The Social Construct of Minimum Wage

The dirty little secret in both Sociology and Economics is that a “living wage” is a purely social construct. Everyone defines it differently, some based on arbitrary numbers, and many based on cultural norms and values.  The Economic Policy Institute, which is supposed to be a pro-labor think tank is pushing for a plan to raise minimum wage to $12.00 per hour by 2020. What they’re really proposing, based on their methodology, will actually prevent the working poor from doing much more than surviving.

First is, they are using CPI-U as a measure of inflation, as many mainstream policy makers do, despite the overwhelming amount of evidence that the measure of inflation has a hard time actually measuring inflation. CPI-U as a measure of inflation is so inaccurate that even the Federal Reserve has abandoned its use. Despite the overwhelming evidence that CPI-U is an inaccurate measure, people (including the folks at EPI) keep using it.

Second, assuming a healthy economy, which this economy is not, at an annualized inflation rate of 1.86%, $12.00 per hour now, would equal $15.00 per hour in 2020 (using the Bureau of Labor Statistics formula). So great! Fight for $12.00 per hour five years from now, only to have to fight for $15.00 5 years from now because it doesn’t meet inflationary costs.

But the economy is not healthy. Since the end of the Great Recession, the United States has averaged less than 1% annualized inflation on the GDP implicit price deflator (the Federal Reserve’s measure). That being said, it’s almost a guarantee that the Fed will raise interest rates this year, spawning another recession, which many argue is needed to hit the “reset” button for a sick economy. This will skew every number that the EPI has just put out.

And then there is this chart showing the projected share of minimum wage’s earning to the median income that’s troubling:

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(chart: Economic Policy Institute)

While it’s nice to get minimum wage closer to the median, let’s remember that as income inequality grows, strong outliers will push the median out. That 51.4% of median now will NOT be 51.4% of median 5 years from now. And if people are having a hard time engaging the economy at median now, how will those people making 51.5% of median fair? They will still not be able to engage the economy beyond survival.

Why $12.00? Why not fight for $15.00 now as opposed to fighting for $15.00 later? Will $12 or $15 allow people to do more than just pay for their survival? Will it allow them to save for their child’s education, pay for a mortgage, put money into a retirement account, or even buy a new car, which society says everyone should do? Likely not. The number is a survival-only number, used to compare one income to another as a measure of poverty, and based on assumptions that are purely arbitrary. This is what makes the ideas of minimum wage, a “living wage,” and poverty nothing but social constructs.

The first step in removing wages as a social construct is asking: do we want the working poor to be less poor, or do we want the working poor to be more wealthy? There’s a difference, and it’s based on a set of agreed upon cultural norms and values.

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This entry was posted in Economics, Labor, Political Economy, Poverty, Public Policy, Sociology. Bookmark the permalink.

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