Wednesday, July 17, 2013

Minimum Wage in historical terms. Has it or has it not kept up with inflation? I show you the numbers. You decide...

It is always a dicey proposition to use the Bureau of Labor Statistics inflation calculator.  One can question its accuracy and value as a tool in comparing one time period to another. I get that. But it seems it is the best we have AND it is used to provide justification for an increase in the minimum wage.

The issue centers around the lost purchasing power of the minimum wage as inflation erodes its value over time.

Using the BLS inflation calculator, I entered the actual nominal dollar value of the minimum wage in the year it was changed, going back to 1981, and showed what the purchasing power of that wage is in today's dollars (I duplicated 1981 and 1989 because of the long time span in between changes and to illustrate the drastic reduction in headline inflation had on the purchasing power of the MW).

Example: in 1981 (slide "1") the MW was $3.35. In today's dollars that would be equivalent to $8.61.  So, in order to have the same purchasing power as a MW worker in 1981 a MW worker today would have to earn $8.61 (highlighted in yellow).  The actual MW today is $7.25.  This suggests that the MW today is too LOW by 19%!

But wait a minute.  If we choose to look at 1989 the minimum wage (slide "2") is still $3.35 but that is equivalent to $6.31 in today's dollars. This suggests the MW should be 13% LESS than $7.25!!

Inflation in 1980 was about 14%. In 1989 it was about 4%. Big difference!

See how deceptive this can be? Depending on which year you choose to be your base year can  distort the overall picture and present support or non-support for your position.

The long term average of ALL the adjusted numbers highlighted in yellow is $7.26. The MW is $7.25.

For the long(er) term that is about right.

Having said all that, the minimum wage probably needs to be raised. By how much I don't know.  But using more realistic data and analysis would be a start.

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