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The $7.25 Minimum Wage Is Too Low for 21st Century America
(Photo: chedder)

The $7.25 Minimum Wage Is Too Low for 21st Century America

(Photo: chedder)

On July 24, 2009, America’s minimum wage went up from $6.55 an hour to $7.25 an hour. It hasn’t changed since.

On July 24, 2012, the National Employment Law Project (NELP) is coordinating a National Day of Action to Raise the Minimum Wage, with events planned in more than 30 cities.

The NELP argues that the minimum wage should be indexed to changes in the Consumer Price Index to adjust for inflation. Most other federal benchmarks are adjusted for inflation. The national poverty line, food stamp eligibility and Social Security benefits are all adjusted for inflation every year.

The minimum wage is not adjusted for inflation. The United States has had a national minimum wage since 1938, but it has only been increased 22 times in the past 74 years.

In terms of purchasing power, the minimum wage reached its highest level in 1968. When the 1968 minimum wage is converted into today’s dollars using the official Bureau of Labor Statistics inflation calculator, it equals $10.55 an hour in 2012 dollars.

In other words, 1968 America legislated a minimum wage that would be the equivalent (in purchasing power) of $10.55 an hour today.

Some people might consider a $10.55 minimum wage to be unrealistically high, but that’s what we had in 1968. And the unemployment rate in 1968 was 3.6 percent. Our high minimum wage didn’t seem to prevent people from finding work.

Many economic theorists argue that minimum wages cause unemployment, but statistical analyses of actual economic data consistently show that unemployment rates are unaffected by minimum wages.

Using the 1968 minimum wage as a benchmark for today is a good start, but 1968 was a long time ago. The 1968 minimum wage applied to a world in which most Americans had AM radios and black and white television sets. The majority of Americans alive today weren’t even born in 1968.

Per person consumption of goods and services has risen 137 percent since 1968. Total economic output per person has risen 109 percent since 1968. The total income earned by Americans has risen over 100 percent per person since 1968. (All figures are based on data from the Bureau of Economic Analysis and are adjusted for inflation.)

In other words, it’s not 1968 anymore. It hasn’t been 1968 for 44 years now.

Could we imagine 1960s Americans setting their minimum wage at a level below the living standards of the 1920s? The minimum wage shouldn’t just be raised back to the 1968 level. It should be set at an appropriate level for 2012.

Based on consumption growth since 1968, the minimum wage today would have to be $25.05 to represent the same share of the country’s total consumption. Based on national income growth, the minimum wage should be $22.08. Based on personal income growth, it should be $21.16.

No matter how you look at it, the 2012 minimum wage shouldn’t be $7.25 an hour, or even $10.55 an hour. Even the most progressive demands for the minimum wage are way too low. Too many Americans are living in the past. Working Americans should be living in 2012, not 1968.