Rethinking Our Minimum Wage

February 22, 2013

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.)

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)

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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TOPICS: Democracy & Government, Equality, Social Change, The Economy

TAGS: economic inequality, economic policy institute, epi, income inequality, minimum wage, state of the union, widget

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stephen miller
tie it to CEO pay!
http://www.facebook.com/profile.php?id=603952213 Richard Saulnier
1968 – 19k+ … something is very wrong with this data
http://www.facebook.com/profile.php?id=603952213 Richard Saulnier
my bad … $19,245 a year in today’s dollars
Marvin Wagner
I wish that the article would have covered jobs included in the law. Not all are. I also wish that the impact of immigrants were explained. Many immigrants depend on below minimum wage work. Employers also depend on paying less than minimum wages. Hence citizens cannot find jobs and work for less when they do.
http://www.facebook.com/fran.g.go Fran Gouveia
I’m no data geek, but I bet there’s never been a time in history when companies employed so many part-timers just to avoid paying benefits.
James Q. Jacobs
Correction: This quote, “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” is incorrect. The states had that power all along. In 1988, I filed the first minimum wage initiative petition in history, in the State of Oregon. That same year following on my initiative filing, Washington state’s initiative drive succeeded at the ballot box by a wide margin, ushering in the series of subsequent successful initiative petition drives in other states. In 1989. the Oregon legislature passed the raise proposed by our Minimum Wage Coalition, a coalition of activists and groups led by Oregon AFL-CIO chair, Irv Fletcher. Oregon became the state with the highest minimum wage in the nation and Oregon law was later altered by ballot initiative to both raise the minimum wage and include periodic cost of living adjustments in the minimum wage..
Anonymous
By my calculation, this is almost $54,000 full time, before taxes. At this rate, more people could afford to work part time, spending less on day care, more time with their kids, and providing more jobs for everyone. I would personally prefer to work a couple/few different part time jobs, and this would make it easy.
Anonymous
That chasm between actual minimum wage and the wage tied to the earnings of the 1%? That is the wealth that was redistributed upwards over the past 40 years. But that wasn’t enough- financial institutions also had to turn poverty into an opportunity to profit further by charging interest on the credit people needed just to maintain the decent standard of living that their wages failed to provide for. The real “takers” are the ones who have kept all of these gains for themselves. Don’t let anyone call “class warfare” for pointing out facts like this- given this data that is the most disingenuous and hypocritical accusation of all time for what amounts to the most parsimonious approach to profit-sharing that exists in the industrialized world.
http://www.facebook.com/people/Becky-Spoon/1133782108 Becky Spoon
$28/hr. would be $1120/wk or $58,240/yr. full time. Imagine tax revenue for public services had that been the case. We’d all be doing well, instead of only the top 1%.
http://twitter.com/CurtisLester Curtis Lester
Greatest country in the world?
Joe Ipp
Min wage is mostly for teens, etc in their 1st job. You basically get paid what you are worth. Where would additional money come from? Who? Would you pay $5 for a McD’s hamburger?
Zora
Every raise by minimum wage, COLA, or other not based on increased productivity merely devalues the currency. Thus, every saved dollar is diminished by a like percent. This is hardest on the elderly who worked a lifetime for a fraction of the current minimum wage. The dollars they saved have lost most all of their purchasing power. Plus the Fed has reduced the earnings of savings below 1% a fraction of inflation. Reduce the poverty level by increasing the value of the currency and paying a fair return on savings. Every public corporation job should pay a fixed number of shares per pay period and all must sell their shares in the same market to raise cash. Raises, thus, come from increasing the value of the shares. Likewise, do not extend unemployment benefits without requiring some engagement in public works for tax dollars expended.
http://www.facebook.com/dan.paralanguage Dan Paralanguage
obama is going to get so much criticism for this from fox news and the tea party (who really are fighting against there own best interests) that he really should be raising it to something that will actually help out the lower class. like 15 dollars an hour. more money in peoples pockets, more people buying things.
