Thursday, December 19, 2013

Some minimum wage comparisons Or "Yes, we can most certainly afford to raise the minimum wage"

So it appears one of the next big issues that's coming to a head is a debate over raising the national minimum wage. New Jersey raised its minimum wage and linked it to inflation during the last election, while the town of SecTac in Washington State raised its minimum wage to $15 an hour. Washington D.C. and two neighboring counties just voted to raise their wage to $11.50 an hour over the next several years, while California has voted to jump its minimum to $10 over two years.

Texas Republican Joe Barton, naturally, wants to go the other way.

Right now, the current minimum wage of $7.25 is worth about what it was in 1950 in inflation-adjusted dollars. I show the fluctuation of the minimum wage's value in this fairly well-known chart (figure I) that I reproduced with data from the Bureau of Labor Statistics.

What should we raise it to? Thinking about it's relationship to the poverty line is a good place to start, (though the limitations of the poverty line makes it a bad place to finish.) 

The poverty line for a single parent raising one child is $15,510 for 2013 and for a family of three (a single parent with two children) it's $19,530. For a full-time job at minimum wage to earn enough to lift a family of two above the poverty line, it would have to pay $7.76 an hour-- a raise of about 7 percent from the current wage. To lift a family of three with one worker out of poverty, it would need to be $9.77 -- a raise of about 35 percent.

Of course, that's assuming a full-time job. Many minimum wage jobs in fast-food and retail require lots of flexibility and limited hours (hey, if we gave workers over 28 hours a week, they'd be full time and we'd have to provide health benefits and we couldn't have that!). So let's assume a 25-hour work week, which is more typical at a minimum-wage service job. Keeping a single-parent family of two above the poverty line now requires $12.41 and hour, while a family of three requires $15.63; increases of 71 and 115 percent, respectively.

For historical context,  the minimum wage peaked at a value of $10.74 in 2012 dollars in 1968, which would be a raise of about 48 percent. If the wage had kept up with gains in worker productivity, we'd be looking at a minimum wage of $17.65 an hour, which is an increase of 143 percent. 

I stack all these possible wage gains in Figure II below:

We can debate how high the minimum wage should be, but America needs a raise, and their bosses can afford it. Based on the figures above, D.C's $11.50 over the next three years is easily justifiable, and fast food workers arguing for $15 an hour have a good case to make. Indexing to inflation is a must and future increases arguably should also account for productivity gains above the rate of inflation.

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