About that minimum wage increase proposal

Posted by AzBlueMeanie:

In his SOTU Address last night, President Obama said, "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." (The federal minimum wage is currently $7.25 an hour).

Now that may sound like a dramatic increase in the minimum wage, but if the policy goal is that "no one
who works full-time should have to live in poverty," that $9.00 an hour will still not achieve this goal.

Dean Baker writes at Firedoglake today, The Minimum Wage and Economic Growth:

The purchasing power of the minimum wage peaked in the late 1960s at
$9.22 an hour in 2012 dollars
. That is almost two dollars above the
current level of $7.25 an hour. Most of the efforts to raise the minimum
wage focus on restoring its purchasing power to its late 1960s level,
setting a target of around $10 an hour for 2015 or 2016
, when inflation
will have brought this sum closer to its previous peak in 2012 dollars.

While this increase would lead to a large improvement in living
standards for millions of workers who are currently paid at or near the
minimum wage, it is worth asking a slightly different question. Suppose
the minimum wage had kept in step with productivity growth over the last
44 years. In other words, rather just keeping purchasing power constant
at the 1969 level, suppose that our lowest paid workers shared evenly
in the economic growth over the intervening years.

This should not seem like a far-fetched idea. In the years from 1947
to 1969 the minimum wage actually did keep pace with productivity
(This is probably also true for the decade from when the federal
minimum wage was first established in 1937 to 1947, but we don’t have
good data on productivity for this period.)

As the graph below shows, the minimum wage generally was increased in
step with productivity over these years. This led to 170 percent
increase in the real value of the minimum wage over the years from 1948
to 1968. If this pattern of wage increases for those at the bottom was
supposed to stifle growth, the economy didn’t get the message
. Growth
averaged 4.0 percent annually from 1947 to 1969 and the unemployment
rate for the year 1969 averaged less than 4.0 percent.

Source: Bureau of Labor Statistics and author’s calculations.

This link between productivity and the minimum wage ended with the
1970s. During that decade the minimum wage roughly kept pace with
inflation, meaning that its purchasing power changed little over the
course of the decade. The real value of the minimum then fell sharply in
the 1980s as we went most of the decade without any increase in the
nominal value of the wage, allowing it to be eroded by inflation. Since
the early 1990s the real value of the minimum wage has roughly stayed
constant, which means that it has further fallen behind productivity

* * *

If the minimum wage had kept pace with productivity growth it would
be $16.54 in 2012 dollars.
It is important to note that this is a very
conservative measure of productivity growth. Rather than taking the
conventional data published by the Bureau of Labor Statistics for the
non-farm business sector, it uses the broader measure for economy-wide
productivity.[1] This lowers average growth by 0.2-0.3 percentage points.

This measure also includes an adjustment for net rather than gross
output. It also uses a CPI deflator rather than a GDP deflator, which
further lowers the measure of productivity growth.[2] Even with making these adjustments the $16.54 minimum wage would exceed the hourly wage of more than 40 percent of men and more than 50 percent of women. We would have a very different society if all workers were earning a wage above this productivity linked minimum wage.


[1] If we just used non-farm productivity as the basis for indexing
the minimum wage, the most commonly used measure of productivity, the
minimum wage would have been $21.75 in 2012 [http://www.cepr.net/index.php/blogs/cepr-blog/new-cepr-issue-brief-shows-minimum-wage-has-room-to-grow].

[2] These adjustments are explained in Baker, 2007.
For the years since 2006 we assumed that the difference in the growth
rate of non-farm productivity and the growth of this adjusted measure is
the same as it was on average for the years 2000-2006.

Note: The current minimum wage in Australia is AUS$15.96 = US$16.44, close to the $16.54 minimum wage calculated by Dean Baker based upon productivity.

UPDATE: John Boehner: “[W]hen you raise the price of employment, guess what happens? You get
less of it,” Boehner told reporters Wednesday morning during a Capitol
Hill press conference. This tired old trope has never been true, and there is more than 60 years of BLS data to prove it. White House Defends Minimum Wage Increase:

The White House shot back against Boehner’s claim that the policy
would lead to job losses and particularly harm low-skilled workers.

“We have a lot of empirical evidence on this question, and the best
studies consistently find that the minimum wage has no adverse effect on
,” a senior administration official told TPM on Wednesday

* * *

The administration official cited three research papers as the best,
most recent studies that inform the White House’s views: a 2010 paper in
the Review of Economics and Statistics, a 2012 paper in the British Journal of Industrial Relations, and a 2011 paper in Industrial Relations.

And what does Boehner have? The usual suspects, the billionaire funded think tanks that employ conservative economists who otherwise would be unemployed for peddling their discredited economic theories: Cato Institute, Heritage Foundation, and EPI.

UPDATE: From Think Progress, Why The Minimum Wage Is A Women’s Issue, In Three Charts (sans charts):

[A]ccording to a report released Wednesday from the Center for American
Progress Action Fund, raising the minimum wage would also be a pillar
for women’s rights.
Here’s why, in three charts:

1. Two-thirds of minimum wage earners are women. A disproportionate number of women in the workforce hold the lowest-paying jobs, a fact that contributes to the gender pay gap.

* * *

2. Families benefit from a wage increase. Sixty percent of women are the primary or co-bread winners in their households.

* * *

3. Over 17 million women would benefit. The total
number of women who would be earning more if Congress approved a minimum
wage hike is 13.1 million. 8.9 million of these receive a direct
benefit, while another 4.2 million women would enjoy the so-called “spillover effect” of increased wages to keep up with a changing wage structure[.]

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