in the Twenty-First Century

Capital in the Twenty First Century


What are the grand dynamics that drive the accumulation and distribution of capital? Questions about the long-term evolution of inequality, the concentration of wealth, and the prospects for economic growth lie at the heart of political economy. But satisfactory answers have been hard to find for lack of adequate data and clear guiding theories. In Capital in the Twenty-First Century, Thomas Piketty analyzes a unique collection of data from twenty countries, ranging as far back as the eightee…

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ELI5: Why would the minimum wage ever not be a living wage?(r/explainlikeimfive)

The history is simple. The minimum wage was originally passed with the intention of providing a full-time worker the capacity to support himself and a family. The federal minimum wage in the United States was set at $0.25 per hour in 1938. It was not tied to inflation and has to be increased by law. The term “Act of Congress” is often used to describe a massive and nearly impossible action. In this case it is both a literal and figurative truth.

There are a number of commenters here who seem to think that the minimum wage was ever intended to be other than you describe it. They are wrong. The minimum wage is just that, the minimum acceptable wage that a full-time worker can make and be able to subsist without assistance.
> No business which depends for existence on paying less than living wages to its workers has any right to continue in this country. —President Franklin Delano Roosevelt, 1933

The minimum wage was established to ensure that all workers in the US would be able to live independently on their wages. The existence of a minimum wage provides all other workers with useful bargaining leverage, increasing wages throughout. Historically this typically results in a redistribution of wealth from owners to workers (not a commensurate increase in prices as some here have claimed), which always results in an overall increase in economic growth as workers are also consumers.

In the US minimum wage has become stagnant, failing to reflect inflation. A large part of that is the misonceptions throughout this thread. Minimum wage is not “earned solely by teenagers and college students for beer money.” Nor can any reasonable person suppose that anyone doesn’t desere to “live comfortably on 40 hours a week.”

These, fairly recent, attitudes have been encouraged by business owners who have little incentive to pay their workers a reasonable wage, so long as there is an army of unemployed and underemployed willing to do the same job. The minimum wage subverts that desire.
Simply put, an owner pays a little as he can for the labor. The rarer a laborer’s skills are (not how skilled or useful he is, the owner never pays anyone he doesn’t have to) the more he can charge because he is difficult to replace. Minimum wage establishes a floor, as do overtime requirements and other fair labor standards.

The minimum wage has nothing to do with whether or not someone “deserves” to be paid for their work. Your boss will never pay you more than he has to, that is the central premise of a free market. A minimum wage says that no matter how little he wants to pay you, he should still pay you enough to live on. It is also simple economic sense, it saves money that would go to public welfare to support people who are employed. It is a decision by society as a whole that no one who is willing and able to work should find themselves in poverty.

All that being said, the shareholder prefers that money goes to his bottom line, and not into wages. So he fights any increase tooth and nail. The misconceptions throughout this thread, and the insane anger focused on those one rung lower on the socio-economic ladder, are one tool to avoid it. Another is spreading misinformation, also found in this thread, to lawmakers; claiming that increasing minimum wage dampens, rather than strengthens, the local economy. And the last is simple apathy, since the minimum wage is not tied to inflation it becomes increasingly trivial as time goes by. After a while it becomes, as it has now, a poverty wage.

Oh my poor inbox. Ok, I’m going to try to address some of the biggest responses.

  1. I used the term “inflation” incorrectly, or at least not in the way traditionally used in economics. I also referenced minimum wage which began in the US in 1938, ignoring the 1933 law to which the FDR quote refers. I left it out because it was struck down by the Supreme Court, while the Court upheld the 1938 law. For the same reason I used the term “inflation” rather than “cost of living” or another, more accurate metric. This is ELI5, I didn’t want to confuse the issue and stuck with a term I thought everyone was familiar with, rather than explaining the difference between the two, which would have done little to answer OP’s question.

  2. A sizeable percentage of minimum wage workers are young adults or retirees who don’t need the income. But a sizeable percentage aren’t. Someone, attempting to claim I mischaracterized things, acually supported my argument. By his numbers 54% of minimum wage earners are in the young adult bracket. Which indicates that 46% are not. He handwaves this away, claiming not all of them need that income. I submit that not all of the young adults don’t need that income. Just because you’re 24 doesn’t make you a white, middle-class, college student looking for beer money.

  3. I am not an economist. I am someone with an interest in history and political philosophy, of which economics is a child discipline. My writing is not academic, but neither is what I say innaccurate or misleading. My statements are political, in the sense that they relate to modern policy, and they are influenced by passion. I have never seen any argument against a minimum living wage that is not either intellectually dishonest, or ethically abhorrent. I will admit that I have seen many that were both.

  4. Some kind fellow has given me gold. Thank you generous stranger, for paying what you could have for free. In itself proving that there are counter-examples to my argument that in a free market people will pay as little for labor as they can get away with. This, however, is merely the exception which prove the rule. In the absence of strong worker protection laws or powerful unions most employers view their workers as expendable resources, not people, to be procured at as little cost as possible and disposed of at convenience. I lament that we’ve become comfortable with that view.


Okay, this has blown up way to far. It needs to stop. This isn’t a particularly well written or researched essay on the minimum wage. It’s not an academic article on the subject, or even an editorial. I only wrote this because I was royally pissed off that every other response in this thread was shitting all over low wage workers, claiming that everyone who was paid minimum wage was either a teenager or a lazy failure in life who deserved nothing. So I pulled some references from Wikipedia and hacked together a “for” response in the form of a short persuasive essay (in the sense that the essay is intended to persuay, not necessarily that it succeeded).

If you still think I’m full of shit, if you don’t like my Christmas reading list, if you have another magical panacea, or hate poor people, or hate rich people, or want to observe that minimum wage is a band-aid for some bigger social issue; please start another thread. This is crazy. There’s no way I can even see your response anymore.

The TLDR, ELIL5 of the entire post is this: Minimum wage in most places in the US is higher than the federal minimum wage, but still not always enough to live on. Minimum wage was supposed to be a living wage, but increasing it requires an act of law even though the cost of living goes up every year. Since low wages mean low costs many business leaders and investors like a low minimum wage, so they fight efforts to raise it. As time goes on what was a living wage becomes too low to stay one. I think that’s bad.

And because everyone’s gotten really riled up, here’s a scene from my favourite Christmas movie.

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Thomas Piketty

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Belknap Press: An Imprint of Harvard University Press

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Capital in the Twenty-First Century

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ELI5: Why would the minimum wage ever not be a living wage?

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