The Minimum Wage Lie

When “progressives” say “the minimum wage hasn’t kept up with inflation”, they’re lying.

Not shading, the truth, exaggerating, or interpreting things differently… they are flat out lying.

… And what’s more, the ones who made up the lie in the first place, know they’re lying (the rest mostly just parrot what they’ve been told).

What exactly would “keeping up with inflation” mean?

The minimum wage has been $7.25 an hour since 2009.

In 1938, when the federal minimum wage was established, it was $0.25 an hour. In constant dollars (adjusted for inflation) that’s $4.19 as of 2014.

So, not only has the minimum wage kept up with inflation, it’s nearly doubled it.

Ok.. well what about more recently?

Minimum wage 15 years ago in 2000: $5.15, or $7.06 in constant dollars

Minimum wage 20 years ago in 1995: $4.25, or $6.59 in constant dollars.

Minimum wage 25 years ago in 1990: $3.80, or $6.87 in constant dollars.

Minimum wage 30 years ago in 1985: $3.30, or $7.25 in constant dollars.

Funny… that’s exactly what it is today… How shocking.

So, for 30 years, the minimum wage has not only kept up with inflation, for most of that time it’s been ahead of it.

So, how are they lying?

The way “progressives” claim minimum wage hasn’t been “keeping up with inflation”, is by comparing today, with the highest level it has ever been; almost 50 years ago, in 1968, when the minimum wage went to $1.60 an hour ($10.86 in constant dollars).

This was a statistical anomaly.

There’s a long and loathsome tradition of lying with statistical anomalies.

At $1.60 an hour, the minimum wage in 1968 was a huge 20% spike from what it had been just 3 years before in ’65, more than 40% above what it had been in 1960, and nearly double what it had been 12 years before in 1956 when politicians started throwing minimum wage increases faster and bigger (again, all in constant dollar terms. The minimum wage at the beginning of 1956 was about $6.30 in constant dollars)

In constant dollar terms, the minimum wage today, is about the same as it was in 1962 (and as I showed above, 1985).

It just so happens that from 1948 to 1968 we had the single largest wealth expansion over 20 years, seen in the history of the nation (about 5-8% annual growth)… Which then crashed hard starting at the end of ’68.

From 1968 to 1984, the U.S. had 16 years of the worst inflation we ever saw, and the purchasing power of ALL wages fell significantly, as wages failed to come even close to keeping up with inflation (we saw 13.5% inflation in 1980 alone, which is about what we see every 4 years today).

It took until 1988 for real wages to climb back to their 1968 constant dollar level, because we were in a 20 year long inflationary recession, complicated by two oil shocks and a stock market crash (actually a couple, but ’87 was the biggest one since ’29).

However, the minimum wage was boosted significantly in that time period, far more than other wages rose, and stayed above the 1962 water mark until the end of that high inflationary period in 1984, declining slightly until 1992, then spiking and declining again until 1997 etc… etc…

By the by… household income in 1968? appx. $7,700, which is about the same as today in constant dollar terms… About $51,0000 (about 8% more than it was in 1967, at $47k). Which is almost exactly what it was in 1988 as well. Household income peaked in 1999 and 2007 at around $55,000, and troughed in 1975 at around $45,000

Of course, income was on a massive upswing from 1948 to 1968 (and in fact had been on a massive upswing overall since 1896 with the exception of 1929 through 1936). In 1941 household income was about $1500 ($24,000 constant), in 1948 $3,800 ($37,000 constant).

Like I said, it was the single greatest expansion in real income and wealth over a 20 year period, in American history.

1968 was a ridiculous historical anomaly… Not a baseline expectation.

So, From 1964 to 1984, the minimum wage was jacked artificially high (proportionally far above median wage levels), and “progressives” chose to cherry pick the absolute peak in 1968 from that part of the dataset, in order to sell the lie.

A living wage?

As to the minimum wage not being a living wage… No, of course its not. It never was, its not supposed to be, and it never should be.

The minimum wage is intended to be for part time, seasonal workers, entry level workers, and working students.

Only about 4% of all workers earn the minimum wage, and less than 2% of full time workers earn the minimum wage.

Minimum wage is what you pay people whose labor isn’t worth more than that. Otherwise everyone would make minimum wage. But since 98% of full time workers can get more than minimum wage, they do so.

What should the minimum wage be?

Zero.

Wait, won’t everyone become poor suddenly?

No, of course not. Literally 98% of full time workers already get more than minimum wage. If we abolished the minimum wage, most of them wouldn’t suddenly be paid nothing.

Wages should be whatever someone is willing to work for. If you’re willing to work for $1, and someone else isn’t, you get the job. On the other hand, if an employer is offering $10 and no-one is willing to take the job for that, they need to offer $11, or $12, or whatever minimum wage someone is willing to take.