Wordsmith818
Maybe in your neighborhood. Min. wage is the pay of probably 25% of the workforce in mine. And in states like California, where kids can’t quite school until they’re 18? That’s so they won’t compete with their parents for the minimum wage jobs. Don’t trust those middle class perceptions of yours; they’re skewed by the world promoted by the 1% culture-makers. More than half of all earners make less, and a huge percentage way less, than what is presented as the norm.
Kaki
The point is that people COULD pay $5 for a McD’s hamburger if the minimum wage had risen commensurately with, at least, the cost of living. That Americans making 1968-level minimum wages have no buying power for today’s market.
Nate
Devaluation and depreciation are different. Raising the minimum wage can in no way devalue the dollar, seeing as devaluation/revaluation are a part of monetary policy.
And your point falls flat anyway because productivity has raised steadily while wages have stagnated. Did you see the second chart? It clearly illustrates that fact.
We should just pay people on Social Security a living wage equivalent income monthly. The fact is that the only people hurt by minimum wage gains are the rich, whose wealth comes from systematically under-paying their workers and pocketing the profit.
indigovagrant
I’m all for indexing the minimum wage, Only problem with indexing it to the top 1% is it would harm small business owners who do not make anything near what the top 1% make.
You’d have to tie it the the pay of the individual CEO’s/owner-operators of each business rather than have a flat wage.
Nate
“You basically get paid what you are worth” – really? Is the measure of a human beings value the wage they get paid? Is that really the world we want to live in?
“Where would additional money come from?” – I assume you mean who would pay for the increased minimum wage. Employers, that’s who. Look at the second chart. On average, people are producing about $18 dollars an hour and getting paid around $8. That extra $10 dollars of surplus value goes to the bosses’ bank account as profit.
Riley O’Neill
Not exactly. That extra $10 per hour goes to paying for their insurance, social security, savings for future times when their productivity may be less than $18 per hour, rent, marketing, legal fees and various other costs of business. As the profit incentive for an employer to hire an employee diminishes employers will be less likely to hire people to begin with. There are other non-wage costs to employing someone that seem to always be omitted from the picture as people assume that it is pure profit.
Joe Ipp
So if someone is producing $18 an hr, and getting paid $8, you think $10 goes to owners bank acct? Now I see the mentality here. It’s all about being a victim, about blaming someone else for your shortcomings.
What about cost of goods or services, what about overhead, insurance, matching taxes, debt service, etc?
Joe Ipp
So make min wage $100, or even $1000. That should solve everything right? Dollar will soon be worth very little because of the excessive debt rung up under BHO, let’s make it $2000 an hr, they people could pay $100 for a
burger.
Joe Ipp
Everyone is in sales, whether you believe it or not. Best workers will usually get paid more. If you feel you are worth more than min wage, then find another employed to pay up. ‘Sell your labor’, sell the results of your hard work. Employers these days are craving ‘good’ help. Not some clown who shows up late, checks email every 15, can barely speak proper English, who moves at 5 mph, etc. When was last time you were in a hardware store, Home Depot, fast food place, etc and you saw a teen hustling? I can’t remember when.
Wordsmith818
“Of all the preposterous assumptions of humanity over humanity, nothing
exceeds most of the criticisms made on the habits of the poor by the
well-housed, well- warmed, and well-fed.”
―
Herman Melville
http://www.facebook.com/winton.schoneman Winton Schoneman
From the Bureau of Labor statistics…”In 2011, 73.9 million American workers age 16 and over were paid at
hourly rates, representing 59.1 percent of all wage and salary workers.1
Among those paid by the hour, 1.7 million earned exactly the prevailing
Federal minimum wage of $7.25 per hour. About 2.2 million had wages
below the minimum.2 Together, these 3.8 million workers with wages at or below the Federal minimum made up 5.2 percent of all hourly-paid workers”. There is no 15 million people making minimum wage. It also turns out that 60% of the 3.8 million minimum wage and below workers are single, under 20 years old and working part time….further…raising the minimum wage 10% results in a 4% loss in jobs for these youth. Guess where they go and what they do with no after school jobs…these are statistics not some economists guesses.
