’”
— Chris Rock
Almost everyone in this country earns less than our 1970s counterparts. And we all need a raise.
Amid the commotion of November’s election, Colorado voters quietly approved Amendment 70. Colorado’s minimum wage will now rise steadily: from $8.31 in 2016 to $9.30 in 2017, and up $0.90 each year until 2020, when it reaches $12. The minimum wage will then rise with the Consumer Price Index.
Prior to November 2016, the proposed minimum wage increase was met by a familiar argument: “Raising wages will hurt workers through layoffs or inflation. Let the market work it out!” Detractors compared the price and demand of labor to other things, like, say, Cheerios: if the price of Cheerios is too high, fewer people will buy Cheerios. “It’s Economics 101,” they said.
The problem is that labor is nothing like Cheerios, and “Economics 101” shouldn’t be applied to labor costs. Employee loyalty, motivation, experience, efficiency over time, and institutional knowledge make labor more difficult to value than a box of cereal. You’ll stop buying cereal when it gets too expensive. But you need labor no matter what, and will pay more for loyal, motivated, smart, and efficient employees.
Yet, we are told over and over to “Let the market work it out!” which really means: “Back off these companies! They’ll take care of us.” This is the central principle of trickle-down economics: money should be allocated to owners, who can then hire more workers and pay better wages. Ronald Reagan popularized the trickle-down theory in the 1980s, and it has since become the rallying cry of fiscal conservatives. (This rallying cry is at times accompanied with a slight at workers: “If workers get paid too much, they’ll get lazy and stop working!”) Trickle-down sounds great in theory, but economic data show it does not work, and has never worked. The logical flaw is well-stated by economist John Kenneth Galbraith: “We can safely abandon the doctrine of the (1980s), namely that the rich were not working because they had too little money, the poor because they had much.”
Adherence to trickle-down principles by both major parties has led to increasing economic inequality and strife. More wealth is pooled amongst fewer people than at any time in history. The U.S. minimum wage is the lowest of any advanced economy. Minimum-wage workers can barely afford housing (see the National Low Income Housing Coalition’s “Out of Reach” study), not to mention the increasing costs of healthcare, food, and education.
Simply put: people are paid less, and things cost more, than in generations past.
Now, in anticipation of the argument that “some burger flipper” shouldn’t earn more than a nurse, or member of the military, or whatever profession, let me be clear: I am not advocating only increasing minimum-wage workers’ earnings, at the expense of other hardworking people. All working people should earn more money. These goals are not mutually exclusive. We all deserve a raise.
This isn’t merely a touchy-feely position, but an urge to increase the “velocity of money.” When workers are paid more, they spend more in the local community. Businesses have more customers. Businesses then create more jobs. That’s a fundamental economic law. A thriving working class is not a consequence of economic growth. It’s a source of growth.
The city of Seattle passed a minimum-wage increase similar to Colorado’s in November 2014, steadily moving the wage up to $15 hourly beginning January 2017. The pre-increase arguments by fiscal conservatives were the classics: the increase would cause layoffs and cripple the city’s employers. But close observation by the University of Washington’s Evans School has shown the opposite: so far, workers are earning (and spending) more, and businesses are succeeding (and failing) at the same rate as they used to. These are good signs for Colorado’s wage initiative.
For a society that “values hard work,” it’s baffling that workers organizing to ask for raises are called “greedy” or “lazy.” The working class builds our houses. They grow, cook, and serve our food. They sell us our clothes and computers, and keep our communities safe and clean. They take care of our kids, of us when we are sick, of our parents when they age. I am glad that Colorado voters agreed to give all of us a raise, and look forward to the positive effect on our economy.