Cost of Thanksgiving Day Meal in Minimum Wage Terms...

The American Farm Bureau has published its "annual informal price survey of classic items found on the Thanksgiving Day dinner table" Found HERE.

This year the items on the market basket (you can find those as well at the link) totaled $49.87.

In 2016 the minimum wage is $7.25 per hour. This means it takes a minimum wage worker 6.9 hours of labor to earn enough to purchase the meal.

In 1986 when the the AFB started doing this survey the basket totaled $28.74.

In 1986 the minimum wage was $3.35 per hour. This means it took a minimum wage worker 8.6 hours of labor to earn enough to purchase the meal.

That is a difference of 1.7 hours less the current worker works to earn enough for the meal.

This is not to suggest that we should be satisfied with the current minimum wage.

It only is a comparison of purchasing power from one time period to another in terms of, in isolation, buying basic items to celebrate a widely celebrated US holiday.

Source: American Farm Bureau

Minimum Wage as a Price Floor Slides

Minimum Wage Slides

Minimum Wage as a Price Floor Slides

UK minimum wage pre and post-Brexit. How has it changed?

There is always a debate about the appropriate level at which the minimum wage should be set (or even if there should be one).

International comparisons are often used to see how other countries approach the use of it as a policy tool.

Here is how the U.K. deals with the issue. They have what is called a "tier" approach---a different minimum wage for different age groups and/or skill levels.

From UK.gov

Of course the wages are in Sterling Pound, the currency of the UK. We know with "Brexit" the value of the Pound has taken a hit over the course of the last month or so.

For the purposes of understanding how making cross border comparisons can be tricky, let's put the a above numbers in the current exchange rate, exchange rate before Brexit and Purchasing Power Parity (PPP) exchange rate.

Before the effects of Brexit hit the market, the Pound was trading at roughly $1.45. So if you take the above wage rates and multiply them by $1.45 that will give you the US dollar value of the minimum wage for that particular age/skill group.

For 25 and over: $10.44.  For 21-24: $9.72.  For 18-20: $7.69. For under 18: $5.61. Apprentice: $4.79

Today, the exchange rate is 1 Pound = $1.33. Again, take the numbers in the chart above and multiply by $1.33.

For 25 and over: $9.58.  For 21-24: $8.91.  For 18-20: $7.04. For under 18: $5.15. Apprentice: $4.39.

Quite a difference!  The only thing that changed is the exchange rate between the Dollar and the Pound in a relatively short period of time.  You can see how using current exchange rates can present a misleading picture when presented in current exchange rates.

Fortunately we have a better, but not necessarily perfect, way to show the differences in currency exchange rates.  It is called Purchasing Power Parity (PPP).  PPP is the economists preferred exchange rate to use when making international comparisons because it takes country specific prices/price level into consideration.

In many cases the PPP exchange rate varies drastically in comparison to market exchange rates.

In the case of the UK, data from the OECD show the PPP rate to be almost identical (1 cent less) to the pre-Brexit market exchange rate: $.144 (See the data here).  The numbers I calculated above for "pre-Brexit" will only be slightly less given the PPP exchange rate.

The US has minimum wage has some exceptions but for the most part, regardless of age and/or skill level, it is a blanket $7.25 per hour.  You can see how this falls into the UK policy scheme.

So, when someone quotes a foreign country's minimum wage in dollars it is critical to know (1) if that it is in current dollars how has that currency faired lately in the foreign exchange market and (2) is that in market dollars or in PPP?

Then judge by the look on their face if they are as informed as you or not.  :)

What is the right Minimum Wage? In typical Economics fashion: "It depends"

When I am asked whether or not we should have a higher minimum wage my answer is usually something like "a wage that helps all low/no skilled workers concerned and does not harm any current or future low/no skilled workers".  Admittedly not very helpful.

I put together some slides with explanations of how I try to objectively view the issue.  There maybe a sweet spot for the minimum wage.  Where that is, well, I fall back onto "it depends".  I think that is actually the best answer.

I hope this helps someone, teacher or student.  Feel free to comment.

The New UK Minimum Wage in current and PPP exchange rates compared to US Minimum Wage.

The UK has different minimum wages for different age groups and for those who are classified as "apprentices".

Th numbers below are from the UK.gov website.

The wages are in current, nominal British Pounds Sterling.  I highlighted the 2014 rate that took affect this month (October).

For comparison to the US minimum wage of $7.25 here are the conversions in current market exchange rates and in the Purchasing Power Parity (PPP) exchange rate.  Go HERE for an excellent explanation of PPP, if you need it.

Economists, in general, prefer the PPP exchange rate because it more accurately measures the actual purchasing power of currencies and is less volitile than the market exchange rates that can flucuate for transient reasons.

Current Market Exchange Rates (1 British Pound Sterling exchanges for $1.61 US dollars).

   21 and over: 6.50 Pounds X $1.61 = $10.47
   18-20 : 5.13 Pounds X $1.61 = $8.26
   Under 18: 3.79 Pounds X $1.61 = $6.10
   Apprentice: 2.73 Pouns X $1.61 = $4.40

Purchasing Power Parity (PPP) (1 British Pound Sterling exchanges for $1.36--source OECD)

   21 and over: 6.50 Pounds X $1.36 = $8.84
   18-20 : 5.13 Pounds X $1.36 = $6.98
   Under 18: 3.79 Pounds X $1.36 = $5.15
   Apprentice: 2.73 Pounds X $1.36 = $3.71

In either measure, the minimum wage for those over 21 in the UK is higher than the US minimum wage.

