Michael Brainard is the CEO & Founder of Brainard Strategy, a management consulting firm specializing in executive leadership development.
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Today's “Great Resignation,” largely due to historically low unemployment, is causing us to rethink the impact that the minimum wage has had on our society, the leverage gained by workers and the difference between a “free market” and a “free and fair market.”
Milton Friedman and Edmund Phelps, in a series of papers in 1967-68, defined “natural unemployment” as the minimum unemployment rate resulting from real or voluntary economic forces. It basically means that the number of people unemployed is primarily due to the structure of the labor force itself and not from economic weakness, per se. This then allows employees to move to and from organizations freely. Many consider a 4% to 5% unemployment rate to be natural unemployment, or full employment, in the economy.
According to the Bureau of Labor Statistics, current unemployment is 4.2%, or a total of about 6.9 million people out of work. By many accounts, unemployment is expected to continue to drop through the end of 2022. At the upper end of the labor market, for those jobs requiring advanced or technical levels of education, the unemployment rate can be much lower than the general rate. What is particularly interesting is that the current and projected low levels of unemployment across geographies, industries and job types are giving employees at the lower end of the wage spectrum freedom of movement unseen in this generation.
Questions have arisen such as: Is this type of employee mobility good or bad? For whom? How long will it last? How can organizations compete for talent in this new world? How expensive will talent get? What is important or of value for talent across the job spectrum? These and many other complex questions must be addressed. Most fundamentally, however, the key question is: What is the difference between a free market economy and a free and fair market economy as it relates to labor?
In a free market economy, governments can be lobbied or influenced to set, or not set, regulations and rules. For example, the federal government, through its inaction on the federal minimum wage law, in part, has traditionally created a lack of mobility for employees on the lower end of the labor market. Unwittingly, now, that inaction on the federal minimum wage is creating mobility for employees working at or around the minimum wage. Throughout history, Congress has raised the minimum wage only 22 times. The current level, at $7.25 an hour, was set in 2009 and has not kept up with real economic growth (as noted by the Economic Policy Institute).
If you look at certain megastores as an example, by their adhering to (or exploiting) state, local and federal minimum wage laws, the taxpayer has had to subsidize their workers via food assistance programs, Medicare and other local, state and federal assistance programs. In fact, the federal minimum wage stagnation has enabled low-cost labor to exist without consideration of real economic growth. This has obviously been bad for the minimum wage employees and taxpayers, but wait, it’s even bad for the megastores.
This short-term and short-sighted pay practice strategy (getting labor at its lowest cost) has now been shown to be bad for these companies. Now, employees across the income spectrum are mobile. When other companies move away from minimum wages and toward living wages, employees will move with and toward them. This is ultimately good for society in that these workers have better lives and better spending power, and it puts exploitative companies at a disadvantage in today’s employment market.
In a reimagined free and fair market economy, where the minimum wage would be adjusted for real economic growth rates, employees at the low end of the pay scale would obviously earn a living wage, and the taxpayer would have much less to subsidize in their local communities, states and across our federal government. If we assume the government will be slow to act on minimum wage laws, if they act at all, then we can now see that the free and fair labor market has taken hold.
In this reimagined free and fair market, employees will now have the leverage to move from organization to organization as a voluntary action. This may spark fear on the demand side of the labor market as low-cost labor would have greater mobility and leverage, thus creating competition for that labor. In the popular media, there is concern about rising inflation. There have been anecdotal relationships discussed between low unemployment and high inflation, but those concerns are largely unjustified as economists have not found a strong correlation between low unemployment and high inflation. The fears that we can dream up are not at all in proportion with the benefits of a minimum wage moving with real economic growth. This reimagining of the minimum wage is a great example of a free and fair labor market working toward the good of employees, taxpayers and even corporations.
Wouldn’t it be great if low-income workers could choose between competing offers, cultures and effectively managed businesses? Wouldn’t it be great if low-income workers were afforded some of the same options and choices that people in the middle and upper end of the labor market were afforded? Wouldn’t it be good for all organizations to have to compete, and focus on culture, people, development and benefits like training, education and performance bonuses? In a free and fair market, this is beginning to happen, and it is good for all of us.
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