Is Minimum Wage Fair?

By Socrates Alvarez | September 12, 2012 AAA
Is Minimum Wage Fair?

A report recently published by the National Employment Law Project (NELP) revealed a growing disparity of jobs available in the wake of the 2008 financial crisis. While the unemployment rate has decreased since its 2009 highs, indicating a modicum of recovery, the study shows that many displaced workers have flocked to lower-paying jobs and are accepting positions that pay minimum wage. Currently, the federal standard sits at $7.25. With the implementation of the Fair Minimum Wage Act of 2012, minimum wage will increase to $9.80 over the next three years. Is the current minimum wage a fair amount for the labor involved? Based on the recent data, is minimum wage a matter worth revisiting and revising?

What the Data Says
According to the analysis by the NELP, 1.7 million minimum wage jobs were added in lieu of the positions lost during the economic downturn. Most of the new jobs were added in the food services, retail and employment service industries. The analysis conducted by the group split occupations into three groups: lower-wage, mid-wage and higher-wage. During the recession, the most jobs lost fell in the mid-wage category, with 60% of the job losses coming from mid-wage positions. Lower-wage positions made up 21% of the recession losses, and higher-wage positions made up 19%.

To date, the recovery has not seen the reversal of these losses, but rather a shift towards lower-wage jobs, with 58% of recovery growth attributed to lower-wage occupations. Mid-wage and higher-wage occupations made up 22% and 20% of the recovery growth, respectively. In addition, this disparity may not be unabated for the foreseeable future. According to a projection of future job growth by the Bureau of Labor Statistics, six of the top 10 occupations predicted to increase by 2020 fall under the category of low-wage.

Is the Current Federal Minimum Wage Fair?
With more and more workers accepting jobs below their former pay scales, the question of whether the minimum wage should increase has been a subject of discussion in the upcoming election. Many economists oppose minimum wage altogether, arguing that the created price floor would pose as a barrier for those deemed underqualified to warrant earning a minimum wage. Moreover, an increase in minimum wage would supposedly harm business owners who, due to decreased demand, are unable to afford an imposed pay increase and see thinner margins on their income sheets.

Modern day minimum wage earners have less buying power than minimum wage earners in 1968, and they are increasingly losing more buying power while the current minimum wage fails to keep pace with inflation.

According to an article published by Bloomberg late last year, the current minimum wage of $7.25, while nominally higher than what it was in 1967 ($1.40), indicates a 20% decrease from 1967 to 2010 after adjusting for inflation. Factor in the migration of skilled labor from mid-wage occupations to lower-paying ones, and many skilled workers are unable to find decent and relevant work. Once they do find jobs, they are being paid significantly less than their 1967 counterparts in terms of real dollars. Without a change to the minimum wage, these workers will continue to be paid less than their 1967 counterparts for at least the next eight years.

The Bottom Line
The legislation for the increase of wage is complex and often politically motivated. It has been five years since there was a federal amendment to the minimum wage. In that time, the economy saw this generation's largest financial crisis. Now it is likely that the average minimum wage worker will have completed his or her post-secondary education. The need for discussion regarding the quality of employment out in the market, along with the appropriate payment schedule, is more pertinent than it has ever been.

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