business news in context, analysis with attitude

The New York Times reports that in areas where Amazon has a presence, "low-wage workers at other businesses have seen significant wage growth since 2018, beyond what they otherwise might have expected, and not because of new minimum-wage laws. The gains are a direct result of Amazon’s corporate decision to increase starting pay to $15 an hour three years ago, which appears to have lifted pay for low-wage workers in other local companies as well, according to new research from economists at the University of California, Berkeley, and Brandeis University.

"The findings have broad implications for the battle over the federal minimum wage, which has stayed at $7.25 an hour for more than a decade, and which Democrats are trying to raise to $15 by 2025. For one, the research illustrates how difficult it can be for low-wage workers to command higher pay in the modern American economy — until a powerful outside actor, like a large employer or a government, intervenes."

The Times notes that "a mounting body of research in recent years suggests that labor markets don’t work in practice the way they do in some economic models. Employees often have less information about their worth than employers, or face greater risks to changing jobs, or can’t readily move between employers the way a pure market assumes. These “frictions,” in economic jargon, often benefit employers over employees, pushing down wages below where supply and demand suggest they should be.

"But that leaves room for other forces - in the form of political pressure, organized bargaining or a minimum wage - to push wages up."

KC's View:

I don't think there is any question that it is healthier for wages to be driven up by market forces than by government dictate, though this is not to suggest that there shouldn't be some sort of increase in the federal minimum wage.

I've long been sympathetic to the notion that a one-store operator in Montana should not have the same minimum wage standard as a chain based in New York City … though market forces probably would mean that the NYC chain has to pay more than the minimum.  I'm no economist, but I'm sort of intrigued by the idea that the federal minimum wage could be indexed to some measurement of states' individual economies, and after that to inflation … so that it is connected to reality on both ends.  But this may require more nuance than is possible with the current crop of elected officials.