Minimum wage and inflation: These two charts show how much workers have fallen behind

While the president blew two different statistics at a CNN town hall last week, the thrust of what he said is accurate: The minimum wage, which has been stuck at $7.25 an hour since 2009, has fallen far behind in terms inflation and productivity. .
The federal minimum wage increase is back in play, with Biden and top congressional Democrats pushing to increase it in stages to the $15 goal by 2025. The House is expected to pass legislation containing the increase next week, but the effort could be derailed in the Senate with Democratic Sens. Joe Manchin and Kyrsten Sinema voicing opposition to the measure.

Although both Republican and Democratic presidents have signed legislation raising the federal minimum wage since it was created in 1938, the issue has become a partisan lightning rod since unions began pushing for a jump to $15 nearly a decade ago.

Unions and consumer advocates say workers deserve a living wage, which would also allow them to spend more and boost the economy. While some major employers like Target and Amazon have adopted the level, small business owners argue many of them can’t afford higher wages, which could lead them to lay off staff and even close their doors.

The federal minimum wage has not been maintained

At the town hall, Biden was referencing a data point from the Center for Economic and Policy Research, a progressive think tank, the White House told CNN. He examined what the federal minimum wage would be if it kept up with productivity growth. The answer: $21.45 an hour.

Dean Baker, the center’s chief economist who crunched the figures, said he’s not suggesting the minimum wage should be raised to that level, which would cause serious disruption to the labor market and the economy. But he thinks it’s important to point out how the two diverged more than 50 years ago.

For the first three decades after the minimum wage was established in 1938, it roughly kept pace with average wage and productivity growth, rising from 25 cents to at first at $1.60 in 1968. That propelled workers to the bottom of the income ladder along with the rest of the workforce.

But since then, the minimum wage has lagged far behind productivity growth, yet another indicator of rising income inequality in the US in recent decades.

“No one thought we were crazy in the ’40s, ’50s and ’60s when we had the minimum wage increase in step with productivity,” Baker said, noting that the increases were bipartisan. “It’s a reasonable thing to say, society is getting richer, you have workers, custodians who clean toilets and dishwashers, those people should share it too. “

Inflation has also squeezed workers

Inflation has also been eating away at the purchasing power of the federal minimum wage for the past few decades.

The salary peaked in inflation-adjusted terms in 1968 at just over $12. Although it has been raised 14 times since then, it has not kept pace with the cost of living. The current stretch of nearly 12 years is the longest without a boost.

That means minimum wage workers are getting poorer over time, said Josh Bivens, director of research at the left-leaning Economic Policy Institute.

“Every year that Congress doesn’t raise it, people get a pay cut,” he said.

This story was updated on April 5, 2022 to reflect revised calculations by the Center for Economic and Policy Research. The federal minimum wage would have been $21.45 in 2020 if it had increased in step with productivity.

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