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U.S. Minimum Wage Drops Another 3 cents/hour in April 2014

The Fair Minimum Wage Act before Congress (House|Senate) is a bill that would increase the minimum wage from its current $7.25/hour to $10.10/hour over the next two years. After that point, the minimum wage would automatically increase to keep pace with inflation — the tendency of currency to be worth less as time passes. I use the subjunctive “would” here because the bill has not passed either the House or the Senate, and there has been no progress regarding the bill in either chamber of Congress since January.

While the nominal value of the minimum wage has not changed, the practical real-world value of the minimum wage has changed. Tracked by the Consumer Price Index, inflation means that what a $1 dollar bought in March 1977 would take $4 to buy now. Sure, the minimum wage was “just” $2.30 back in March 1977, but what $2.30 could buy in March 1977 would take more than $9 to buy today. Because the minimum wage is $7.25 in nominal value but only buys what $1.81 would buy in March 1977, economists say that the minimum wage has declined in “real value” from $2.30 to $1.81 in “real dollars” between 1977 and today.

1977 didn’t even mark the high point for the U.S. minimum wage in real value; the minimum wage reached its peak in 1968, when workers were guaranteed a wage that would buy what $10.90 would buy today. The following graph summarizes Consumer Price Index data from the Bureau of Labor Statistics to show how the real value of the minimum wage has fallen since then.

U.S. Minimum Wage in Nominal and Real Dollars, through April 2014

The change in inflation has a real, creeping impact from month to month: what could have been bought for $7.25 in March costs $7.28 in April. American minimum-wage workers lost 3 cents.

P.S. Before someone says that American business can’t afford to pay its workers, consider this: while America’s minimum-wage workers lost their breakfast, corporate profits soared. The latest available report from the Bureau of Economic Analysis reveals that in the 4th quarter of 2013, corporate profits rose by 2.6%, a gain of $47.1 billion.

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