Robert Reich: Whose Pay Keeps Up With Inflation? – OpEd

Most of us don’t have paychecks that automatically increase to cover the rapidly-increasing costs of just about everything. As a result, inflation is making most of us poorer. 

But recipients of Social Security just got the largest inflation adjustment in four decades — 8.7 percent — effective December 2022. 

The media talk about this as a “boost” in Social Security benefits but it’s not. The adjustment simply enables people living on Social Security (more than 70 million of us) to maintain the purchasing power they had a year ago.

And it doesn’t even accomplish this, because medical and drug costs take a higher percentage of older Americans’ budgets than other Americans and have been rising even faster than inflation.

On the other hand, the people working at the federal minimum wage haven’t got an inflation adjustment. They’ve been getting poorer at a faster pace and for a longer time than most of the rest of us. 

The federal minimum wage is still $7.25 — just where it was in 2009, the last time the minimum wage was adjusted. (It’s the longest period of time without a minimum-wage adjustment since the federal minimum wage was put into place in 1938.) 

The chart below shows (in black) the real (inflation-adjusted, actual purchasing power) value of the minimum wage since its passage in 1938. (The blue line shows the nominal — non-inflation-adjusted — value.)

Workers paid the federal minimum of $7.25 today earn 23 percent less than what they (or their counterparts) earned 13 years ago, after adjusting for inflation, and 36 percent less than in 1968. 

This is bizarre, to say the least. As a nation, we’re far richer than we were in 1968. Per capita GDP then was just over $24,000. Today, it’s almost $60,000.

Because of Congressional inaction on the federal minimum, over two dozen states and several cities have raised their own state minimum wages. But in the rest of the country, states have punished low-wage workers by refusing to raise minimum pay. 26 states have gone so far as to pass laws prohibiting local governments from raising their minimum wage.

Why doesn’t the minimum wage rise with inflation, like Social Security? 

A big part of the reason is that big corporations and their trade associations — especially big retailers and restaurant chains — have lobbied intensely against any minimum wage increase. Their political power continues to grow even as the real value of the minimum wage continues to shrink. 

Remember: Corporations pay for the minimum wage. Taxpayers pay for Social Security.

Another reason Social Security keeps up with inflation while the minimum wage doesn’t is that Americans who receive Social Security — elderly and politically active — are far more likely to vote and demand cost-of-living increases than are people living at or near the minimum wage. 

But don’t grow too complacent about Social Security. Republicans and much of corporate America would like to do away with it. As Wisconsin Republican Senator Ron Johnson put it: “Social Security and Medicare, if you qualify, you just get it no matter what the cost… We ought to turn everything into discretionary spending so it’s all evaluated.”

So is it ever going to be possible to raise the minimum wage? Yes. 

I led the fight to raise it in 1996. Republicans controlled both houses of Congress at the time. Everyone told me it was impossible. But I sensed that raising the minimum wage was a popular issue. 

I asked Bill Clinton’s pollster to find out. He came back to me wildly enthusiastic. “85 percent of Americans believe the minimum wage should be raised!” he said. 

Armed with that poll, I convinced Clinton it was worth the fight. Then I took the poll to Democratic leaders in Congress, who became equally enthusiastic. 

It was a presidential election year, and Democrats immediately saw it as an issue they could bang over the head of Republicans. Fearing they would — and concerned about a voter backlash if they didn’t raise it — enough Republicans joined on to pass it. 

But is it possible to include an automatic inflation adjustment in the minimum wage? 

When I suggested it, Republicans balked. This didn’t surprise me. 

What surprised me was that Democrats also balked. Why?

“If it’s automatic, then we can’t fight about it,” a senior Democratic senator explained. “And in presidential election years, it’s a fight we like to have.”

Bottom line: Even if Republicans control one or both houses of Congress in 2024, that would be a good year to try to raise the minimum wage again. As to including an automatic adjustment for inflation, though, I’m less optimistic.