Saturday, February 10, 2007

Nobody ever expects the Industrial Revolution :-O

Who would dispute that today’s Americans were living through a wage depression if a quarter of our workforce earned minimum wage – or if most, somehow, earned substantially less – and if the minimum wage we were talking about was that of two generations before?

In 1968, L.B.J.'s minimum wage was $9/hour (inflation adjusted, CPI-U) – our 25 percentile wage has become $9/hour (“State of Working America, 2004/2005”, table 2-6) – double the per capita income later!

Today’s federal minimum wage take-home is no better than F.D.R.’s, 1939 minimum of $4.20/hour (no tax) – meaning today’s just-above minimum wages must be comparable to just-above wages in the depression era – quadruple the per capita income later! I wonder how far up the wage curve the depression parallel holds.

Science fiction writers dream up wrongheaded Malthusian futures in which population growth outstrips earth’s resources (“Make Room! Make Room!; “Stand on Zanzibar”) – though advancing technology promises the opposite. Exponentially expanding production aside, the average American could be on the way to a bottom of the barrel future (who builds housing for the median income anymore?).

It all happened before – it was called the industrial revolution.

1800s English factory workers out-produced their individual artisan forbearers ten to a hundred times but ended up subsisting on oat cakes three times a day because they could not afford to eat wheat bread (Thompson’s “Making of the English Working Class”).

The common denominator of schizoid prosperities – then and now: the evaporation of labor’s bargaining clout.


Raising today’s federal minimum wage a dollar an hour would add six percent to fast food cost – but twenty percent to minimum wage purchasing power. Admittedly, raising the minimum from $206 a week to $246 a week won’t send any rush of new customers to the cash registers.

Raising the minimum wage from $5.00/hour to $12.50/hour would hike a six-dollar meal to nine dollars (the two dollar labor cost growing to five) – but the price of that meal relative to a minimum wage weekly paycheck would drop from 3% to 1.8% (the same percentage of a $330 a week income that a six dollar meal represents, today).

Should we keep fast food cheap for $500 a week earners at the expense of making life miserable for $206 workers? A $500 earner who spends $60 a week at McDonalds would need but $30 a week more to maintain his fast food fashion at 50% higher prices.

Overall inflation caused by a $500 minimum wage should only be 4%* -- not counting other wages pushed up.


Inflation can redistribute wealth from those who don’t get a raise to those who do – but recapturing labor’s share from CEOs, ballplayers and TV anchors who make 25 times their 1960s predecessors pay would take ruinous levels. Only a seriously unionized workforce can practicably re-take share from that high up the income scale.

1800s British workers designed to rebuild labor’s market muscle via protective legislation (‘twas to be their non-violent “French Revolution”) – but for them to so much as promote the vote (for all males) guaranteed, first, jail, and then, Australian exile (“1984” in 1804). The only thing perpetuating American workers on track to a “Freejack” future is their own complacency – even the 50% who would “rather be” unionized don’t sense any pressing “national emergency” – aided and abetted by an asleep-at-the-switch press corps (at least on labor matters).

Most untold story**: under the federal, stopped-clock-was-right in 1955, poverty formula (three times a crisis food budget), the poverty line for a family of four would be $72,000 a year by today -- had food prices risen twice as fast as other goods in the meantime -- instead of half as fast, leading to as foolish an official guideline of $18,000 (“Raise the Floor”, table 2-4). How alive to the great wage divide all America could be had a more alert media informed us poverty was rising from 15% in L.B.J.’s time to 25% – as it happened!

If and when America wakes up and smells the prosperity:

The most comprehensive approach – perhaps the only realistic hope – to end the American race to the bottom is (Germany’s tried and proved) sector-wide labor agreements, wherein employees working in the same occupation in the same geographic area must – by law – work under one and the same collectively bargained contract – even for different employers!

Sector-wide agreements could rebuild American labor’s bargaining power overnight – and reconstitute its political muscle – while eliminating pesky (contractless) scabs. A 1700s American scientist and philosopher might say: “Be not the first by whom the new is tried, nor yet the last to lay the old aside.”


Denis Drew


PS. A Republican baked inflation formulation (C-CPI-U) would lower Social Security cost of living adjustments by going in opposite directions at once:

(a) taking fuller count of technological deflation (a same price TV now comes with a remote):

(b) while ignoring rising prices when consumers substitute less desirable,cheaper goods (less gasoline for more subway rides; less pork for more rice).

[ * A $7.50 hourly raise translates to an average yearly raise of $7500 for earners between old minimum wage and new. To the 54 million now below $500/week (“State of Working America, 2004-5” table 2-6) we add 6 million who get a full raise -- to get 60 million half raises. (1/3 up,1/4 down simplifier >) $10,000 X 45 million = $450 billion raise -- divided by $12 trillion GDP = 3.75% inflation.]

[ ** More missed misreporting: the Census reports top-fifth families taking 50% of all income – up from 40%, two decades back -- by “top-coding” family income above one million dollars out of its survey – adjust for “top-coding” by assuming overall family income doubled (over the same span per capita income did) and top-fifth rakes 60%!]

No comments: