Few things scare business owners more than talk of raising the minimum wage. It naturally means costs go up while profits go down. Yet stubbornly resisting a raise in minimum wage is failing to appreciate the bigger economic picture. This is especially emphasized by the discrepancy between what a minimum wage could get someone four decades ago and what it gets them today.
The role inflation has played in the deceptively diminishing buying power of the federal minimum wage is the primary focus of this article, but signs of underlying stress fractures in the United States economy brought on by stagnating wages go beyond inflation. Take, for instance, the growing dependence consumers have on borrowing money to make ends meet. Even if they manage to get approved for alternative payday loans for bad credit, the fact remains they cannot manage a household or raise a family without borrowing money.
Another warning sign of serious economic trouble lurking below the surface is the difficulty companies have in finding qualified workers to fill open positions. This, despite the fact the total amount of student loan debt amassed by the population has never been higher. An educated workforce which is simultaneously unqualified? Yikes.
Sure, there is no denying the fact some households simply don’t know how to manage money and some people need to realize a master’s degree in medieval studies is unlikely to lead to a six-figure salary, but it’s naive and infuriatingly ignorant to place the blame solely on these inevitable case studies. Too many hard-working people are living life as frugally as possible and still struggling, meanwhile, too many young adults are being pressured into higher education, to try and explain away the gloomy economic picture slowly bubbling to the surface.
Instead, look to the rate of inflation in conjunction with the stagnation of wages over the last 40 years. On the surface, things appear to be on the level: minimum wage in 1978 was $2.65 and today it’s $7.25. That’s an increase of four dollars and sixty cents, or close to tripling.
The problem is that the price of goods and services have continued to go up as well, and the pace between the two has not stayed equal. By using the Consumer Price Index inflation calculator, we can see that $7.25 in 2018 is equal to $1.87 in 1978, 0.78 shy of the minimum wage 40 years ago. In other words, the current minimum wage is – optimistically speaking – about eight-cents less than it ought to be.
Seventy-eight cents might not sound like much, but multiply that by how many hours a person works in a year; by the time one shift is over, the person has already lost out on $6.24 they would have otherwise earned had their wages kept up with inflation. That’s almost $31.20 a week, about $124.80 every month. Yet this figure doesn’t even account for how inflation changed each of those seventy-eight cents. The true figure is higher.
Now, using the CPI calculator again, only this time seeing what the minimum wage in 1978 would equal today, we see the true discrepancy between the two: $2.65 in 1978 would be equal to $10.62 in 2018. That equals a whopping $3.37 extra an hour which minimum wage workers would earn today if the federal minimum wage kept up with inflation. That equals an astounding $6470.40 annually.
Business owners think they can’t afford to pay everyone $3.37 an hour extra, and it might be true on a short-term basis. There is no doubt such an extreme increase in expenses wouldn’t take out a huge chunk of profits. But consider the bigger picture! If everyone has an extra six and a half grand in their pockets per year, imagine how much of that money goes back into the economy. That means your customers buy more – which means you make more money.
Furthermore, providing a living wage to your workers does wonders for operations. Employees who aren’t worrying about their bills are focused on their responsibilities at work, and perhaps more importantly, they’re far more likely to be loyal as well as be happy to go the extra mile when called upon.
So, when people say they want $10 an hour minimum wage, say: “How about $10.62 instead?”