Amodei and the Minimum Wage
Submitted by Carson Now Reader on Sat, 11/01/2014 - 8:28pm
When Rep. Mark Amodei voted against raising the federal minimum wage (H R 803, March 15, 2013), I had to wonder what he was thinking. Anyone who understands even a little bit about the economic history of this country knows that voting to keep the minimum wage where it is now is a vote to keep millions of Americans in poverty and dependent upon welfare just to survive.
On October 26, 1949, President Truman signed a law almost doubling the minimum wage, from 40¢ to 75¢. Real GDP in 1949 was $2.75 trillion in today's dollars, and the population was 150 million. That works out to $18,300 per person. Today real GDP is $17 trillion and the population is 320 million, which works out to $53,125 per person. That's 2.9 times as much real wealth per person. And if you convert 1949's 75¢ minimum wage into today's dollars, you'll find it's now worth $7.50. Multiply that by 2.9 to adjust for increased productivity and you get $21.75.
So, were it not for the ever-growing disparity of wealth in America, the minimum wage would now be $21.75 - what say we add a quarter and just call it $22 an hour. It would not be $7.25 or $8.25, as it is in Nevada, or even $10.10, as President Obama advocates. Despite dire predictions of economic ruin in 1949, that year actually marked the beginning of a multi-decade boom that transformed America's post-war industrial economy into a consumer economy with a robust middle class.
We hear the same kind of dire predictions today, but they don't pass the laugh test. Any increase in the minimum wage would be phased in over several years, then be adjusted inflation the same way federal pay and benefits already are. Hopefully it would have some inflationary impact on the economy, as the Fed's main worry right now is that inflation is below the target range. The boost in consumer buying power would stimulate aggregate demand, especially as spending by people making the lowest wages has the greatest multiplier effect on the velocity of money.
Now, there's no denying that any increase in the cost of doing business will inevitably push a few marginal businesses over the edge, the proverbial straw the broke the camel's back, but economists agree that the macroeconomic effect of a long-overdue increase in the minimum wage would be very positive, as it was after the increase of 1949. And raising the wage floor to $22 or anything close would, over time, enable the working poor to join the middle class and eliminating the poverty trap by making it pay to work again.