However, below that level using PPP the effective minimum wage falls below that of the US. US teens are "better off" in terms of the wage (I am NOT factoring in other benefits or costs  that exist--just comparing the absolute wage rate).

When reading media accounts of the differences in Minimum Wages around the world it is important to know if they are reporting in actual exchange rates or in PPP.

As you can see, it makes a BIG difference.

NOTE: Here is a link to an entry I did like this for AUSTRALIA.

The wage you are paid is not the total cost to employ you. See the numbers here.

One of the many reports the Department of Labor's Bureau of Labor Statistics (BLS) puts out is "Employer Costs for Employee Compensation". It offers a pretty detailed dollar and cents look at how much it costs to employ a worker.

Here is one part of the report for June 2014. I highlighted the "Service" sector because the pay range is where most young people will fall.  You can compare it to the other two broad sectors to see the differences.

The first number in  YELLOW is total compensation which is comprised of "Wage" and "Non-Wage" compensation--$16.70.  The Non-Wage money outlay for a business is the addtional costs (some elective and some mandatory) they incur to employ you--$4.82.  This is in GOLD along with the hourly wage you actually receive after the employer pays these to (1) you indirectly or (2) other entities (insurance companies, State and Local governments, etc).

After you recieve your $11.88 per hour worked you will be responsible for additional deductions from your wage, such as Social Security, Medicare and Federal Income Tax Witholding and any other benefits you may elect to take.  Take note that the employer ALSO matches the amount you pay into SS and Medicare!

This kinda gets lost in the debate over raising the minimum wage.  Many of these additional costs are percents of wages paid so an increase in the MW is not only going to affect the actual wage paid but the TOTAL cost of employing a worker.

Useful information, don't you think? :)

Nice map illustrating the minimum wage and number of workers affected.

Here is a handy-dandy easy visual from The Brookings Institute to show students what the minimum wage is in each US State and an estimate as to much of the labor force earns up to 150% of that wage.

States without a number in them have utilized the Federal minimum wage of $7.25 as their floor wage

Each State CAN impose a minimum wage ABOVE the federal level (see those numbers in each State) but cannot set it below it.

The color coding shows, as a percent of that States labor force, the number of workers who earns LESS than 150% of that States required minimum wage.

For instance, in Texas 150% of the minimum wage is $10.86 ($7.25 X 150%) and between 27.1%-32% of the labor force earns that amount OR LESS (blue-ish area)

In California 150% of $8.00 is $12.00 and 32.1% or more earn that amount or less (purple area).

The authors of the study wanted to show how an increase in the minimum wage would impact many more workers than those just earning at or below the mandated wage (Federal or State).

The implication is those who now earn more than the minimum wage (up to at least 150% of it) will get a "bump" in pay as those at the lower end of the pay spectrum see a higher mandatory hourly wage.

They estimate about 16 million workers would be affected (in a positive way) by an increase in the minimum wage.

The authors are careful to explicitly mention they are not taking into account ANY employment OR dis-employment affects of a high minimum wage.  That is a BIG caveat!

Source: The Brookings Institute

Here is some great info on the high Australian Minimum Wage. This is not to change minds but to add to your knowledge base. Both sides will find some supporting evidence.

When we compare minimum wages across borders it can get dicey because we have to interject currency exchange rates. We can use actual market exchanges rates or we can use the Purchasing Power Parity (PPP) exchange rate.  Depending on the currency you are comparing those two rates can be vastly different.

This is the case with the US dollar relative the Australian dollar.

The actual exchange rate (05/28/2014) is $1.00US = $1.0849A or $1.00A = $.92168US (these numbers are reciprocals of each other).

The current Australian minimum wage is $16.37 Australian Dollars (with some important caveats. See below).  If we convert that to dollars it would be $15.08 US dollars ($16.37A times $.92168US).  NICE!

However, if we use PPP the exchange rate (for 2013 the latest I could find at OECD) would be $1.00US= $1.4728A or $1.00A = $.6789US.

Now, the Australian minimum wage of $16.37A would be $11.12 US.  Still better than our $7.25 in the US, BUT not as high as $15.08 using current market exchange rates.

PPP theory suggests that the Australian dollar is OVERVALUED in the market place by as much as 35%. Looking at current data from  the OECD, it is more like 42% or so.

I do all this beforehand so I can introduce this chart I found. It is from MyWage Australia.

I modified it a bit to add some info (in black boxes).

In Australia there are some significant exceptions/exemptions from the minimum wage that are RARELY, if at all, discussed along with the issue.  I was not aware of them either!

For the different age groups I calculated what the minimum wage was in current market exchange rates and in Purchasing Power Parity.

According to PPP, if you are under 16, 16 or 17 the minimum wage in Australia is significantly lower than in the US.  Only after reaching 18 does it improve above the US minimum.

I did not calculate the rates for Apprenticeships, but if you take the number you see there and multiply by $.6789 US you will get the PPP in US dollars.

MyWage site from Australia

I hope this gives you more perspective and depth to your knowledge base on this issue.

The next time someone throws out the high US dollar figure when discussing the Australian min wage, you can legitimately ask:  "Is that in market exchange rates or at PPP?".  Watch the look you get... :)