Paying Workers a Higher Wage Doesn't Make Sense After All
Increasing the minimum wage seems like a noble policy initiative, but does it actually work? Here's why you should think twice about demanding a higher wage.
Last year I did something quite radical. I got a job working at Waffle House for $2.92 an hour.
When I took the job, I wasn’t planning to write about it. I wanted a job and was curious about what it would be like to work at a Waffle House.
Before calling orders for scattered, smothered, and covered hash browns at Waffle House, I spent most of 2021 traveling the country. It was the height of the pandemic and I was intrigued by the number of big box retailers and chain restaurants pleading for workers. There seemed to be a nationwide “labor shortage” and I wanted to get a better understanding of where all the workers had gone.
So I became one.
After spending a couple of months serving waffles, I eventually realized why so many workers had called it quits. The math wasn’t mathing anymore. No matter how hard I worked I knew it never would.
If you envision labor as a business proposition, working at a fast food joint often costs workers more than it’s worth. It felt like I spent more money out of pocket for the privilege of being employed at Waffle House than I was justifiably making.
Aside from supplying me with a shirt and apron, my employer didn’t pay for any of the costs associated with my employment. I had to fill my own gas tank to get to work. For every shift I worked, Waffle House deducted a $3.15 meal credit, regardless of whether or not I ate anything.1 And if any of the servers wanted to listen to music, we had to keep the jukebox going from the cash tips we kept in our aprons.
Even though I was considered a tipped employee — whose minimum wage is only $2.13 an hour — I didn’t earn tips for every hour I worked. The bulk of my tips came from maybe 1 or 2 hours’ worth of work. I was paid a tipped wage for cleaning the floor and restocking the salt and pepper shakers even though I didn’t earn a tip for performing those tasks.
I came to the conclusion that workers weren’t missing, they had simply migrated. They were pursuing other income-generating activities — like gig work — to get a higher return on their time.
One of the most popular policies to solve this problem is to simply pay hourly workers more. And that’s what many workers are advocating for. In fact, a few hundred miles from the Waffle House I worked at, workers have been organizing, seeking a $25 minimum wage.
While it would have been nice to earn a guaranteed $25 an hour when I worked at Waffle House, I know from a business and economic perspective, that’s an impossible ask. An increase in wages is a symptom, rather than a solution to a much bigger problem in the economy. It doesn’t denote a higher value of production generated by fast food workers and because of that, they shouldn’t be compensated as if it did.
What a higher wage actually signifies is a higher cost of living. It’s a symptom of inflation and the decrease in the purchasing power of wages. It’s not just that workers aren’t paid enough, it’s that the currency in which workers are paid can’t afford them the same basic essentials it could a few decades ago. Increasing the wage of an hourly worker doesn’t change the consequences of inflation — it exacerbates it.
When wages are raised in one sector of the economy, it leads to a commensurate demand elsewhere. For the wages of an hourly worker to go up, the prices of the products and services they’re producing will have to go up too. Salaried workers, in turn, will need to ask for an increase in wages to accommodate their higher cost of living, igniting a vicious inflationary cycle.
While demanding a higher wage is the easiest solution to improve the lives of low-wage workers in America, it isn’t necessarily the right solution. They have to actively migrate to where higher compensation is offered in the economy, rather than just demanding it.
This essay will argue that higher wages aren’t feasible without inducing an inflationary spiral that requires increasing the amount of money circulating within the economy.
Rather than asking for more money, employees need to move to higher-value work. Workers should do whatever it takes to leave a low-paying job rather than demanding a higher wage for the work they’re currently engaged in. Only by transitioning to better terms of employment can workers stay ahead of inflation and improve their quality of life.
You can’t pay workers a $25 minimum wage unless consumers are willing to pay more. Consumers can’t afford to unless they’re also paid more. That triggers an inflationary spiral.
According to the International Monetary Fund, inflation can be summed up as:
The rate of increase in prices over a given period of time…a broad measure, such as the overall increase in prices or the increase in the cost of living in a country.
Inflation measures the increase in the cost of living over a period of time. But how exactly does inflation happen?
Inflation is the result of an increase in the money supply. As more money enters into circulation, the value of it decreases. The cost of buying something changes but not because the inherent value of that thing has increased. It’s because the value of the currency used to purchase it has decreased in value. You need more money to buy something because your money is worth less than it used to be.
To illustrate how value works in an economy let’s look at art as an example. You can purchase a print of a famous painting like Leonardo da Vinci’s Mona Lisa for about $10 on Amazon. The real Mona Lisa — currently on display at the Louvre in Paris — is worth close to $1 billion. Because a print of the Mona Lisa is easily accessible, it’s relatively inexpensive to purchase. But the real deal is a one-of-a-kind piece of art that can’t be reproduced in the future. It’s priceless.
The money supply behaves in much the same way. When the money supply increases, it becomes more abundant. The more abundant something is and the easier it is to access, the lower its value.
That’s why workers can’t — and shouldn’t — want to be paid more. It signifies a decrease in the value of the money they’re paid in, rather than an increase in the value of their labor.