Chapter 1: The Reality of Wage Demands

In recent times, workers have been increasingly vocal about needing higher wages to cope with escalating living costs. However, is this truly a beneficial approach?

Last year, I embarked on an unconventional journey by working at Waffle House for just $2.92 an hour. Initially, I had no intention of documenting my experience, but my curiosity about the economy drove me to seek firsthand insights. Throughout 2021, I traveled extensively and noted the numerous big box stores and chain restaurants struggling to attract employees. This phenomenon led me to investigate where the workforce had disappeared to.

After several months of serving waffles, I grasped why many employees were leaving their jobs. The financial equation simply didn’t add up; despite my efforts, the compensation was insufficient.

When viewing labor as a business transaction, the costs associated with working at a fast-food establishment often outweigh the benefits. I found myself spending more on commuting and meals than what I earned. My employer provided minimal support beyond a uniform, leaving me responsible for my travel expenses. Each shift, Waffle House deducted a $3.15 meal credit from my earnings, regardless of whether I ate. Furthermore, we had to use our cash tips to keep the jukebox running if we wanted music.

Even as a tipped employee, earning a minimum of $2.13 per hour, I didn't consistently earn tips for all my hours. Most of my tips came from just one or two busy hours of service, while I was paid a tipped wage for tasks like cleaning and restocking that didn’t yield tips.

Ultimately, I realized that workers weren’t disappearing; they were transitioning to more lucrative opportunities, like gig work, that offered better returns for their time.

Many advocate for a straightforward solution: simply raise wages for hourly workers. For instance, in a nearby city, workers have been campaigning for a $25 minimum wage. While a guaranteed $25 per hour would have been a welcome change during my time at Waffle House, I understand, from an economic viewpoint, that this demand is unrealistic. Higher wages represent a symptom of a deeper issue rather than a fix to it.

A higher wage reflects an increase in living costs and is often an indicator of inflation, which erodes the purchasing power of wages. The reality is that it’s not merely insufficient pay; it’s the declining value of the currency that prevents workers from affording the same basic necessities they could years ago. Raising hourly wages doesn’t combat inflation; it often exacerbates it.

When wages rise in one sector, the costs of goods and services produced by that sector typically increase as well. Consequently, salaried employees may also seek wage increases to cope with their rising living costs, igniting an inflationary cycle.

Though it might seem appealing to demand higher wages as a straightforward solution for low-income workers, this approach may not effectively address the underlying problem. Workers should actively seek higher-paying opportunities rather than merely asking for more money in their current roles.

This essay will demonstrate that raising wages isn’t sustainable without triggering inflationary pressures that necessitate increasing the money supply in the economy. Employees should strive to transition to positions that offer better compensation, which can help them stay ahead of inflation and improve their living standards.

In essence, paying workers a $25 minimum wage is only feasible if consumers can afford to pay more. If wages increase, consumers will also require higher earnings to manage those costs, setting off an inflationary cycle.

The International Monetary Fund defines inflation as the rate of price increase over time, which serves as a broad measure of the overall rise in prices or living costs in a nation. But how does inflation occur?

Inflation is primarily driven by an increase in the money supply. When more money circulates, its value diminishes, making it necessary to spend more to purchase goods—not because those goods have become inherently more valuable, but because the currency has lost purchasing power.

To illustrate this, consider the art market. A print of Leonardo da Vinci's Mona Lisa can be bought for around $10 on Amazon, while the original is valued at nearly $1 billion. The accessibility of the print makes it relatively inexpensive, whereas the authentic painting's uniqueness contributes to its significant worth.

The dynamics of the money supply mirror this concept. An increase in the money supply leads to greater availability, which in turn reduces value.

This is why workers shouldn't merely seek higher wages; doing so indicates a decline in the value of the currency they receive rather than an increase in their labor's worth.

An insightful example of this can be seen in the government’s response to the COVID-19 pandemic. Between March 2020 and March 2021, three rounds of Economic Impact Payments, or stimulus checks, were distributed to American taxpayers. Individuals received a total of $3,200, with families receiving even higher amounts.

Where did this influx of cash originate? It wasn’t due to rising tax revenues or foreign trade; rather, it was effectively created out of thin air by the government.

This newly minted money was injected into the economy to enable individuals and businesses to sustain spending. Consequently, the circulation of money surged, and now, years later, we face inflation’s repercussions. As the money supply grew, so did the prices of everyday essentials, which means the value of those goods hasn’t increased; it simply costs more to buy them.

When workers from various sectors, not just those in fast food, demand higher wages, it reflects a broader inflationary trend. They seek higher compensation not only to adjust for increased living costs but also because the real value of their wages has diminished over time.

It’s crucial to recognize that the push for wage increases isn’t limited to one demographic. When hourly wages rise, salaried professionals will also expect higher pay. An increase in compensation across the board signifies that more money is being introduced into the economy, which further dilutes its value and amplifies living expenses.

A wage hike does not address the issue; it merely highlights a symptom. Satisfying workers' demands could trigger an inflationary spiral that policymakers may struggle to control. Thus, the purchasing power of increased wages will continue to diminish as more money enters circulation.

Inflation erodes the value of wages. Earning a higher wage, therefore, becomes inconsequential. After considering the rise in living costs, a wage of $25 per hour may not retain its intended value.

To understand inflation, one can view it from two perspectives: the rising cost of goods and services or the declining value of wages. The latter, however, is often overlooked in media discussions and government data.

