Restoring the value of the minimum wage can be an effective way to reward work and help low wage workers support themselves and their families. Adjusted for inflation, the minimum wage was $10.86 an hour in 1968. Today it is just over $8.00 an hour. That means that while a full time minimum wage worker made over $21,000 a year in 1968, such a worker makes only $16,000 today.
Several proposals have been made recently to restore the value of the minimum wage. MassBudget just released a short paper, Value of the Minimum Wage is Eroded Quickly by Inflation, that examines those proposals.
Each proposal would increase the minimum in two or three steps to $10.50 or $11. To understand how close each proposal comes to restoring the value of the minimum wage, it is important to account for the effects of inflation. If costs are rising by 2 percent a year, then $10 next year will buy about the same amount of goods and services as can be bought for $9.80 this year. In other words, $10 next year will be worth about $9.80 in today’s dollars — because costs go up each year.
Using CBO inflation projections, we find that an $11 wage in 2016 would be worth $10.43 in today’s dollars, and a $10.50 wage in that year would be worth $10.07 in today’s dollars. If the minimum wage is not adjusted for inflation each year after the final step of an increase, then the value will decline each year the cost of living rises.
Read the PAPER
…I would like to see a significant jump in the initial legislation and get discouraged by proposals that raise it in steps over a period of a couple years. At this rate it will have to be adjusted for inflation almost as soon as it takes full effect.
The ballot initiative, for example, would raise the MW from $8 to $10.50 in two steps: $9.25 on January 1, 2015 and $10.50 on January 1, 2016. That’s a jump of more than 31% in nominal terms between November 2014 and January 2016, or just over a year. The expected inflation rate for that period is something like 1.5% to 2%. So there’d still be a significant increase in the real value of the minimum wage.
The Senate’s bill raises it to $11 by July 1, 2016. So six months longer to implement, but it’s a 37% nominal increase. We won’t have anything near 37% inflation in that year and a half.
Both would index the wage to inflation going forward, which is the key to solving this problem for the long term. You tend to get the kind of erosion discussed in the post if you have 6 or 7 years with no increase, particularly if the inflation rate’s a bit higher than it’s been of late. The House bill does not index to inflation, and that’s a major flaw.
…according to the CBO projections cited in the diary it won’t be $11 by the time it his $11, it will be $10.07. I’d much rather take a huge leap to $11 like, yesterday rather than wait for it to no longer be really what we think of as $11.
but we’re trying to convince people who are thinking of $11 as we think of it today. An increase to $10.50, even if that’s really $10.07, still is an increase of over 25% compared to today’s wage.
…I’m having a hard time thinking in terms of 25% or 37%. To me it just feels like a couple of bucks, but of course I understand the arithmetic.
It needs to be more if people are going to support themselves on these jobs. I share your frustration that some of the increase is eroded by inflation by the time it takes effect. My only point was that the inflation during the interim doesn’t come close to eating up the whole increase.
I have no expertise in this but I know that minimum wage has not been increased since 2008. The state Senate passed minimum wage legislation last November increasing it to $11 in a couple years, but DeLeo put off the vote in the House, then talked about tying it to a reduction in unemployment insurance, then made an issue of it not being indexed to go up with inflation. Ultimately the House passed a bill increasing it to $10.50 in a couple years but w/out indexing. Then the curtain of legislation in Massachusetts came down.
A couple weeks ago AP reported some progress including “business-friendly” changes to UI, but never described what business-friendly meant.
In the seven months since the Senate passed the increase our legislators have made more than half of their salary — somewhere between $75K and $100K — for part-time work. Many eat out often on their campaign account balances.
Yet they have not seen fit to act on helping to relieve poverty for the working poor. I know that De Leo is pretty much all-powerful in deciding what gets voted on in the House but where are the voices of other legislators calling for action? They’ are silent in order to protect their own opportunities in the House. They are choosing silence and safety rather than speak out for the working poor, more of whom are women and many of whom are single mothers. So our legislators’ silence also hurts poor children.
Shame on them. Shame on them
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South Carolina:
Since I know you wouldn’t resort to pure snark, there MUST have been a GOP proposal to dramatically increase the minimum wage — a proposal scuttled by Mr. DeLeo and the tyrannical Democratic Party supermajority.
Please … share the specifics of that proposal. What does the MA GOP think our minimum wage laws should be?
but it’s so true. Not to mention that a lot of the people in the “Democratic supermajority” are economic conservatives who well might be in the Republican Party were it functional in Massachusetts.
http://www.telegram.com/article/20131125/NEWS/311259904/1116
http://www.patriotledger.com/x617854910/South-Shore-lawmakers-lavishly-spend-campaign-money
http://www.lowellsun.com/front/ci_5832482
Right-wing radio callers and hosts are putting this out. I don’t believe it but can someone knock this rumor down or is there some truth to it?
As a substitute teacher I make little enough that I suspect (hope) mine would go up a bit.