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Critique of an Article: Wage Gains for Low Earners Have Helped Sustain America’s Economic Expansion.

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The U.S. economy has officially entered the longest expansion in its history

The nation’s gross domestic product has been growing for the last 121 consecutive months, the metric used to measure periods of sustained economic growth. That surpasses the 120-month expansion from 1991 to 2001. The most recent expansion started in 2009, after the global financial crisis in 2008. The Great Recession was the worst U.S. economic downturn since the Great Depression in the 1920s and ’30s.

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A modern job in the United States is integrated in a constellation of relationships among co-workers and managers. Many workers possess skills that are specialized for particular employers and particular tasks. They also have preferences about their work environment. They may need to have a short enough commute. They may enjoy working with certain people. And they may have strong preferences about the communities in which they live. Furthermore, searching for a job in the labor market takes time and energy. All potential job offers are not immediately observable by all workers who might accept them. Both of these facts mean that employees will only slowly respond to wage changes at their jobs. They may poke around the web for new job listings or they may ask their friends or former colleagues about possible job opportunities

None of this happens quickly, however, giving firms monopsony power over their workforces. Monopsony power hinders wage growth for workers, which, in turn, slows consumer demand and reduces overall savings in the U.S. economy.

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Low-wage workers today constitute a large portion of the workforce. About 25 percent of all workers earned $13 or less per hour in 2018 and the vast majority of them would benefit from a minimum wage increase to $15 by 2024. (2018 to 2028, “10-Year Economic Projections”). Were it enacted, for the first time the lowest-wage workers would make more than they did in 1968, the last high point of the minimum wage. While this would be a bold step, the resulting pay increase would be relatively modest compared with the economy’s capacity to deliver improvements in living standards. A $15 minimum wage in 2024 would have 28 percent more purchasing power than the minimum wage did at its 1968 high point, but over that time period, the economy’s potential for higher living standards, as reflected in labor productivity, will have grown by 119 percent. Moreover, because of the gradual phase-in, a $15 minimum wage in 2024 is not the same as $15 per hour today, but equivalent to about $13 per hour in 2018 dollars, after adjusting for projected inflation

(David Cooper, 2019)

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In either case, the real value of the federal minimum wage has declined 24 percent since 1968. Today, the federal minimum of $7.25 leaves an adult with two children thousands of dollars below the federal poverty threshold. This is unacceptable. Raising the federal minimum wage will also stimulate consumer spending, help businesses’ bottom lines, and grow the economy. A modest increase would improve worker productivity, and reduce employee turnover and absenteeism

It would also boost the overall economy by generating increased consumer demand.

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David Cooper, Raising the Federal Minimum Wage to $15 by 2024 Would Lift Pay for Nearly 40 Million American Workers, Economic Policy Institute, February 2019.

Congressional Budget Office, An Update to the Economic Outlook: 2018 to 2028, “10-Year Economic Projections”, August 2018.

Sylvia Allegretto and David Cooper, Twenty-Three Years and Still Waiting for Change: Why It’s Time to Give Tipped Workers the Regular Minimum Wage, Economic Policy Institute, July 2014.

Paul J. Wolfson and Dale T. Belman,“15 Years of Research on U.S. Employment and the Minimum Wage,” Tuck School of Business Working Paper no. 2705499, December 2016.

Isaiah Andrews and Maximilian Kasy, “Identification of and Correction for Publication Bias,” Mimeograph, October 10, 2018.

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