If you don’t want to work for $7.25 an hour, don’t take the job. If nobody offers you more than that, too bad, but that’s all your labor is worth.

If you are willing to work for someone for $7.00, and they’re willing to pay you $7.00, what right does some “progressive” have to tell either of you, that you can’t work for that much?

No-one is “exploiting the workers”, if those workers took the jobs voluntarily, and show up for work voluntarily… If all you can find is a job for less than what you want to work for, you’re not being exploited, THAT’S ALL YOUR LABOR IS WORTH TO THOSE EMPLOYERS.

You may think your labor worth more, but things aren’t worth what you want them to be worth, they’re only worth what someone else is willing to pay for them.

But let’s be generous…

All that said, I don’t think we’ll be able to eliminate the minimum wage any time soon.

So, to those “progressives” who would say “let’s make the minimum wage keep up with inflation”, I agree wholeheartedly… Let’s make it $4.19.

Oh and if you don’t believe me on these numbers, they come from the department of labor, the department of commerce, and the census. If I’m lying to you, it’s with the governments own numbers… the same ones “progressives” are lying to you with. 

I am a cynically romantic optimistic pessimist. I am neither liberal, nor conservative. I am a (somewhat disgruntled) muscular minarchist… something like a constructive anarchist.

Basically what that means, is that I believe, all things being equal, responsible adults should be able to do whatever the hell they want to do, so long as nobody’s getting hurt, who isn’t paying extra

  • Sarah Baker

    Would your analysis change at all if you did not believe the government’s official inflation numbers and instead thought the true rate was significantly higher?

  • cbyrneiv

    They would still be a comparative scalar, so the analysis would be the same relative year to year, unless the method of lying was weighted inconsistently.

    However, no matter how big the lie, it isn’t big enough to make $4.19 more than $7.25

  • cbyrneiv

    In general all of these sorts of comparisons should be done using a normalized purchashing power parity; normalized to the standard labor hour at median wage required to maintain median standard of living for the time.

    This is the core of the “market basket” concept. However what you select for your market basket and how you weight the components makes a big difference.

  • cbyrneiv

    So just for fun, I did my own market basket comparison to 1962, which as I said by the DOL/DOC/Census numbers is appx. the same purchasing power for the minimum wage as 2014.

    I used the items from a meme that has gone around, after verifying the numbers (they mixed averages and medians and labeled them all as avg. I have corrected to median).

    Item———1962——-2014——-Scalar

    Home price$12,500142,000$11Median household Income$5,556$51,0009.179265659Median rent$110$7566.872727273Gasoline$0.27$2.218.185185185Postage stamp$0.04$0.4912.2510lbs sugar$0.89$7.198.078651685Gallon milk$1.04$4.003.846153846Coffee$0.85$4.805.647058824Bacon$0.69$3.995.782608696Eggs$0.32$1.996.21875

  • cbyrneiv

    So just for fun, I did my own market basket comparison to 1962, which as I said by the DOL/DOC/Census numbers is appx. the same purchasing power for the minimum wage as 2014.

    I used the items from a meme that has gone around, after verifying the numbers (they mixed averages and medians and labeled them all as avg. I have corrected to median).

    Item———1962——-2014——-Scalar

    Home price — $12,500 — 142,000 — 11

    Median household Income — $5,556 — $51,000 — 9.179265659

    Median rent — $110 — $756 — 6.872727273

    Gasoline — $0.27 — $2.21 — 8.185185185

    Postage stamp — $0.04 — $0.49 — 12.25

    10lbs sugar — $0.89 — $7.19 — 8.078651685

    Gallon milk — $1.04 — $4.00 — 3.846153846

    Coffee — $0.85 — $4.80 — 5.647058824

    Pound Bacon — $0.69 — $3.99 — 5.782608696

    Dozen Eggs — $0.32 — $1.99 — 6.21875

    The average scalar was 7.04. Meaning that by this unweighted market basket, $1 in 1962 was worth $7.04 today.

    The minimum wage in 1962 was $1.15, or $8.10 by that PPP calc.

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  • Sarah Baker

    This is a very interesting analysis.

    I’m open to the possibility that while minimum wage proponents are misunderstanding the source of the problem and proposing the wrong solution, their complaint (i.e., it’s getting increasingly harder for poor people to “get by”) might have some validity.

    First, many households consist only of nuclear families, whereas a few generations ago, many households consisted of extended family members. This meant that the productivity of multiple generations and contributors supported the household. Even if grandma didn’t earn an income, she provided free childcare. Now, grandma is more likely to reside separately.

    Second, when women moved into the workforce, that increase in the supply of paid labor should have had the effect of driving down the cost of labor. I understand that the move also generated an increase in demand (childcare, household services, etc), but I’m not sure that increased demand would have totally offset the increased supply.

