The Real Minimum Wage Falls Every Year -- Here's How To Fix That

Support is building for an increase in the minimum wage with Senator Tom Harkin (D-IA) and Rep. George Miller (D-CA) introducing legislation to raise it to $US10.10 an hour from the current level of $US7.25. The Obama administration recently came out in support of Harkin and Miller’s bill and polling finds that most Americans are in favour of it as well.

The most important part of the legislation, though, may not be the wage hike, but that it indexes the minimum wage to inflation in the future. Every year that the minimum wage stays the same, its purchasing power decreases a little bit thanks to cost-of-living increases. Over time, these reductions add up. Here’s a graph of the federal minimum wage since 1960 adjusted for inflation:

The nominal minimum wage has been the same since 2009, but its real value has decreased more than 8% in the past four years.

Just as seniors have been screwed for years by the use of an inaccurate statistic for inflation adjustment calculations, minimum wage workers have been screwed by the lack of any automatic adjustment at all.

In 1960, the nominal minimum wage was $US1.00, but that is equal to nearly $US8.00 in today’s dollars. In fact, the real minimum wage peaked in 1968 at $US10.74 an hour (2013 dollars). Since then, the purchasing power of the minimum wage has slowly fallen over time.

Occasionally, Congress manually adjusts the minimum wage upward. Due to adjustments in 2007, 2008 and 2009, the real minimum wage is now $US1.26 higher than it was in 2006. But the manual adjustments haven’t kept up with inflation over the long run.

For policymakers who support the minimum wage, no matter the level, it is inexcusable to not adjust it for inflation. The value of the minimum wage should not decrease over time thanks to congressional failure to annually adjust it. Already 11 states index their minimum wage to inflation to correct this. The federal government should follow suit.

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