.
Lindsay
Have you seen the price of a Big Mac lately?
Anonymous
I watched the segment on the current show concerning the food workers’ protests. Over time it has become nearly the law of the land that if you go out to eat, you need to leave your server a tip. This is a fine idea, but it can turn into a zero sum game. If the standard tip is raise from 15 percent up to, say 24 or 25 percent, than most of us who have not yet acquired the proverbial silver spoon will cut back accordingly on the number of times we go out to eat, negating said benefit to server.
chrisnfolsom
If the wealth of the 1% was reduced and distributed downward how much actual difference would that make? I also find it interesting that the “right” says that reducing the profits of “hard working businessmen” would be a disincentive to them although they don’t say what level is acceptable, just don’t take any more…. Seems strange as would they be that much more productive if we let them keep everything, or that much less if they kept nothing? Where is the magic number? I don’t think you can help all people, but it’s hard when those who want to work and modest have skills who used to make $15+ an hour with some benefits and now are looking at jobs for less, part time and with lower benefits – and yes, resent it when minimum wage is so close to what they make as “skilled labor”.
http://www.facebook.com/profile.php?id=1363118263 Margo Nielsen
I live in a town where minimum wage jobs and slightly above are all the jobs there are. A Superwalmart shut down other businesses and now nobody can afford to buy much of anything. Half the children in public school are on some form of public assistance. Their parents are always working, usually multiple part time jobs, just to make ends meet. Most teens and younger people leave town for bigger cities… they know enough to not stay in a town that offers no opportunities. This is a predominantly Caucasian population, and this situation is no longer rare in the U.S.
http://www.facebook.com/charles.soule.9 Charles Arthur Soule
Please have your Maine branch organization join the Maine; Independent Party of Lewiston, Maine, Re Charles_.Soule2003@yahoo.com.
http://www.facebook.com/blake.cash Kb Cash
Minimum wage is just that. The minimum. It is not designed to support a family of three. Some responsibility lays upon the individual, who finds himself unable to earn a wage above the minimum for whatever reason, to not have additional children.
Anonymous
If it had been tied to CEO pay in 1997, it would now be at over $25 an hour.
Marianne
How has this low minimum wage affected Social Security payments and benefits? With the reduction in the minimum wage affecting some individuals life time earnings ie. 30 years, does this also create the situation where the low income earners do not have an adequate social security benefit to contribute to their retirement.
http://www.facebook.com/people/Dan-Sullivan/1408883609 Dan Sullivan
I would like to see the minimum wage compared to apartment rental charges and to the price of land. People who collect revenue from merely holding land and leasing it out are contributing zero to warrant their incomes.
umabird
How about tying the minimum wage to the average total compensation of the CEO/s and top management within an industry, or a company (if it is large enough)?
For example, if the average CEO of a fast food company makes $2 million a year in salary, stock options, perks, etc. (the total compensation as calculated by the IRS), then the lowest wage would be say, 0.025%.
This works out to $50,000 a year, or $25/hr. (50, 40 hour weeks.)
It is time we made the minimum wage be something more than just a wedge issue, to be played when we need the base to rally around something!!!
Mikeguru
Wal-mart pays low wages, like low prices and limits full time hours to leess than 39 as to not pay benefits. Most of the workers at Wal-mart work another job, not having enough time to spend with their famiilies aka “teh Working Poor”.
I talked to a fellow yesterday saying “Gee, if they raise my wages to $10 an hour, Everything will cost more”.
I said “not true, maybe a little but not that much”.
I told him of my visit to Australia where they have Medicare, Single payor Medical care where a family of four, reporting $50,000 taxable income pay $62.50 a month for their health care with little out of pocket and No one in Austrailia has to go through a bankruptcy like in the USA with One Million families every year that do, declare bankruptcy to pay for medical bills.
