What the US gets wrong about minimum wage

Key Takeaways

This is an American sweatshop. They flourished in the early 1900s when people were desperate for work. And since there were no regulations on what they had to pay, they paid workers next to nothing. So the US adopted something that had already worked in other countries, a minimum wage. This is a chart of the minimum wage in the United States over the past 60 years. You can see how it's gone up and up and up from a dollar an hour in 1960 to $7.25 today. Go America, right? But this chart is actually pretty misleading. If you take the same line, but adjust it for inflation, you'll see the problem. Every time the minimum wage has been raised, inflation has dragged it right back down. Really, America's minimum wage hasn't gone up. It's essentially stayed the same since the '80s. What you're seeing here, this constant up and down, this is weird. It's not how the rest of the world does it, and it leads to a bunch of problems for American workers and businesses. But it doesn't have to be this way. The minimum wage sets the smallest amount that a business anywhere in the country can pay its workers each hour. But when that first bill became law in 1938, it had one big problem. That first law didn't actually set any kind of guidance on when and how you're supposed to raise the minimum wage in the future. That meant that if the minimum wage was going to go up, Congress would have to pass a new law. That's what these steps are. But as we already know, they aren't occurring enough to keep up with inflation. And this system also makes the US minimum wage sort of unpredictable. Look at this period. Starting in 1997, the minimum wage sat at $5.15 an hour for 10 years. Then it was raised in 2007 to $7.25 by 2009. Cool, but that's a 40% increase in a pretty short time after a decade of inaction. How do you plan for that if you own a business? Not having that consistency does raise a lot of problems for business owners. Will they have to lay off employees? Will they have to reduce work hours? Um or will they just raise prices on their customers? Imagine how much smoother that could all go if the minimum wage just kind of went up over time. Well, we don't have to imagine it. In France, they automatically raise their minimum wage every single year. They tie it to inflation and the average salary of a French worker. In Australia, a commission reviews the minimum wage every year considering economic factors like inflation. The UK also has a commission made up of union, business, and economic experts. The Czech Republic's commission consults with employer and union representatives. Their line is lower overall than America's, but it still trends upwards. Same with Costa Rica, and their committee reviews the minimum wage twice a year. In most countries, the minimum wage is in the hands of economic officials. In the US, it's in the hands of politicians. And that goes about as well as you'd expect. Today, the federal minimum wage is a poverty wage. Last thing we need are more one-size-fits-all Washington mandate. It could eliminate up to 3.7 million jobs. It would lift 1.3 million Americans out of poverty. Raise the wage for 33 million people, a quarter of the workforce. Those wages are only available if you get hired. Working people are doing their jobs. Let us do ours. Republicans have generally resisted increasing the minimum wage. They They tend to support a lot of pro-business policies, and the business leaders do not want minimum wage increases. Democrats, on the other hand, they have a lot of support from labor unions, so they're the ones who you're usually pushing for an increase to the minimum wage. So, that's why Congress rarely agrees on raising the minimum wage. And what makes America's system different than other countries? This chart shows how much a minimum wage worker makes compared to the average worker in every developed country with a minimum wage. All these countries have some kind of commission or formula to determine what the minimum wage should be and they review it every year or two. And then there's the US who does neither and is dead last. If the US had done something similar like tie the minimum wage to the average wage each year, we'd be here. Not amazing, but not an outlier. What we're talking about is the federal minimum wage which applies to everyone who works in America. But states can set their own too and about half of them currently have a higher minimum wage than the federal one. Like Washington State which in 1998 decided to raise theirs every single year based on inflation. Sound familiar? I mean it's a such a logical idea. Um it's done in other countries. It really doesn't make sense why it's not done at the federal level. Like really it's just about politics. Right now politicians are yet again debating what the minimum wage should be. Should it be $15, $11, or should it not be raised at all? But maybe the solution to this never-ending debate is to take the decision out of politicians' hands.