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Minimum Wage vs. CEO Pay Puts State of the Union in Context

In his 2013 State of the Union address, President Barack Obama called for a restoration in the minimum wage and a change to make it keep pace with inflation:

"We know our economy is stronger when we reward an honest day's work with honest wages. But today, a full-time worker making the minimum wage earns $14,500 a year. Even with the tax relief we put in place, a family with two kids that earns the minimum wage still lives below the poverty line. That's wrong. That's why, since the last time this Congress raised the minimum wage, 19 states have chosen to bump theirs even higher.

Tonight, let’s declare that in the wealthiest nation on Earth, no one who works full-time should have to live in poverty, and raise the federal minimum wage to $9.00 an hour. We should be able to get that done.

This single step would raise the incomes of millions of working families. It could mean the difference between groceries or the food bank; rent or eviction; scraping by or finally getting ahead. For businesses across the country, it would mean customers with more money in their pockets. And a whole lot of folks out there would probably need less help from government. In fact, working folks shouldn't have to wait year after year for the minimum wage to go up while CEO pay has never been higher. So here’s an idea that Governor Romney and I actually agreed on last year -- let's tie the minimum wage to the cost of living, so that it finally becomes a wage you can live on."

Should the minimum wage for workers be at least what it was in 1980, or should cuts to the minimum wage be allowed to continue? That’s the real question, and I don’t use the word “real” lightly. The problem with tracking the minimum wage at its “nominal” dollar value is that a dollar in 2012 didn’t buy as much as a dollar did in 1980. As a matter of fact, according to the Consumer Price Index a dollar in 2012 only buys what 36 cents would have bought in 1980. In the chart of minimum wage trends in the United States you see below, “real” wages adjust for this change by measuring wages according to what they’d be worth in 2012 dollars. As you can see, around 1980 the inflation-adjusted minimum wage was about $9, but has fallen since then.

Real and Nominal Minimum Wage Trend in the United States, 1956 to 2012

Some people in Congress, mostly Republicans, are arguing that our nation’s big corporations just can’t afford to pay full-time working people what they were paid in 1980.

Problem #1 with the Republican story: corporate profits hit a record high in 2012.

Problem #2 with the Republican story: corporations have found enough room to pay their executives. Here’s a graph of real and nominal CEO pay over the same period (data: EPI)

Real and Nominal Corporate CEO Pay, EPI Data, to 2011

1 comment to Minimum Wage vs. CEO Pay Puts State of the Union in Context

  • Dave

    Two things, Jim. First, corporate profits under Obama have been a staggering 77% as opposed to say, iconic Republican Ronald Reagan, 13%. Forbes.com has the stats. The numbers, however, probably do not reflect the majority of small businesses that are forced into corporate status to ease the burden of a tax system that results from a rather fascist marriage of Federal gov and the multinationals. Second, a question. Wouldn’t it be easier for the Fed to stop inflating the dollar(probably by getting rid of inflatable dollars) than it would be to fight for increases in the min. wage from time to time?

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