Friday, December 26, 2008

Arbitrary minimum wage? -- 2/3 down to 1/5 of average income!

Before July, last year the federal minimum wage was about 1/5 of the real average wage ($25/hr -- the gov measure, $17/hr, is of limited description and grew only 20% as average income grew 100% over 40 years). Since July this year the federal minimum was about 1/4 of the average wage. Obama wants to make it 1/3.

Under LBJ as president the federal minimum wage was a spectacular 2/3 of the real average wage. Yes, in 1968, at 50% today's average income, the federal minimum wage was raised to an inflation adjusted $9.91/hr (nominally $1.60/hr -- check again in early February 2009 at when the new numbers will nose out today's SF and Santa Fe).

Even under LBJ as senate majority leader the fed min was advanced to 2/3 of the average wage. In 1956, at 40% of today's average income, the federal minimum was raised to $7.93/hr (nominally $1.00/hr).

Doubling today's federal minimum wage to $13/hr would shift $350 billion dollars to the poorest paid 40% of the American labor force (a free stimulus? -- even expecting a phase in could free up buying) while adding only 2 1/2% to the cost of GDP output and presumably to inflation.

Before July, 2007 25% of today's American labor force were earning less than the federal minimum of 40 years before -- and this percentage has probably not much changed. This diabolical income shift amounts to our "great wage depression", our ghettos are our "Hovervilles" and our drug gangs are violating a 21st century prohibition (drugs) to avoid what was, up to June 2007, a literal 1939 minimum wage level (under FDR, $4.65/hr w/no taxes; nominally $.30/hr).

Time to upgrade the federal minimum wage to 21st century standards at a cost to GDP output that equates to about two years normal economic growth. If we all got our inflation raises but did not get any economic productivity raises, the other 60% of us might not even notice it happened (a recession is not a good time to hold back on or cut real wages according to Keynes).

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