What Your Fellow Americans Are Making - And What That Suggests About Minimum Wage Law

13 October, our Social Security Administration released data on last year's wage earners.

An income of $95,000 put you in the top 10%, made you 1 out of 10.

An income of $250,000 put you in the top 1%, 1 out of 100. 

$500,000 put you in the top 0.1%, or 1 out of 1,000.

$50,000,000 - fifty million - put you in the top 0.001%. It made you one in a million. 143 people reported incomes of over $50 million and those 143 people had average incomes of $100 million.

Here's another remarkable stat. Merely having an income put you in the top 50%. When I write, "top 10%," above, I'm writing about the top 10% of wage earners. Social security has data on 163 million wage earners. There are about 325 million Americans, so only about half of Americans reported incomes. Some were too young. (My wife's second grade class is full of slackers who haven't earned a dime in their life.) Some were too old. Some are too rich to work or make their living from investments rather than wages, property or stock owners. Some are too handicapped. Some are working jobs without wages, jobs like caring for their kids or parents. Some depend on family or friends for food and housing, some are in school, some recovering from injury, some permanently disabled, etc.

Now let's get into the normal people, the wage earners who don't make six figure salaries but still work. The 90%.

If you make $15,000, you make more than 30% of all wage earners. $15,000 a year works out to $1,250 a month. Median rent for a one-bedroom apartment in the country's most expensive 22 cities is higher than $1,250 a month. Assuming that you have to eat, buy clothes, get transportation, etc., what nearly a third of Americans make is not enough. 

If you made $30,557.71 last year, you made more than half of all wage earners. You have as many people who would trade wages with you as you would trade wages with. In some sense, you are the representative American, someone fellow Americans are as likely to pity as envy.

$30,000 a year works out to $15 an hour. Half of wage earners make less than this. Half.

Seattle is a wonderful city. It's both home to two of the richest men in the world and to many liberals who folks in the Midwest would consider more liberal than Scandinavians. They've recently passed a $15 an hour minimum wage. 

I have a problem with that.

I don't have a problem with places like San Francisco and Seattle - places where median wages are $90,000 to $100,000+ a year - saying to employers, "If you want to hire our people you have to pay more than you would elsewhere." That makes perfect sense to me. 

What doesn't make perfect sense to me? Choosing to make that minimum wage $15 an hour - an amount MORE than what half the people in this country make. 

Average wages in Belarus and Armenia are about one-tenth the average wage in the US. You can't just pass legislation requiring all businesses to pay Armenian employees the same as American employees. It's a noble and proper aspiration to lift wages but the way you get there is complicated. Better education. Easier access to foreign markets where they can sell their goods and services. More capital investment that makes their people more productive. 

Minimum wage seems to work as a prod to businesses or industries that aren't keeping up. It can force the folks in the bottom of 10% or 25% of labor productivity to either go out of business, go overseas or to up their game and make their employees more profitable even at a higher wage. What it can't do is force wages up for half the workforce. You need more complicated policies than that.

Policies that make it easier to live when you make only $15,000 a year or less - something that 30% of the workforce is doing - are good, humane and necessary. Minimum wage laws that ignore what the market says about the value of half your workforce seem, by contrast, bad, silly and doomed to backfire. 

Minimum Wage

I believe in a minimum wage. Companies adapt to regulation in the same way that they adapt to market competition. If a community insists that companies have to pay at $7.50, a company has two choices: figure out how to create a profitable business even while paying this much or go out of business. A community has no obligation to keep in business a management team that can't figure out how to design a business to be profitable while paying people something approximating a living wage.

That said, there are at least two things that need to be considered in setting a minimum wage.

The first is the current distribution of wages. A third of Americans make an annual salary that equates to less than $10 an hour. Half make less than $15 an hour. If you - as Seattle has recently done - decide that the minimum wage should be $15 an hour, you have to explain yourself. I completely agree that laggards who can't, say, pay at least $7 an hour should be forced to change their business model or close shop. I like the idea of a legislative sheep dog nipping at the heels of the businesses that are in the bottom 10 to 30%, forcing them to move faster. It's a different thing, though, to suggest - as a $15 an hour wage does - that all the jobs should be above average. They won't be.

And that takes us to the next problem with the minimum wage. Whether it is set to $1 an hour or $25 an hour, there will be some people who aren't productive enough to cover that wage. It makes sense to tell businesses that they have to pay a certain minimum; regardless of what it is, though, some people are not productive enough to merit hiring. Those people need subsidies of some kind; not all needs will be addressed with a living wage.

The deeper need is for study of how jobs are evolving and a search for ways to move median productivity and wages. Individual success moves you from the bottom of a bell curve to the top; community success recognizes that there will always be one person at the bottom and one at the top of the distribution and will focus instead on moving the whole curve.

Minimum Wage Boost

Minimum wage went up for California. If the Dems in the House and Senate have their way, it will soon rise across the nation.

Some members of the business community are once again bleating about how this simply won't work. Yet the truth about business is that there are so many variables that could be tweaked that management only tweaks a few at a time. When government regulators say it is important to, say, complete paperwork for drug approval, they manage to complete the paperwork. When the government makes them, say, pay their minimum wage employees fifty cents more per hour they comply. If they didn't have to complete the paperwork or pay their minimum wage employees more, they wouldn't.

Imagine the alternative to a minimum wage. What if the lowest-paid workers in the United States were paid no more than the lowest-paid workers across the world - workers who miraculously make it on $1 a day? Markets really don't care whether they pay workers 15 cents a day or 15 million a day, but communities don't have to show such callous disregard for the real needs of real people. There is no miracle equation that ensures that the least productive worker will just happen to make enough to buy food, clothing, and shelter. Management has many competing priorities and is unlikely to just spontaneously decide that of all those possibilities they will make raising the productivity and wages of their least productive workers the most important. Unlikely, that is, without regulatory compulsion.

Markets are great mechanisms but aren't any more prone to perfect solutions than are regulators. No one wants to buy a car that steers only right or left. Communities shouldn't rely only on regulation or markets; our least productive shouldn't rely on businesses raising wages out of boredom or sense of altruism.