Business

Federal minimum wage fell by 14 cents this year, when adjusted for inflation

Retailers such as Walmart have made headlines for raising their minimum hourly wages, while 29 states and the District of Columbia now require that employers pay more than the federal minimum wage of $7.25 per hour. MUST CREDIT: Bloomberg photo by Patrick T. Fallon
Retailers such as Walmart have made headlines for raising their minimum hourly wages, while 29 states and the District of Columbia now require that employers pay more than the federal minimum wage of $7.25 per hour. MUST CREDIT: Bloomberg photo by Patrick T. Fallon

Nine years, five months and one day as of Christmas: That’s how long it’s been since the federal minimum wage was raised.

If we make it to June without a wage hike — a safe bet, given the fractious state of federal policymaking — the United States will be in the longest stretch of time without a minimum-wage increase since the policy was first established in 1938.

This is a problem for workers at the low end of the wage scale because inflation — the tendency of the price of just about everything to rise over time — steadily gnaws away at the value of the minimum wage as time passes.

The federal minimum was last increased in July 2009, when it was set to $7.25 an hour. It remains nominally at that level today.

But in real terms, inflation has chipped more than a dollar away from its value — $7.25 in 2009 works out to about $6.19 today. In the past year alone, the minimum wage has lost 14 cents of value relative to 2009.

While that’s bad news for low-end workers, it’s good news for the companies that employ them: An hour of minimum wage labor now costs less, relative to the price of everything else, than it did back in 2009.

Employers get to decide what to do with that $1.06 in savings. They could pass it on to consumers, for example, or they could pocket it as profit for themselves and their shareholders.

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Given that corporate profits are near record levels, it’s safe to assume that there’s a considerable amount of the latter going on.

There’s been a steady decline in the inflation-adjusted value of the wage since about 1968, when it peaked at about $11.39 in 2018 dollars.

Since then, federal policymakers have slowed the pace of minimum wage increases relative to inflation. But that’s not because voters are demanding a stingy minimum. They’ve actually been clamoring for higher minimum wages for quite some time, but policymakers aren’t responding to public demand.

In some cases, lawmakers are working to keep the minimum wage where it is by slow-walking voter-initiated minimum-wage hikes, as they did in Michigan, or overturning them completely, as happened in Washington, D.C.

Recent research shows that the reason elected officials — Democrats and Republicans alike — are dragging their feet on popular policies such as the minimum wage is that they pay a lot more attention to the needs and desires of deep-pocketed business groups than they do to regular voters.

Those groups tend to oppose minimum wage increases because they eat into their profit margins.

Corporate pushback aside, the latest research on the minimum wage shows that there’s little reason for policymakers to fear raising it.

The best available data suggest that minimum-wage hikes increase pay for workers at the bottom of the income spectrum but otherwise have little effect on overall employment.

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