How the Public is Subsidizing the Minimum Wage

By Mike Dang October 31, 2013

Over at the Motley Fool, a popular investment news and tips site, Morgan Housel writes that adjusted for inflation, the minimum wage has declined by 30 percent over the course of 40 years, while the percentage of Americans on food stamps rose. This indicates, as we’ve noted previously, that the public is essentially subsidizing low-wage work.

Here’s one way to think about this. Since 1969, the real (inflation-adjusted) minimum wage has declined by about 30%, from more than $10 an hour to $7.25 an hour. During that period, the percentage of Americans receiving food stamps surged.

This isn’t all causation. Food-stamp eligibility has shifted throughout the years, and changes in unemployment shifts the number eligible for assistance.

But we know three things. One, there’s a positive correlation between the real minimum wage falling and the number of Americans on food stamps rising. Two, wages as a percent of GDP are near an all-time low, and corporate profits as percent of GDP are near an all-time high. Three, the issues that anger Americans more than almost any other are the weak jobs market and high government spending. All three of these are related to each other.

Housel notes that the decline in minimum wage and the rise in food stamps may be correlation and not causation, but recall last week’s news that McDonald’s opened up a hotline known as “McResources” to help their workers who have problems making ends meet, and that the resources the operators suggested included applying for food stamps and Medicaid.

It’s a problem that needs fixing. Housel writes:

I don’t have an solution for it. Maybe assistance needs to be cut, forcing workers to raise pay. Maybe the minimum wage needs to be raised, relieving the number of Americans on assistance. Either way, remember the first lesson of economics: There is no such thing as a free lunch.

Photo: Bryan Villegas

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