The Sometimes Surprising Truth About the Value of the Minimum Wage
The real value of the minimum wage is going down. Ten different charts on two different websites paint the same picture of how the relative value of the minimum wage has declined over time. In short, when you take inflation and cost of living data into account, minimum-wage workers can buy less for their earnings than they could a few years ago.
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Real Wage Index
A “real wage” is a concept that includes both amount of money earned and rate of inflation over time. For example, Bob earns $10 per hour one year. The following year, his boss does not offer him a raise, and he continues to earn $10 per hour. Inflation rose 2 percent the following year; therefore, Bob’s real wage fell by two percent. Two percent of ten dollars is twenty cents, so the second year Bob’s real wage is considered $9.80 per hour.
PayScale’s Real Wage Index tracks the real wage for minimum wage workers across the country by looking at both wages and the Consumer Price Index (CPI.) We started with the year 2006, and tracked up through 2013. Results indicate that the real wage for minimum wage workers across the country has fallen by 7.2 percent since 2006.
Some of the charts published on Fool compare minimum wages to the prices of specific commodities, such as a gallon of gasoline or a gallon of milk.
Gas prices have gone up and down since minimum wage laws were enacted in 1938. A minimum wage worker in 2007 needed to work the same number of hours to afford a gallon of gas as a minimum wage worker back in 1943. It certainly went up and down in between, and today may be back on the rise. Depending upon where you live and work, the ability to purchase gas may mean the different between transporting yourself to work or staying home.
This reality pales in comparison to how much more difficult it is for a minimum wage worker to save up for a car. From 1978 to 1988, this difficulty increased substantially.
Milk prices have been in decline over the years. Fool‘s gallon of milk chart indicates it is much easier today to afford a gallon of milk on minimum wage today than it was back in 1950. The decline has been relatively steady.
Milk is only one grocery important in the diets of many families. While you may be able to afford one gallon of milk before one minimum wage hour is up, you will need to work between 100 and 150 hours to feed your family on minimum wage. Fool‘s Feeding and Clothing a Family on Minimum Wage chart looked at average costs of families.
Before we get lost in arguments about the lowest earners, let’s remember that the top one percent of American earners are seeing their real wages increase. In 1938, a minimum wage worker had to work about 150 hours to make what the top earners made in one hour. Today, that minimum wage worker needs about 500 hours to the top earner’s one hour.
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