American Reason: The fruits of our (minimum wage) labor

American Reason
“Adjusted for inflation, the GDP has doubled since 1980 and worker productivity is up by about 80 percent, but the median household income has barely moved at all while the income of the top 5 percent has increase by about 50 percent.” –Vikram Patel (pictured left)

Over the past few years the recession has forced states to make cuts to their social safety nets. More recently, the sequester has done the same on the federal level and any realistic budget will likely continue that trend over the next couple of decades. Unfortunately, the obvious solutions to save these programs (raising taxes or adding a few tax brackets) have been politically unviable. Both Democrats and Republicans have shied away from suggesting tax increases for fear of losing their seats. Would raising the federal minimum wage from $7.25 per hour to around $9 per hour provide a more practicable solution?

Vikram Patel: Adjusted for inflation, the GDP has doubled since 1980 and worker productivity is up by about 80 percent, but the median household income has barely moved at all while the income of the top 5 percent has increase by about 50 percent. These increases in production without increases in wages show that while the average American is working harder and producing more, the benefits are going to a very small segment of the population. The average worker should be paid commensurate with the profit they produce. If we can’t get those who have almost solely benefited from the growth of our economy to pay a fair amount for social programs, then they should at least pay their workers a fair wage.

Matt Sowada: Actually, I’m not so sure that I fully agree with your premise. I agree that the average worker is producing more, but I don’t think that it’s necessarily because workers are working harder. Workers certainly aren’t working 80 percent more: According to the Bureau of Labor Statistics (BLS) the average hours worked per a week in the private sector has slightly decreased since the ‘80s. The bulk of the increase we’ve seen in productivity has been from the expanded use of machines to do tasks more efficiently than their human counterparts. If some CEO buys an army of robots that lets her workers build cars 80 percent faster, then in a capitalist system isn’t she the one that should reap the benefits? After all, it was her investment that made that increase in productivity possible. Maybe in this case, to a large degree the 1 percent deserve their fortunes.

V.P.: I think you have correctly identified that improvements in technology are what have fueled the growth of our economy, as opposed to harder working employees as I posited earlier. If some investors have funded the research for a given technology then they absolutely deserve large rewards for that. The return on an investment is justified by the associated risk of loss. However, much of the risk of loss that comes with technological development has been absorbed by the public. Private sector labs that did fundamental research like Xerox PARC (where the graphical user interface and the mouse were invented) or Bell Labs (where their pre-1970s research produced several Nobel Prizes) have basically disappeared or shifted focus. Even though the private sector provides the majority of funding for research and development in the US, they only provide one-fifth of the funding devoted to fundamental, ground-breaking research. Private sector research is mostly devoted to small, incremental improvements and simply paying to implement a proven technology does not justify reaping a large part of the rewards from the development of that technology. If modern research is funded by the public, then the benefits should be broadly distributed instead of concentrated in the hands a few.

M.S.: Well frankly, I disagree. Paying to implement a technology (proven or otherwise) does justify reaping the lion’s share of the profit. The owner of the robot army is responsible for paying for its upkeep and repair, and she is the one that ought to go bankrupt if the robots don’t perform as advertised. I do agree that those that benefit from publicly funded research should pay back into the system, but I would argue that to some degree they already do. According to recent data from the Economic Policy Institute, individuals with high incomes have seen those incomes grow at a faster rate over the last 40 years than those of lesser means. Since we have a bracketed, progressive income tax system this means that if you’ve been more amply rewarded for the increase in productivity we’ve seen, then you’ve also paid more in taxes that go to fund public research. That seems both ethical and logical to me.

To be clear, I don’t think raising the minimum wage would hurt anything. A 2012 BLS survey has shown that minimum wage workers are pretty rare, about 4.7 percent of hourly workers get paid the minimum wage or less. Any politically feasible increase in the minimum wage (say, $1.75 an hour as you suggest) is not going to make a very big difference either way. I say that we don’t throw in the towel on increasing the number of high income tax brackets. I know it seems impossible, but gay marriage seemed impossible when you and I started yelling into radio mics about it five years ago, and now to our happy astonishment it feels practically inevitable on the federal level.

Vikram Patel and Matt Sowada are the friendly adversaries behind the twice-weekly ethical debates series, American Reason. Listen on KRUI every Sunday from 4-5 p.m., and find an archive of the shows (as well as exclusive web-only content) online at