What the US gets wrong about minimum wage

Summary

The video explains the history and current challenges of the U.S. minimum wage system. It highlights how the minimum wage has remained largely stagnant since the 1980s when adjusted for inflation, despite periodic increases. The lack of a consistent, predictable system for raising wages contrasts with how other countries, like France, Australia, and the UK, handle it with commissions or formulas tied to economic factors. The video suggests removing politics from the decision-making process and adopting a more stable, inflation-adjusted model to help workers and businesses thrive.

Takeaways

• 😀 Sweatshops in early 1900s America paid workers extremely low wages due to a lack of regulations.
• 😀 The introduction of the minimum wage in the U.S. was an effort to combat low pay, but it hasn't kept up with inflation over time.
• 😀 Adjusting the U.S. minimum wage for inflation shows it has remained essentially stagnant since the 1980s.
• 😀 The U.S. minimum wage system is unpredictable because Congress must pass new laws to increase it, leading to periods of inaction.
• 😀 The U.S. raised the minimum wage by 40% in 2007 after a decade of stagnation, creating uncertainty for businesses.
• 😀 Other countries like France, Australia, and the UK automatically adjust their minimum wages to keep up with inflation and economic factors.
• 😀 In contrast, the U.S. minimum wage is determined by politicians, which often leads to political gridlock.
• 😀 The U.S. federal minimum wage is currently considered a 'poverty wage' despite being a key political debate.
• 😀 Many U.S. business leaders resist raising the minimum wage, while labor unions push for higher wages, creating a divide between political parties.
• 😀 Some states, like Washington, have implemented annual minimum wage increases based on inflation, providing a more stable system.

Q & A

What is the historical context of the minimum wage in the United States?

The minimum wage in the United States was introduced in 1938 as a response to the exploitative conditions in American sweatshops during the early 1900s. Workers were paid extremely low wages, and there were no regulations to protect them.

How has the U.S. minimum wage changed over the years?

The U.S. minimum wage has risen from $1 per hour in 1960 to $7.25 per hour today. However, when adjusted for inflation, the real value of the minimum wage has largely remained stagnant since the 1980s.

What issue does the inflation-adjusted minimum wage chart highlight?

The chart shows that although the minimum wage has been raised multiple times, inflation has eroded its purchasing power. This means that despite nominal increases, the actual value of the wage has not kept pace with the cost of living.

What was the main flaw in the original 1938 minimum wage law?

The main flaw in the 1938 minimum wage law was that it did not provide guidance on when and how to raise the minimum wage in the future. This led to periodic increases that were often unpredictable and insufficient to keep up with inflation.

How does the minimum wage system in the U.S. compare to other countries?

Unlike the U.S., many other countries have systems where the minimum wage is regularly reviewed by commissions or tied to economic indicators like inflation. Countries like France, Australia, and the UK adjust their minimum wages yearly or semi-annually to ensure they stay relevant.

What impact does the lack of a predictable minimum wage system have on businesses?

The lack of a predictable system can create uncertainty for business owners, making it difficult to plan for changes. A sudden increase in the minimum wage can force businesses to lay off employees, reduce hours, or raise prices to compensate for higher labor costs.

Why do minimum wage debates often become politically charged in the U.S.?

Minimum wage debates are politically charged because Republicans, who generally favor pro-business policies, often oppose wage increases. Democrats, supported by labor unions, tend to push for higher minimum wages, leading to gridlock in Congress.

How does the U.S. rank globally in terms of how much a minimum wage worker earns compared to the average worker?

The U.S. ranks last among developed countries when it comes to the ratio of minimum wage to average worker earnings. Unlike other nations with systematic reviews, the U.S. has no such automatic adjustments or commissions to set the wage.

What is the potential benefit of tying the minimum wage to the average wage or inflation?

Tying the minimum wage to the average wage or inflation, as done in other countries, would create a predictable, stable system. This would help workers keep up with the cost of living, while also allowing businesses to plan for gradual increases in labor costs.

What example does the script give of a state with a more consistent approach to the minimum wage?

Washington State is given as an example. Since 1998, Washington has raised its minimum wage every year based on inflation, providing a predictable system that ensures the wage keeps up with the cost of living.