Why the Minimum Wage Doesn’t Explain Stagnant Wages

Until mid-1980s, only a single state, and one of the smallest in the population, Alaska, had set a minimum wage higher than federal minimum. But with federal minimum remaining unchanged at $3.35 an hour for most of 1980s, more states began to set higher floors for wages. By the end of the 1980s, a dozen states had their own, higher minimum wage. By 2008, 32 states did. The number has fallen to 18 today, because the federal minimum has risen since 2008, it’s now $7.25 an hour, and overtaken some state minimums, but the 18 include several large states. In Illinois, minimum wage is $8.25. In California, it is $8. In Florida, it is $7.67. As a result of these state minimum wages, federal minimum is not as important as it once was. It applies to less than 60% of the population. In this space, we have been examining the causes of American income slowdown, over both the last decade and the last generation, and our recent list of 14 possible causes included stagnation of federal minimum wage. That stagnation certainly matters: in 1968, minimum wage was 45% higher than it is today, adjusting for inflation. But I think it’s fair to say that minimum wage is not one of the most important causes of the income slowdown. The minimum wage instead belongs on a list of secondary causes. It probably did play a substantial role holding down the pay of low-income workers in 1980s and in increasing inequality, as research by David S. Lee and others has found. But its role seems to have been much smaller in the last two decades. I’ll confess that I did not expect to come to this conclusion. When we started this project, I assumed minimum wage would have played a larger role. If others think it has, we welcome hearing from them. Crucial point is that minimum wage has risen, even after adjusting for inflation, over the last 20 years. The reason it is so much lower now than in the late 1960s is that it declined so much from the late ’60s through late ’80s. The effective minimum wage today, a national average taking into account both federal, state minimums, is about $7.55, which is more than 10% higher in inflation – adjusted terms than effective minimum in 1990. Today’s effective minimum is also about 7% higher than in 2000. Yet overall pay of people at the bottom of the income ladder has been virtually unchanged since 1990, according to Census Bureau data. And pay at bottom (as well as the middle) has fallen since 2000. The rising tide of minimum wage, to use President John F. Kennedy’s formulation, has not kept most boats from falling. Why doesn’t the federal minimum wage matter more than it does? (…..)

Link: http://economix.blogs.nytimes.com/2012/09/05/why-the-minimum-wage-doesnt-explain-stagnant-wages/

Acerca de ignaciocovelo
Consultor Internacional

One Response to Why the Minimum Wage Doesn’t Explain Stagnant Wages

  1. Professor Uziel Nogueira says: How about this hypothesis for income decline in the US. In the past, business profits were shared more equally between labor and capital. Particularly organized labor got a fair share of the big American pie. That changed after the Reagan revolution of the 80s. The bulk of profits went to capital i.e., financial investors/banksters while workers’s income declined steadily and well paid manufacturing jobs went overseas.


    The US economy in 2012 resembles Latin America of the past: the 1% rich and the 99% poor. As far as income distribution goes, the US has had an involution while Latin America is going through a (peaceful) revolution.

    Take the case of Brazil, for example. The country is achieving economic growth and macro economic stability while undertaking unprecedented income distribution policies. Under the leadership of Pres Lula da Silva and his Worker Party, millions of poor Brazilians are moving into a growing middle class. Wages and income are growing slowly but steadily. Well paid manufacturing jobs are plenty available and skilled workers are eagerly disputed by employers.


    Pres Roosevelt’s economic model is highly praised by the Worker’s Party.

    http://economix.blogs.nytimes.com/2012/09/05/why-the-minimum-wage-doesnt-explain-stagnant-wages/

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