I told him of Austrailia’s “Minimum LIvable Wage” where at age 16, the minimum wage is $7.55 an hour and “Graduates Up” to a “Livable Wage” of $15.96 an hour at Age 21 and older. I also mentioned that I saw lots and lots of businesses selling the same products as I see on the shelves at Wal-Mart in the USA, made in China. I did not see a Wal-Mart but I sure saw a lot of Small Businesses with lots of employees working selling, what Wal_mart sells and the prices were comparable to the USA. Purchasing power of the Australian Dollar is about equal to the USA dollar. Gas was $6 a gallon is about the only really expensive commodity. McDonalds Big Macs were about the same as in the USA.
The Point is, raising the minimum wage is imporatant, people qualify for Food Stamps working at MInimum wage in our state, the Corporations are being subsidized by the Federal Government. Having a ‘Gradual Livable Minimum wage” to $15.96 would eliminate the need for Food Stamps.
Need Proof?
http://www.fairwork.gov.au/pay/national-minimum-wage/pages/default.aspx
Wal-mart Exposed
http://www.walmartmovie.com/
Mikeguru
Ever heard of Slavery?
Our country has demonized and legislated the Minimum Wage, destroyed every effort to negotiate for better working conditions and wages, and convinced those who find themselves in poverty accepting it.
History should have taught us that when people see no way out, feel the system is rigged against them, eventually rise up in Rebellion. Just like people did in France and Russia.
Do we, in the USA, want to experience a Rebellion?
THINK about it.
Mikeguru
See how Australia “Legislates” the Minimum Wage:
http://www.fairwork.gov.au/pay/national-minimum-wage/pages/default.aspx
Gerry
Gerry, raise the minimum wage to $18 Hr thats fear , so we can, pay our rent amd buy good food and other bills, so these greedy business owners cant rob the people thanks. anymore
Daniel
Lol so your argument is that if minimum wage went up, there would be more jobs? If the cost hiring workers went up, so would the cost of products of any industry that employs minimum wage workers.
Daniel
Yeah and $280/hr would be $11,200/wk or $582,400/yr full time. Imagine tax revenue for public services has that been the case. We’d all be doing well, instead of only the top 1%.
Lol now do you see the flaws in your statement?
Daniel
Yeah so lets adopt that policy and then see every business fire U.S. workers because they’d cost so much more than workers in other countries. We are talking about unskilled labor. Anyone in the world can do this, so why not hire someone who would be ecstatic to work for just $5 an hour or even less?
Daniel
I have two questions:
Does Wal-Mart force anyone to buy their products?
Does Wal-Mart force anyone to work for them?
Mikeguru
I for one, don’t shop at Wal-mart on a frequent basis. Wal-mart, like other successful Corporations are pretty Clever. They install stores, get tax breaks that “defunds local schools” transfers tax burden to home owners, drives local businesses out of business and their prices are not really all that hot. Because of their size, like most monopolies, they pressure manufacturers to “modify” packaging of a product. I looked at a HP Personal Computer printer I bought at Best Buy. The Printer had the same Number but had a different suffix. The Printer I bought at Best Buy included the Cable to hook up to the Computer. The Printer, with the same number at Wal-mart, did Not include the cable and was $5 cheaper. The cable was $20 more to buy.
When I was at Wal-mart, I asked an employee where the Salsa was. She told me “No Speak English”. Oh, she probably had ID to get hired but was probably stolen from a kid.
The jobs in our state, last year that were created, Three out of Four were Minimum wage which if they were single, automatically qualfied these workers for food stamps. Employees are provided information on how to qualify for Medicaid.
Let me bottom line it.
We, the People< of the USA are being "Managed to our detriment for the benefit of Corporations". We are no longer managing our Country for the benefit of its People. We need to turn the Corporations stranglehold on the USA OFF. We need to educate our elected Officials to Legislate for the benefit of its people and Not the Corporations.
The definition of Fascisim is a Government run by Corporations.
Wal-mart and large Corporations have slowly, but been successful, in robbing the 99% for the benefit of the 1% (half of which are Corporate Former and Current Executives).
Become educated and learn, THINK, and be informed.
PJ
In productive economies, minimum wages should keep going down and PURCHASING POWER should keep going up. mises.org
Stop rewarding the wrong companies and vote with your dollar