June 16, 2013

Working for peanuts

Despite decades of recycled falsehoods, raising the minimum wage to $9 an hour would help Maine's economy and its low-income workers.


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Staff Photo Illustration/Michael Fisher

Don't fall prey to the mistaken idea that a $9 hour minimum wage is "too high."

The minimum wage reached its (inflation-adjusted) peak in 1968, when it rose from $1.40 per hour to $1.60 per hour. Today's minimum wage would have to be $10.69 to have the purchasing power it had then.

Folks, if enacted into law, L.D. 611 wouldn't even put today's low wage workers at the level enjoyed when minimum wage workers watched the debut seasons of "Mayberry, R.F.D.," "The Mod Squad" and "Star Trek."

Here's another way to think about the minimum wage: At its 1968 peak, a full-time full-year minimum wage worker brought home 53 percent (essentially half) of the average production worker's wages. Today, working full-time/full-year only gets minimum wage workers to 37 percent of the average. The poor do get poorer.

For three decades, the purchasing power of the minimum wage moved in tandem with increases in labor's productivity (i.e., the output per hour of nonfarm employees). As a result, all wages increased as output per hour rose.

Consider these linkages: Each hour of work yields more output; more output for the same labor time input means that costs per unit fall; as costs per unit fall, profits rise.

Increasing the minimum wage rewarded enhanced efficiency by making sure that some portion of the productivity gains -- most of which flow from workers' improved performance -- remain in the hands of the people who do the work.

Sure, there's a fairness component to this argument. There is, however, an equally compelling pro-growth piece.

If wages don't keep up with productivity, then more and more of the stuff produced has to be sold to someone else. If workers can't buy the things they produce, stuff piles up in warehouses and languishes on stockroom shelves. Unsold inventories don't generate profits. Firms don't like that. So they run deep sales, spend more on advertising and try to increase exports.

But they also cut jobs. By cutting jobs (creating unemployment), firms stop creating new output they can't sell. After all, what rational firm keeps producing new stuff when it can't sell the stuff produced last week?

Conventional economic logic is upside down! Failing to increase the minimum wage causes joblessness. Raising the minimum wage creates jobs.

Despite the evidence, bosses and their shills insist that today's low wage workers shouldn't benefit from the gargantuan improvements in labor's productivity that have occurred since Woodstock rocked and Neil Armstrong walked on the moon.

If the minimum wage had kept pace with labor's productivity, it would have to be -- wait for it -- $21.72 per hour.

Don't call 911 just yet. Have a sip of water. And remember, breathe.

Susan Feiner is a professor of economics and women and gender studies at the University of Southern Maine.


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