When the value of currency diminishes, it takes more money to purchase the same items. Historical examples, such as Weimar Germany, illustrate the consequences of this phenomenon. After World War I, Germany faced heavy reparations but failed to restore production levels post-war. As a result, the government resorted to printing more money, triggering an inflationary spiral. By 1923, the cost of a loaf of bread soared to 200 billion marks, compelling people to use wheelbarrows full of currency just to buy basic necessities.

While extreme, the hyperinflation in Weimar Germany exemplifies what occurs when a currency's purchasing power declines. It’s not merely a matter of rising prices; it also means needing more currency to afford essential goods.

Consequently, raising the minimum wage to $25 per hour won’t guarantee that this wage retains its value. As costs rise to accommodate higher wages, workers will find themselves spending more to purchase necessities. The $25 wage will only match the inflated prices, not the pre-inflated costs they once knew.

This perspective reinforces that merely demanding higher wages won’t resolve underlying issues. Workers will continue to face challenges as inflation persists, moving the goalposts further away. A wage increase won’t necessarily uplift them from poverty.

So, what’s the path forward? Instead of asking for higher wages and expecting their value to increase amidst inflation, workers should seek positions that offer better pay. This shift may not be simple and could require resources that aren’t readily available, but it’s essential for achieving meaningful wage growth.

For instance, consider the difference between a job making burritos at Chipotle and a career in plumbing. In 2021, Chipotle raised its average hourly wage to $15. However, the value of the labor involved in making a burrito hadn’t increased; the company simply needed to attract workers. Recognizing the unsustainability of this model, Chipotle began testing automation to replace human labor.

On the other hand, plumbers earn significantly more—around $28.75 per hour—because of the skills and training required. While becoming a plumber involves hurdles like licensing and apprenticeships, it remains a viable path to a livable wage, with less likelihood of automation replacing such roles.

Similar to low-wage fast food workers, plumbers are also in high demand. A shortage of plumbers could cost the economy billions in the future. As demand for their services rises, so too will their wages. Unlike fast-food jobs, plumbing cannot easily be outsourced to machines, giving plumbers leverage to negotiate pay that reflects the true value of their work.

Instead of fixating on the rising cost of living, workers should concentrate on the diminishing value of their wages. By understanding the actual worth of their labor, rather than their perceived value, they can free themselves from the misconception that they deserve more compensation.

Not all professions should or can be equally compensated. While it’s valid to argue for better pay, workers are also free agents in the economy and can choose to move to different employers as they see fit.

It’s insufficient to merely demand higher pay for work that lacks value in the economy. Workers must do their research and identify where their skills are in demand. If the market needs plumbers, they should pursue plumbing. If a sector is oversaturated, employees should refrain from seeking higher pay for low-value jobs. Such expectations could ultimately harm all workers in the long run.

Final Thoughts

Wage increases are overdue, but not in the way many might expect. The federal minimum wage, currently at $7.25, has remained unchanged since 2009. Adjusted for inflation, this amount would equate to $10.49 today.

When evaluating the true value of money, today’s hourly workers are earning more than the minimum wage. Yet, they are not necessarily better off. The soaring costs of living, particularly housing, have intensified this issue. The average rent far exceeds the inflation-adjusted earnings of American workers.

However, does this mean we should raise wages even further? Not unless we’re prepared to bear the associated costs. An increase in wages will invariably lead to a rise in labor costs, which will be passed on to consumers, necessitating higher wages across the board.

Presently, California is conducting an experiment to explore the effects of wage growth on the economy. Soon, fast food workers in the state will begin earning $20 per hour, the highest rate in the country. This will provide real-time insights into the arguments presented in this essay.

Meanwhile, workers must take charge of their situations and recognize that they are not victims of their circumstances, no matter how dire they may seem. While demanding higher wages for unchanged work is the simplest route, it requires minimal effort.

The more challenging yet rewarding option involves taking control of one’s career trajectory. If you’re dissatisfied with your current compensation, seek employment in a sector that values your skills appropriately. Unlike previous generations, workers today have more options than ever.

This second choice is less popular because it demands more effort. Whether it involves returning to school part-time or pursuing an apprenticeship, it requires a commitment from individuals already burdened by economic challenges. While it may not be easy, it is certainly achievable.

For many of my colleagues at Waffle House, the job served as a stepping stone rather than an end goal. This nuance often gets overlooked in societal discussions about wages and economic conditions. Some roles are not designed to support families but rather serve as entry-level positions or part-time jobs for individuals preparing for more lucrative opportunities.

Demanding a wage for work that isn't meant to sustain a living is shortsighted. It’s a temporary fix that fails to address the root problem. As inflation continues to erode the value of labor, calls for higher wages will persist.

The economic landscape is challenging for many workers, and the harsh reality is that this has always been the case. Simply asking for higher wages will not alter the status quo. The divide between the affluent and the less fortunate has existed for generations and will likely continue.

Expecting to gain ground by appealing to the wealthy is unlikely to yield positive results. The true path to improvement lies in challenging oneself. Workers need to seek out opportunities where their labor is valued and in demand.

Achieving this requires personal initiative. You cannot rely on others to effect change for you.

This video discusses when it may be unwise to negotiate for a higher salary, providing insights into timing and strategy in the context of wage discussions.

In this video, viewers will find useful tips for effectively negotiating their salary and asking for a raise, along with strategies to enhance their bargaining power.