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The federal minimum wage lags behind inflation and productivity growth in the US. People online are divided over which changes — if any — should be made to rectify the situation.

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If the minimum wage had been updated to keep pace with inflation since 1968, The original poster says it would be $21.50 per hour.

Linking minimum wage to inflation protects the purchasing power of low-paid workers.

Lagging Productivity Growth

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More importantly, the minimum wage has not risen with economy-wide productivity, which has soared. 

Productivity measures output per hour worked. Workers becoming more productive boosts company profits and broader economic growth.

Imagine a $21 Minimum Wage

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A minimum wage of $21 would uplift low-paid workers. A full-time worker would earn $43,000 annually, elevating a two-earner couple into the top income quintile. 

Higher pay at the bottom would dramatically compress wage inequality.

Counterargument: Uneven Productivity Growth

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Some argue that minimum-wage workers have not become more productive, so they do not merit higher pay. But this superficial observation ignores policy choices that have devalued certain kinds of work.

Institutional Biases Suppressed Low-Wage Productivity

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Rules systematically redirected productivity gains to the top. If policy favored the bottom, outcomes would change. 

Cheap drug imports and streamlined medical licensing would reduce doctors’ pay and boost funds for raises.

Policy, Not Workers, Caused Productivity Imbalances

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Stagnant productivity for low-wage workers is not their fault. It’s the result of policies structuring the economy against them. With supportive institutions, the minimum wage could have advanced with productivity.

Gradual Change Needed

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Restoring the link between minimum wage and productivity growth will require gradual change. 

Some increases are possible with little effect on employment, but the scale of change needed to reach $21 quickly would risk severe dislocation.

Historical Context

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Before 1968, the minimum wage rose steadily alongside broader economic gains. Workers shared the benefits as productivity increased.

Disconnect Since 1968

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But for 50 years, the minimum wage has been disconnected from overall growth. While the economy expands, low-wage workers are left behind.

Inequality Is Growing

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As a result, inequality has soared. Income accruing to those at the top has skyrocketed, while pay for those at the bottom stagnates. 

The current minimum wage reinforces unequal outcomes.

Raising Pay Boosts Economy

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Higher wages at the bottom will pump more spending into the economy. Low-paid workers have a higher marginal propensity to consume. They spend additional dollars rather than save. More consumer demand creates jobs.

Small Businesses Can Adapt

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With phased increases, small businesses can adapt to higher labor costs through modest price increases and productivity improvements. 

Larger corporations will readily absorb the changes.

Gradual Wage Hikes Preferred

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“A sudden increase in the minimum wage would cause a big rise in unemployment,” someone commented.

Questioning Statistics on Low Wages

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“CNN suggests about 81 million Americans currently make $20 or less an hour (which seems a little high to me and doesn’t seem to account for waiters and servers who frequently make much more than that in tips but receive a much lower official wage as a result),” said one user.

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The goal of broadly shared prosperity has been lost over the past five decades. To rebuild an economy in which low-wage workers again share in productivity gains will require gradual, systemic changes to policies and institutions. 

With thoughtful implementation, the minimum wage can be restored as a vital pillar that supports rising living standards for all.

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Christopher Alarcon started Financially Well Off to make personal finance more enjoyable. He's passionate about self-improvement, personal finance, and interviewing others.

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