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While Congress Did Nothing, Minimum Wage Fell Another 3 Cents in May 2014

When the U.S. Congress does nothing about the minimum wage, it cuts the minimum wage.

That statement may seem paradoxical, but it isn’t if you keep in mind the difference between nominal wages and real wages. The word “nominal” is just an adjective used to mean “the name of something,” and so a “nominal dollar” is the literal numerical worth of a one dollar bill. Literally speaking, 1 dollar was 1 dollar in 2009 and 1 dollar is 1 dollar today, because that’s what it says on the bill. But what 1 dollar will actually, really buy changes. What $1 would buy in 2009 would take $1.10 to buy today. In real terms, a person who had $1 in 2009 is like someone who has $1.10 today. Conversely, a person who has a dollar today is like someone who had 91 cents in 2009.

How can I say all that? I can say all that because for many, many years the Bureau of Labor Statistics has kept track of the prices of the various things people buy in their daily lives. Every month, the BLS calculates the “Consumer Price Index” — how much it would cost to buy a certain amount of those things. A handy reference is that — see a historical listing in Table 24 here — the CPI was an even 10.0 in 1914. It turns out that this morning, the BLS released its latest calculation of the CPI for last month, May 2014: 237.9. Because 237.9 is 23.79 times bigger than 10.0, we can say that the things people buy cost 23.79 times more in nominal dollars today — in actual dollar bills — than they did in 1914. What $1 would buy in 1914 takes $23.79 to buy today.

Although the cost of living continues to creep up, the federal minimum wage has not been changed from the nominal value of $7.25/hour since July of 2009. Back then, according to historical data, the CPI stood at 220.0, 9.5% lower than it is today. This tells us that people working for minimum wage today can buy 9.5% less than they could in 2009.

Inflation, the rise in the cost of living, takes place at a creeping pace from month to month. From April 2014 to May 2014, the cost of living measured by the CPI rose by 0.35%. That’s like a cut of 3 cents an hour in the minimum wage in just one month. If you have a large income, a cut of 3 cents an hour may not sound like much, but for the full-time working poor every penny of buying power matters, and this decline is repeated every month. Minimum wage workers are working just as hard as they did before, but the work they do is steadily being valued less and less.

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