Congress needed to raise the minimum wage before inflation – now they really need to.

Stephen Prince

 

By STEPHEN PRINCE

Patriotic Millionaires

 

With inflation rates reaching a 40-year high, prices for food, rent, gas, and other necessities are skyrocketing for American families all over the country. Life in America is getting more expensive, and nowhere is that pain felt more than on the bottom of the income spectrum.

Minimum wage workers, earning just $7.25 an hour, are seeing the purchasing power of their already-unlivable wage erode to disastrous levels. It’s time for Congress to act to bring the federal minimum wage into the modern era – we need a $15 minimum wage that is indexed to inflation.

Average wages have fortunately been on the rise, blunting the impact of inflation for the workers taking home an average 4.7% more in 2021 than in 2020. But while that wage growth is significant, it is also significantly less than the Consumer Price Index’s 7% rate of inflation in 2021, and it is not evenly distributed among the labor market.

Workers in competitive labor markets with many job options have had the opportunity to take part in the “Great Resignation,” leaving low-paying roles with poor working conditions for better ones. But in many small communities around the country with only one or two major employers, the labor market leaves too many workers earning barely enough to survive.

The federal minimum wage has stood frozen at $7.25 an hour since 2009. That’s just $15,000 a year. This was shamefully low before the pandemic, as experts say that a real “living wage” – i.e. a wage sufficient enough to afford basic necessities – in 2019 for a family of four was close to $16.54 per hour. But now it is absolutely deplorable, with the Brookings Institution estimating that a living wage for the same size family would today be $17.70 because of the rise in inflation.

This isn’t a new concern – the stagnation of the federal minimum wage has been an issue for years – but it’s become even more urgent in the last year. $7.25 an hour was not too low to begin with in 2009, but in the decade after the most recent change, it lost 17% of its purchasing power. If it had simply kept pace with inflation, it would have been $8.70 in 2019, and almost $9.50 today.

From a business owner’s perspective, this is simply unsustainable. Paying sub-livable wages as an employer essentially equates to asking your employees to invest in your company but receive no equity in that company, something we would never expect of any other group of people, and certainly not our wealthy peers. They are investing by accepting lower wages to the obvious benefit of the company owner(s) and have NO upside opportunity for those unreceived dollars. If I invest $100,000 in a company, I receive equity as well as potential dividend payments. Underpaid employees get nothing in return.

On top of that, it just makes better business and economic sense to pay workers more money. Studies consistently show that companies that pay their workers decent wages are more profitable because those workers are more committed to their company’s success, more productive, and stay on the job longer.

Our economy is 70% based on consumer demand. It runs on average American consumers spending their money on different products and services, yet we currently have an economy where a significant portion of the workforce is unable to fully participate because their wages are too low. When those workers are paid more, they can and will spend money more widely in their communities, boosting small and large businesses alike and growing the economy. It’s the reason Henry Ford paid his workers enough to be able to afford the cars they were making – the more customers you have, the better off your business is. It’s basic economics.

With virtually no Republican support for raising the minimum wage and Democrats looking like they may lose control of both the House and Senate in the 2022 midterms, Democrats in Congress need to act now. Minimum wage workers cannot afford to wait another two or four years for relief. They need a raise, and they need it now.

 

Stephen Prince founded Card Marketing Services in 1993 and is vice-chair of the Patriotic Millionaires.

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