Minimum Wage, Wage Theft and The Free Market at Work – Is it Fixable?

The post 80’s ideas of keeping the minimum wage suppressed and not rewarding workers, profit creators, for their productivity increases of the last three decades must stop. The decisions of the supply side free market and most of its leaders, profit takers, is destroying the middle class and growing the ranks of the working poor. Reversing this trend and the decisions of the profit takers is doable.

For example in 1914, Henry Ford made the right free market decision. Ford needed a steady workforce for monotonous work and knew that his workers needed adequate pay to buy his product, so he doubled their pay boosting it to $5/day, more than any minimum wage of the time. According to Hedrick Smith, author of Who Stole the American Dream, Ford wrote that this decision was not only a matter of social justice, it was smart business.

Almost 100 years later, that level of pay is worth around $114.80/day, or $14.35/hour, when adjusted for inflation. This adjusted wage, at $29,850/year, is about $6,800 above the 2012 poverty level for a family of four. The current national minimum wage is $7.25 for hourly workers and $2.13 for tipped workers.

As the charts below demonstrate, real wage growth for the profit creators has NOT kept up with their increased productivity. Instead, a portion of the salary increases for hundreds of millions of profit creators were kept by their employers, funneled up, and either turned into huge CEO salaries and bonuses, or invested with big banks. The banks then turned their share of those stolen wages into home equity loans and credit card give-a-aways – lots of loans back to the workers to distract them from their stagnant wages. (Other factors also affect income and wealth inequality and are posted about elsewhere.)

 

 

 

 

The past actions of America’s free market, i.e. corporate governance, have, among other things, kept worker wages low. This escalated in the 80’s when profit makers were no longer rewarded for their productivity increases. To replace those stolen wages, women joined the workforce, and banks made credit very easy to get so they could earn interest on those stolen wages.

Maybe after almost 100 years, we can return to the “one rule” of Henry Ford:

“There is one rule for the industrialist and that is: Make the best quality of goods possible at the lowest cost possible, paying the highest wages possible.” Henry Ford

It’s time to reinstitute Ford’s socially responsible corporate governance. We need to double the minimum wage, as Henry Ford did, and properly reward profit creators – employees – for their productivity gains. We can do this by asking our government to encourage socially responsible corporate governance and by increasing democracy in the workplace.