This month marks a golden anniversary for American wages, but don’t expect celebration around the nation.
On the contrary. In February 1968, the federal minimum wage increased from $1.40 to $1.60 an hour, giving minimum wage workers what would turn out to be the highest level of purchasing power they would enjoy for the next 50 years.
This half-century slide in purchasing power has contributed mightily to workers’ economic hardships and the erosion of the middle class. It has also done lasting damage to the economy and businesses’ consumer base.
An inadequate minimum wage doesn’t just impoverish workers. It weakens the robust consumer spending that businesses depend on to thrive. It depresses local communities and strains the safety net.
Business leaders and workers in 1968 might not have agreed on where the minimum wage would be in the year 2018. But they sure wouldn’t have expected workers to be so cut out of the rewards of rising productivity that the minimum wage would be lower in value 50 years into the future.
The buying power of the 1968 minimum wage, adjusted for the cost of living, is worth $11.53 in today’s dollars, according to the U.S. Bureau of Labor Statistics Inflation Calculator. The federal minimum wage has been stuck at $7.25 an hour since 2009. That amounts to just $15,080 a year for full-time workers.
Only workers in Washington state, Washington, D.C., New York City, Seattle, Los Angeles, San Francisco, Montgomery County, MD and various other localities (mostly in California) are making a minimum wage of $11.50 or more today.
If the minimum wage had stayed above the real value it had in 1968, it would have reinforced the longtime linkage between increased worker productivity and pay rather than a big divergence. It would have helped counter, instead of contributing to, the decline of our middle class and sharply rising inequality. While the minimum wage has eroded, the top 1 percent of households has more than doubled their share of our nation’s income from 11 percent to almost 24 percent.
Consumer spending makes up about 70 percent of our economy. The minimum wage sets the wage floor, which underpins consumer demand. The best long-term business climate is one that promotes widespread prosperity, reinforcing broad and sustained consumer demand.
Working people are also customers. That basic point is often lost in the debate over minimum wages—as if workers and customers inhabited different economies.
President Franklin Roosevelt understood the connection between worker wages and consumer demand. As he said in his January 1938 annual address to Congress before enactment of the first federal minimum wage, “The increase of national purchasing power [is] an underlying necessity of the day.”
And so it is today. America can’t build a strong economy on a weak wage floor. When the minimum wage is too little to live on, it undermines the consumer demand that powers businesses and our economy.
When the minimum wage is too little to live on, and even full-time workers have to rely on public assistance, then taxpayers end up subsidizing unfair business practices. And fair pay businesses are subsidizing their low-pay competitors. Raising the minimum wage helps level the playing field.
Raising the minimum wage boosts the economy because low-wage workers are the most likely to spend any additional pay. Their increased buying power translates into more purchases at businesses large and small.
Raising the minimum wage makes good business sense in other ways as well. When businesses invest more in their employees, employees become more invested in the business. When workers are paid enough to live on, they don’t have the continual stress of worrying how they will make rent or afford other basics. They are happier, healthier, more productive and more committed.
Low pay typically means high turnover. With reduced turnover, businesses see substantial savings in recruiting and training costs. They see less product waste, lower error and accident rates, increased product quality and better customer service.
As most businesses know, it is often frontline employees who make the difference between repeat customers and lost customers.
It’s time to boost the economy from the bottom up and assure an adequate minimum wage wherever people live and do business.
Holly Sklar is the CEO of Business for a Fair Minimum Wage. www.busin