    Third, inflationary policies have made the rise in the cost of some things (housing, education, healthcare to name a few) far outpace any commensurate rise in incomes. My parents’ generation would have spent something near one person’s annual salary to buy a house. Today, people spend three or four times one person’s annual salary to buy a house.

    Innovation works to drive prices down. In constant dollars, things like eggs *should* get cheaper!

    I hope it goes without saying that I don’t support the existence of a mandatory minimum wage at all. It cannot remedy the problem (if one exists) and likely makes the problem worse.

    But I am open to the possibility that there is a problem. The thing to fix it is less government intrusion into the market, not more.

  • Sarah Baker

    Oh, there was one other thing I forgot to add.

    I am under the impression that wages are “sticky,” so they respond more slowly to inflationary pressure. If that’s true, workers will always be hurt by inflation as, collectively, their purchasing power should fall year after year.

    To maintain purchasing power, one would need a raise that covers the “true” rate of inflation (whatever it is). Theoretically, over and above that, they would also get a raise to reflect their additional year of experience. I bet not many workers bargain for raises or higher incomes that reflect both of these elements, though.

  • John O’Connell

    Throw out home price, minimum wage workers don’t buy median houses, and rent is already in the list. Throw out postage stamp, nobody uses them anymore and when we did they were never a big part of living expenses. The average scalar of the rest of them is 6.37, and the scalar of the minimum wage is 6.30.

    If the minimum wage scalar were 6.37, it would be $7.33 instead of $7.25.

  • John O’Connell

    Government “intrudes” into the market by taxing us, removing some of our spending power. Since one man’s spending is another man’s income, taxing causes some of us to be unemployed, because there is not enough demand to buy up everything we could produce if we were all working at it.

    Government also adds to demand by its spending, employing some of us, but they are taxing more than they need to tax in order to offset their own demand and prevent inflation. (There are also other leakages of demand, due to savings and net imports.) Unemployment is the evidence that taxes are too high for the size government we have.

    Simply cutting taxes until everyone is employed won’t work, because the available skills will never exactly match the required skills to produce the desired products, and shortages will lead only to higher wages, without higher output, and that causes inflation. Instead of blind pump-priming, the Federal government should fund a full-time job (doing things that are done by volunteers today, like working in food banks or Habitat for Humanity) to anyone willing and able to work. The spending on such a program would automatically adjust with the ups and downs of the economy, making it a perfect automatic stabilizer, as well as an anchor for the price of labor.

  • cbyrneiv

    Most bargain little if at all. Most also don’t understand how wages… or any other prices… work. They simply assume someone “decides” them, and that’s the way it is.

  • cbyrneiv

    As far as it goes, the minimum wage should never increase relative to the median wage or standard of living. That’s not the point… Only 2% of full time workers earn it.. it’s not meant to be your permanent wage by which you get ahead. It’s intended to be the fixed floor which no-one should go below.

  • Sarah Baker

    Definitely should not increase *in relation* to anything. Theoretically it might increase *in tandem* with other things. But, I mean, I think it’s part of the problem, so hiking it (even just to keep pace with other increases) at best just maintains the status quo. If we lived in a world where prices were allowed to fall in nominal dollars, as the result of innovation and increased efficiency, combined with the stickiness of wages, everyone’s purchasing power would go up year after year.

  • Sarah Baker

    Good point about median houses v. rent. Housing is one of the areas I was thinking of that had risen so much faster than the rest of the basket, including labor. Anecdotally, I think inflation is higher than the government’s statistics, and I don’t know that labor has kept pace with the other things in the basket…

  • Sarah Baker

    Wouldn’t that require either cutting spending elsewhere or raising taxes/borrowing more/increasing the money supply?

  • John O’Connell

    Probably not. It would be very hard to turn it on full blast in one shot, probably should be phased in, maybe starting with pilot programs in the cities with the highest unemployment. As it gets going, taxes are going to increase automatically, and unemployment benefits will drop. JG doesn’t need to replace anything else, but JG workers won’t be getting unemployment or food stamps or Medicaid, because they will have incomes and pay taxes instead. I think the deficit would increase initially, but in the end I think the full employment deficit will be small compared to deficits with 5-10% unemployment. Spending should be driven by public purpose. Taxes should be adjusted as necessary to keep the JG workforce small (2-3%) and inflation low.

    As for minimum wage, it will become obsolete. The JG compensation package will be a de facto minimum. Private employers will have to offer comparable pay and benefits, or other sorts of goodies, like paid tuition or opportunity for advancement, in order to attract workers from JG. They might also be able to hire students and retirees for part-time, relatively pleasant work, at much lower wages or with fewer benefits than JG.