The Minimum Wage and Wage Stagnation

Wasson and ThornhillNews

Has the minimum wage really been declining? Would an increase in the minimum wage mostly affect teenagers? What about women? And minorities?

 

Another Controversial Issue

Like our last blog post about labor unions and their effect on the stagnation of wages in America economy, the role of minimum wage laws is highly debatable. But when talking about wages, whether you like minimum wage laws or not there’s no question that they are part of today’s U.S. economic landscape. So they’re worth considering and understanding better.

The History of the Minimum Wage in One Short Paragraph

The federal minimum wage was originally set at 25 cents per hour in 1938 during the Great Depression. It had climbed to $1.00 per hour by 1960, $1.60 by 1968, $2.90 by 1979, $3.80 by 1990, and $5.15 by 1997. Then after not changing for 10 years—the longest such period in its history—a 2007 law provided for three annual increases, the last of which was in 2009 to $7.25 per hour, which continues to be the rate today. The federal minimum wage is not automatically adjusted for inflation, unlike some state ones.

Has the “Real” Federal Minimum Wage Declined?

According to a “fact sheet” on “Inflation and the Real Minimum Wage” prepared by the Congressional Research Service earlier this year:

The peak value of the minimum wage in real terms was reached in 1968. To equal the purchasing power of the minimum wage in 1968 ($10.69) [in July 2013 dollars], the current minimum wage’s real value ($7.25) would have to increase by $3.44 (or 47%). Although the nominal value of the minimum wage was increased by $5.65 (from $1.60 to $7.25) between 1968 and 2009, these legislated adjustments did not enable the minimum wage to keep pace with the increase in consumer prices, so the real minimum wage fell. 

Contributing to Wage Inequality?

How has the real minimum wage compared to the average hourly earnings of U.S. workers over that same period of time? In the same “fact sheet” referred to above, that ratio has been generally declining slowly since 1968.

In 1968 the minimum hourly wage was 54% of the average hourly wages of workers in the non-farm private sector. That percentage mostly declined since then, down to 47% in 1979, 41% in 1997, and 36% in 2013.

This sure seems to show that the income of minimum wage workers has been falling behind those of other workers, which in turn has had the effect of increasing income inequality for those low-wage workers.

Does the Minimum Wage Mostly Affect Teenagers, and Part-Time Workers?

A bill has been proposed and debated in the U.S. Senate earlier this year which would increase the federal minimum wage to $8.20 per hour, then $9.15 per hour a year later, then $10.10 per hour another year later. The Economic Policy Institute, in the current edition of its book, The State of Working America, studied the demographic composition of the workers who would be affected by an increase in the minimum wage to a similar $9.80 per hour. Its analysis includes both those directly affected because their current wages are less than $9.80, and those whose current wages are somewhat more than but close to $9.80 because their wages could be projected to also increase from a spillover effect.

The workers who would be directly affected, according to this analysis, total 19.5 million workers; those indirectly affected are another 8.9 million. Together these 28.4 million people comprise 22.3% of the U.S. workforce.

87.9% of those affected are 20 years old or older. A majority—54.1%–work 35 hours per week or more. 28% are either single parents or are parents in a married-couple family.

So it does not seem like an increase in the minimum wage would primarily affect teenagers, part-time workers, and others without family responsibilities.

Others Affected by the Minimum Wage

A higher minimum wage would affect women disproportionately—they comprise 54.5% of those who would be affected, larger than their 48.3% share of the overall workforce.

The majority of those affected would be white—56.1%. But minorities would be disproportionately affected by the indicated minimum wage increase–23.5% of those affected would be Hispanic and 14.2% would be African American.