For several years now, retail employees and fast food workers have been picketing across the country to draw attention to what they say is a wage that’s impossible to live on. Their demands are being answered — at least in some areas. Last year, lawmakers in 11 states enacted minimum wage increases, and voters in four more approved them via ballot measures, according to the National Conference of State Legislators. Wal-Mart began paying its workers $9 per hour in April and plans to pay them $10 per hour in 2016. Competitors T.J.Maxx and Target followed suit.
Even amid all that action, the federal minimum wage remains stuck at just $7.25 per hour, the same rate it been at since 2009. While that might seem like a long time — especially for those earning minimum wage — the government has gone far longer without giving a raise to America’s lowest-paid workers.
The U.S. Federal Minimum Wage Over the Years
President Franklin D. Roosevelt implemented the minimum wage in 1938, which was just 25 cents ($4.23 in 2015 dollars). Check out the minimum wage over the last 50 years as well as its purchasing power.
Source: U.S. Department of Labor
The minimum wage stood at $5.15 for a full 10 years from 1997 to 2006 and at $3.35 from 1981 to 1989. During both of those time periods, the 2015 purchasing power of the minimum wage declined steadily.
Today’s minimum wage is more than 30 percent lower than its inflation-adjusted peak in 1968, when minimum wage was worth nearly $11 in today’s dollars. But it’s still not the lowest it’s been over the past 50 years. In 2006, the purchasing power of minimum wage was just $6.10 in today’s dollars.
The buying power of the minimum wage has fallen at a lower-than-average rate in recent years thanks to incredibly low inflation in the wake of the Great Recession.
Even as the purchasing power of minimum wage has declined, the productivity of American workers increased 74 percent from 1973 to 2013, according to Economic Policy Institute data. If the minimum wage had kept up, it would be about $18 today, said Michael Reich, economics professor and the director of the Institute for Research on Labor and Employment at the University of California, Berkeley.
U.S. Minimum Wage Vs. Foreign Countries’ Minimum Wage
The current U.S. minimum wage lags behind the rate paid to entry-level workers in other developed countries. CNN Money reports the Organization for Economic Co-operation and Development found that there are at least seven countries who have a higher minimum wage than the U.S.:
|Gross Wage||Take-Home Pay|
Source: Organisation for Economic Co-operation and Development/CNN Money
The U.S. federal minimum wage is about 35 percent of the full-time median wage in the U.S. while the comparable ratio in France is just over 60 percent, said Reich. He also added that in Germany, that ratio is about 58 percent; in the United Kingdom, it’s 60 percent for workers over 25. “The ratio is generally lower in less affluent countries,” he said.
When Will the U.S. Federal Minimum Wage Increase?
In the 2014 State of the Union address, President Barack Obama urged Congress to raise the minimum wage to $10.10 and signed an executive order to raise it to $10.10 for those working on new federal service contracts. Although the likelihood of a change in the federal minimum wage appears low in the near-term, momentum to make changes at a local level and by corporate America is continuing to gain traction.
And there’s no shortage of people who support raising the minimum wage. In a 2013 Gallup poll, 76 percent of Americans said they would vote for raising the minimum wage to $9 per hour.
“Raising the minimum wage is extremely politically popular,” said Jared Meyer, a fellow at Economics21, a non-profit dedicated to economic research at the Manhattan Institute for Public Policy Research. “It’s passed in red states and blue states. It rarely gets defeated when it’s on the ballot. Who doesn’t want to give their neighbor a wage increase?”
While some would like to do away with the minimum wage entirely, advocates of increasing it disagree on how high it should go. Many Republican candidates want the minimum wage to stay at $7.25, and Democratic candidate Hillary Clinton voiced support of a $12 minimum wage, reports the Huffington Post. Democratic presidential hopeful Bernie Sanders, however, is backing an increase to $15 per hour by 2020.
Several cities, including Seattle and San Francisco, have already passed initiatives that will raise the local minimum wage to $15 per hour over the next few years. While that might work in those cities where the workforce is highly educated, it could be riskier in places with less-skilled laborers. “In some parts of the country, many employers will be very reluctant to pay high wages to workers with modest skills,” writes Harry Holzer, a senior fellow with the Brookings Institution.
Possible Effects of Raising the Minimum Wage
According to Meyer, “there can be unintended negative consequences” of raising the federal minimum wage. He said raising the minimum wage could hurt young people since business owners will have less incentive to take a chance on someone with no work history if they would have to pay that employee a lot. More than half of American workers started their careers making within a dollar of the minimum wage, according to the Heritage Foundation.
On the other hand, Reich maintains that raising the minimum wage would help workers by making them more able to cover their regular bills.
In terms of overall employment, it appears that an increase in minimum wage would have little impact, according to a study by the Center for Economic and Police Research. Companies can offset the cost by cutting back in other places, such as what they pay higher workers, increasing prices and cutting back on other benefits. The increase could also reduce company costs by lowering the rate of labor turnover.
Keep reading: How I Managed to Save Money While Earning Minimum Wage
Even as the debate continues, the number of workers who actually earn the federal minimum wage has been declining in recent years. In 2013, 3.3 million employees — or 2.6 percent of all wage and salary workers — worked for wages at or below the federal minimum, according to the Pew Research Center data. That’s less than a third of the 7.9 percent of all wage and salary workers who received the minimum wage in 1979.
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