Why A $15 US Federal Minimum Wage May Be Just Around The Corner

After decades of lagging growth, wages have finally started to climb in 2021 as a record number of U.S. jobs remain unfilled.

On Tuesday, Joseph Brusuelas, chief economist for RSM US LLP, said the era of surplus U.S. labor is drawing to a close and a $15 minimum wage is becoming the new standard in the post-pandemic economy.

The pandemic lockdowns gave workers an opportunity to rethink whether or not their low-paying jobs are worth their time, Brusuelas said. The rise of online shopping and a $15 starting wage for Amazon.com, Inc. AMZN is bringing a 40-year period of monopsony to a close, he said. 

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Breaking The Monopsony: A monopsony is a consolidation of employment choices that results in an environment of non-competitiveness. One of the biggest historical examples is the coal mining towns of West Virginia, the economist said.

In more recent years, modern retail and restaurant companies have created monopsonies in small towns throughout the country, underselling local competitors and driving them out of business.

Companies like Walmart Inc WMT, Rite Aid Corporation RAD and McDonald's Corp MCD have created monopsonies in different regions throughout the U.S., Brusuelas said. I many cases, workers in small towns had no choice but to work at the local installment of the giant corporation for whatever wages they were willing to pay, he said. 

History Of Minimum Wage: When the minimum wage was first established in 1933, it was set at 50% of the average national pay rate of 50 cents per hour. The minimum wage remained at 50% of the average national rate of $2.50 per hour as of 1964, he said, adding that by 2019, the U.S. minimum wage had unfortunately fallen to just 30% of the national average hourly earnings.

“As manufacturing jobs began disappearing from the American economy in the 1980s, employers faced less competition for workers. And because low-income families don’t have the means to move to higher-paying areas, there were plenty of willing workers as long as their new jobs paid anything above minimum wage,” Brusuelas said.

Impact Of Rising Wages: Now that dynamic appears to be shifting in favor of the employees, but a $15 minimum wage could have some side effects. Higher wage costs will be passed on to consumers in the form of higher prices. Yet Bruseulas said raising the minimum wage should be a net positive for the economy given low-wage families are more likely to spend their extra earnings on food, shelter and other necessities than higher-earning families.

“Think of it this way: While the cost of a Big Mac might have to rise and your tab at your local restaurant might increase to account for the higher cost of paying the janitor, the cost to society of maintaining adequate living standards for low-wage earners through public assistance payments should diminish,” Brusuelas said.

Benzinga’s Take: Earlier this month, the Labor Department reported that U.S. wage growth continued to accelerate in September, rising 4.6% compared to a year ago. The SPDR S&P 500 ETF Trust SPY has generated a 17.4% total return so far in 2021, suggesting investors aren’t yet concerned about rising wages.

The upcoming third-quarter earnings season will provide investors with some important feedback on exactly how much rising labor costs are eating into corporate earnings.