Rethinking Our Minimum Wage

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In this Tuesday, Feb. 12, 2013 photo, Kassandra Guzman of the Corona section of the Queens borough of New York, poses at the Legislative Office Building in Albany, N.Y. Guzman, an 18-year-old high school student, works seven days a week and said she still has trouble saving for college after helping her parents pay their bills. As with other low-wage earners, the proposed hike in New York's minimum wage won't erase all her financial worries, but it would help. (AP Photo/Mike Groll)

Kassandra Guzman, an 18-year-old high school student from Queens, N.Y., works seven days a week and said she still has trouble saving for college after helping her parents pay their bills. (AP Photo/Mike Groll)

Today, a single parent earning minimum wage takes home $15,080 a year. That’s $3,400 below the federal poverty line for a family of three. President Obama noted the statistic in his State of the Union Address — “That’s wrong,” he said, calling for an increase in the minimum wage to $9 an hour because “in the wealthiest nation on Earth, no one who works full-time should have to live in poverty.”

The minimum wage has not always left a single income-earner for a family of three so far below the poverty line. In 1968, when minimum wage was at it’s highest point ever, that same breadwinner would have made $19,245 a year in today’s dollars — roughly a third more than he or she makes now.

In 1981, in an attempt to fight inflation, the minimum wage was frozen at $3.35 per hour despite the rising cost of living. It wasn’t bumped up until 1990, by which point it had fallen well below the poverty line for a family of two (about $2,500 lower than for a family of three). From 1997 to 2007, the minimum wage remained stuck at $5.15 per hour, as, once again, the cost of living continued to increase.

Between 2007 and 2010, the federal minimum crept up to $7.25 per hour, though individual states were given the power to raise the minimum wage above the national one, and nineteen have taken that opportunity. Now, Obama says, it’s time for the minimum wage to increase again nationally.

Source: EPI, using poverty thresholds for 2012 for family of two (one adult, one child) and three (two adults, one child) from U.S. Census Bureau. Minimum wage from U.S. DOL, deflated using CPI-U-RS. Annual earnings calculated assuming workers work full-time (40 hours per week) and 52 weeks per year (i.e., with no vacation.)

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Obama also suggested in his State of the Union Address that, going forward, the minimum wage should be tied to the cost of living — an idea, he pointed out, that both he and Mitt Romney agreed upon. “Working folks shouldn’t have to wait year after year for the minimum wage to go up while CEO pay has never been higher,” he said.

In a blog post, Economic Policy Institute analyst David Cooper explored that idea further. He ran the numbers on some other possible indices to which minimum wage could be tied. The chart below shows his work.

Source: EPI analysis of data from Kopczuk, Saez and Song (2010) and Social Security Administration wage statistics, Total Economy Productivity Data from the Bureau of Labor Statistics Labor Productivity and Costs program, Bureau of Labor Statistics Current Employment Statistics, and U.S. Department of Labor Wage and Hour Division (2012)

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The “real average wages” line shows what would have happened if, starting in 1968, the minimum wage increased at the same rate that American workers on the whole saw their wages increase. The “productivity” line shows what would have happened had the minimum wage been tied to the economy’s “overall capacity to generate income.” The dark blue line shows what would have happened if, in 1968, the minimum wage had been tied to the income of the top 1 percent. If minimum wage workers saw the same massive increases in income that the America’s richest have enjoyed since the 1970s, the lowest-paid worker in America today would be making $28 an hour.

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