The Fight for $15 movement, first organized in 2012, pushes for a national US minimum wage of $15 per hour. The movement has been embraced by much of the populace and political establishment, including Bobby Scott and Bernie Sanders — both sponsoring the proposed Raise the Wage Act of 2021 in the House and Senate, respectively. This legislation proposes to gradually raise the hourly federal minimum wage from $7.25 to $15 by 2025. But, by the year 2025, market wages are likely to blow way past $15 per hour in the current inflationary environment. At that point, a call for $15 will be a call for oppression!
Compared to other industries in the US, the Leisure and Hospitality industry typically sees the low-end of hourly wages near or at the minimum wage. The latest data from the BLS (September 2021) shows that average hourly earnings rose to $18.95/hr. This reflects a 0.53% increase for the month and a year-over-year increase of 11%.
As you can see from the following chart, excluding the brief spike in 2020 after “15 days to flatten the curve”, this is the fastest annual increase since the BLS started tracking the measure in March of 2007.
Many states have their own minimum wages set higher than that of the federal government, with D.C. set the highest at $15.20/hr. The state of Washington has the second-highest at $13.69/hr. The federal minimum wage has remained at $7.25 for the last 12 years, since July of 2009. In that same time period, the US dollar has lost 28% of its purchasing power due to the government’s constant inflationary monetary policy. With purchasing power falling at such a high rate, it is no wonder that a movement like Fight for $15 has gained so much support among the populace.
But the market doesn’t need legislation to pick some arbitrary number for an acceptable wage rate. There are unintended consequences to artificially setting a minimum wage higher than that demanded by the market. To name a few: higher prices, less opportunity, reduced benefits, greater unemployment, disproportionate impact on low-income youth, and increased criminal activity when legal work is priced out of reach.
Interestingly, we now find ourselves ironically in the opposite environment — one in which US labor rates are rising higher than that demanded by labor movements such as, Fight for $15. Walmart and Costco have raised their hourly wages earlier this year with Walmart’s average now above $15 and Costco setting their minimum at $16. In North Carolina where the minimum wage is $7.25, a McDonald’s is paying $11-$15 an hour for entry-level employees and $15-$20 for managers. Target, Chipotle, Starbucks, and Walmart are even offering to pay employees’ college tuition. All of these companies compete with each other in attracting and maintaining employees.
There is no legislation that caused this market-rise in wages. Prices mean something. The same goes for the price of labor. Labor prices cannot be picked based on what feels good or what some subjectively consider as a “livable” wage. Every person has a different economy, a different cost of living, a different lifestyle, different priorities, different spending habits, different needs, different skills, and therefore has a different definition of “livable.” The same goes for employers. In this context, a one-size-fits-all minimum wage is an absurd concept.
It is the market that determines labor prices. Wages rise because of market competition. Likewise, if there is no competition in labor, wages will fall. There is a general shortage of labor right now across the globe, mainly due to government handouts competing with private worker compensation. Employers are struggling to find labor. The result is a rise in wages in an effort to attract and maintain labor.
September’s wage gains continue to challenge the establishment’s insistence that US price inflation is “transitory.” The reality is that price inflation is here to stay, so long as the Federal Reserve continues an inflationary monetary policy and the US government continues fiscal policies that remove incentives to work.
The rise in wages adds more upward pressure to the general rise in prices. What happens when the public realizes inflation will get worse?