Sunday, January 26, 2014

I compare the cost of a cook-out in 2013 with one in 1968 at average hourly wages and minimum wages for the two time periods. You won't believe the results!

I came across this grocery store advertisement from 1968 and decided to use it for a lesson on purchasing power. It is nice to have actual prices from a primary source.

In the red square I isolate the meat products.  Let's assume we are stocking up for a killer cook-out!

To simplify assume we will purchase 5 pounds of each meat (a 20 pound turkey is the exception AND I won't buy oysters as they are not a meat).

Now I shop...I buy all the other items and put them in my "market basket" and pay for them. You are going to have to take my word that I did the math correctly OR feel free to double check me.

Total:  $61.95 in nominal dollars in 1968.

Source HERE
According to the Bureau of Labor Statistics and its measure of the Consumer Price Index, the broad category of meat has increased in price by 6.3 times.

That means to purchase the same meat items today would cost about ($61.95 X 6.3) $390.00.

In 1968 the average hourly wage for a production worker in December 1968 was $3.11.

That means it took that worker 19.9 hours at $3.11 (pre-tax) to earn enough to purchase the market basket.

In December 2013 the average hourly wage for a production worker was $20.35.

That means it took a 19.16 hours at $20.35 (pre-tax) to earn enough to purchase the market basket.

Conclusion?  I suppose we can say that in terms of the purchase of meat for a cook-out, the purchasing power of a worker earning the average wage in 1968 and in 2013 was roughly the same.

How about applying the same analysis to the respective minimum wages?

In 1968 the minimum wage was $1.60. It would take a minimum wage worker 38.72 hours to earn enough for the meat.

In 2013 the minimum wage is $7.25.  It would take a minimum wage worker 53.79 hours to earn enough.

WOW!  That is pretty dramatic.  At least in terms of purchasing power, the minimum wage worker in 1968 was better off than his or her counterpart in 2013.

Maybe that is why I remember having so many more cook outs in the neighborhood when I was a young lad (born in 1960).

Note: Here are the price index information for 1968 and 2013 that I used.  I divided 237.576 by 37.8 to get the 6.3 times increase in the price of meats.

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