Gradually but relentlessly, the minimum wage is going up in many parts of the country, including major cities and large states such as California and New York. A higher mandated minimum wage for the nation as a whole appears likely. On the Democratic side, the candidates are promising to boost it as high as $15 an hour, or more than double its current level.
Barack Obama, meanwhile, issued a directive requiring salaried workers earning less than $47,476 a year to be paid overtime when they put in more than 40 hours a week, on par with hourly employees. Whether they get overtime pay or raises to place them beyond the upper limit of the new rule, their incomes will rise — and so will the cost to their employers.
Predictably, economists have crossed swords over the economic impact of government-mandated wage increases. That there is no consensus among economists — and politicians who listen to them — should come as no surprise. Opinions tend to reflect ideological orientation much more than any “objective” economic analysis. Thus, conservative Republicans insist that such wage hikes distort the market, kill employment and spur illegal immigration. Democrats, on the contrary, believe that higher wages will lift all boats, boost GDP and, ultimately, create new jobs.
There is also the issue of fairness. The minimum wage has not kept up with inflation: when measured in current dollars, it peaked at over $10 sometime in the late 1960s and was higher than it is today into the 1970s.
However, neither economic efficiency nor equity is what makes raising wages such a burning political issue. Until this election cycle, Americans seemed generally content with the way things were in the economy. Protests have been limited to the Tea Party on the right and Occupy Wall Street on the left, neither of which has morphed into a major movement. There have been no major strikes, and private sector unions remain moribund.
Election 2016 has changed all that. It revealed the severe discontent and deep resentment lurking just below the surface of America’s social peace. Ordinary Americans are mad at the political establishment, the greedy elites, the finance sector and the corporate world. Having grown up in what they knew was the richest, most powerful nation in history, they don’t understand why they can no longer earn a living wage. Why instead of holding one secure, well-paid manufacturing job the way their fathers did, they are forced to work three demeaning part-time service jobs — and worry about losing them into the bargain. Why in the previous generation one worker supported the entire family while now mothers are working full-time and yet the family’s standard of living is much lower. Why so many people around the world are visibly wealthier than them and have better, richer, more rewarding lives.
These are valid questions. In a quiet way, the American electorate is in turmoil. All too many are showing themselves willing to overthrow the status quo and opt for radical solutions offered by unconventional candidates. In this year’s primaries, a majority of voters have cast their ballots against the existing economic and political system and for a revolution, either from the left or from the right. While financial markets are either oblivious to the mood of the electorate or are betting that the old order will somehow prevail, it is nevertheless true that in a democracy, a stable economy probably can’t coexist with so much popular discontent.
Obama’s directive on overtime pay will impact 4.2 million salaried employees. Another 3.3 million earn minimum wage or less. Together, this represents only 5% of employed Americans. However, if Hillary Clinton, the only remaining establishment candidate, wins in November, she has vowed to raise the minimum wage to $12 an hour and may even opt for a hike to $15. This will impact tens of millions of workers and most businesses, and alter in a major way the structure of the U.S. labor market.
The problem is that this move, however well-meaning, may prove counterproductive and give further impetus to the technological revolution already sweeping the labor market. The writing on the wall is clear: the labor market is increasingly controlled by technology, which automates a growing number of processes (not only menial but ones requiring considerable brainpower, too) and eliminates many current jobs, while creating very few in return. The choice is stark: wages will have to go progressively lower or jobs will be replaced by machines.