Minimum-Wage Workers are Getting Left Behind
July 25, 2014
CBS MoneyWatch - In 1968, the federal minimum wage was $1.60 per hour, which in 2012 dollars (the latest year for which federal data is available) amounts to $10.34 per hour. For the millions of low-wage workers around the U.S., real income has gone downhill ever since.
Although the minimum wage has risen to $7.25 over the ensuing years (tipped workers typically earn much less), the purchasing power of employees earning that baseline level pay has steadily shrunk because it isn't rising along with inflation. In fact, minimum-wage workers earn less today in real dollars than they did more than 50 years ago. In financial terms, they have effectively defied the laws of physics and traveled backward in time.
Today marks the five-year anniversary since the federal minimum was last raised, from $6.55 an hour. Since 2009, earners making that amount have lost nearly 6 percent of their buying power, according to the Pew Research Center.
Here's what that means in terms the average consumer can appreciate:
- In July 2009, a pound of ground beef cost about $2.15; today that will run you $3.88, up 80 percent.
- Five years ago a gallon of whole milk cost about $3, versus $3.62 today.
- A gallon of regular gas in the summer of 2009 ago ran $2.61, compared with $3.54 today.
- Rent? Over that time that's risen from a U.S. median of $461 a month to more than $760.
Of course, everyone knows daily life tends to be pricier today than it was yesterday. A better way to get a sense of how much low-paid workers have fallen behind is to look at their earnings relative to what most employees make.
John Schmitt, an economist with the liberal-leaning Center for Economic and Policy Research, has calculated that in 1968 someone earning the minimum wage made 53 percent as much as what the typical production worker earned. If that same general ratio had held constant until the present day, minimum-wage workers would make more than $10 an hour, or around the $10.10 wage the Obama administration has backed and that Senate Republicans nixed in April.
Minimum-wage workers in the U.S. now earn roughly 38 percent of the median wage, or lower than in most wealthier countries, according to the Organisation for Economic and Cooperative Development.
It's worth noting that wages have stagnated even as productivity -- which in economic terms measures how much work employees do in an hour -- has continued to rise. If the minimum wage had grown at the same rate as average productivity, as of 2012 it would've reached $21.72 an hour, Schmitt points out, adding that the base wage would be set at $12.25 even if it had grown only a fourth as fast as workers were churning out goods.
Despite the current political impasse in Washington ahead of the November midterm elections, even conservatives who might have been expected to join the GOP chorus on the minimum wage have started to sing a different tune. That includes former Republican presidential nominee Mitt Romney, who spoke out earlier this year in favor of raising pay. More broadly, a poll out this week shows 37 percent of Republican voters back increasing the minimum wage to $10.10, a surprising measure of support for an issue ostensibly of interest only to Democrats.
Maybe such voters were convinced by the recent U.S. Labor Department research that showed that the 13 states around the U.S. that raised their minimum wage since 2013 are showing stronger economic growth than states where pay remains frozen. Or it could be the support that many small business owners -- the very companies that are supposed to take the biggest hit by raising workers' pay -- are showing for a wage hike.
Perhaps it's just common sense. After all, the minimum wage is supposed to provide a floor for pay, a fair and economically sensible threshold both for workers and employers. But neither side benefits if the floor keeps dropping.
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