The Minimum Wage: Time For an Increase

14 Nov


By Mike McGee

I spent fifteen years as a full-time labor and employment law attorney, and I consider myself to be knowledgeable with regard to labor laws and their operation in our daily life in the economy.

There has been a great deal of talk recently about how the current US minimum wage of $7.25 an hour is forcing more and more people to live below the poverty line. My research shows that in today’s dollars the minimum wage is not much different than it was in the 1980’s. So there must have been a change over this time in the definition of the “poverty line,” rather than a change in the sustainability of life for those being paid the minimum wage.

I am definitely in favor of raising the minimum wage to between $12.00 and $15.00 an hour, in line with the proposals which are currently being discussed in Washington. My support comes from the principle of raising the standard of living for the least paid in our society.

Companies can easily afford such an increase. Their stock values and cash stashes are at the highest now as ever in the history of our country. (See my blog entry “The Swedish Disease,” Parts one and two, dated October 8 and 18, 2012.)

We need to see at least some of that increase in value passed on as wages to those who sustain their production and increases in values. Without the hard work of their lowest-paid employees, their increases in value would not be nearly so great. In addition, the increase in the cumulative buying power of these lowest-paid employees will be enormous, which will add to the bottom line of American business.

Besides, my statistics also show that the minimum wage in today’s dollars during the period from 1961 to at least 1981 averaged about $9.50 an hour (The minimum wage had dropped to $7.16 an hour, in today’s dollars, by about 1988). We know from history that this period from 1960 to 1980 was one of the greatest economic expansions which had been experienced up to that time, and laid the groundwork for the later and greater expansions which followed. The lesson may be that there must be customers who can afford to purchase the goods and services before business can prosper.

Having made this editorial comment, which I believe to be meaningful and non-threatening, let’s look more closely at the numbers relating to the purchasing power of the minimum wage in today’s dollars. I made this chart using the actual minimum wages mandated by the government over time, from a reliable government web site:

In order to compute the value of the minimum wage in today’s (2013) dollars, I used a reliable government web site which calculates the present value of dollars using the CPI numbers, which are the accepted measures of inflation and change in purchasing power over time. This web site is:

So my chart is highly reliable in that it is based on the government’s own calculations. With the two references above you can do the computations yourself and come up with the same result.

Calendar Year Actual Minimum Wage Minimum Wage in Today’s   Dollars (2013)
1938 $0.25 per hour $4.15 per hour
1945 $0.40 per hour $5.20 per hour
1950 $0.75 per hour $7.29 per hour
1956 $1.00 per hour $8.61 per hour
1961 $1.15 per hour $9.01 per hour
1963 $1.25 per hour $9.56 per hour
1976 $2.30 per hour $9.46 per hour
1981 $3.35 per hour $8.61 per hour
1990 $3.35 per hour $6.00 per hour
1996 $4.75 per hour $7.09 per hour
2009 $7.25 per hour $7.91 per hour

Between 1950 and 1961 the present dollar value of the minimum wage had increased from $7.29 per hour to $9.01 per hour. These increases were made on the watch of Dwight D. Eisenhower, one of our greater presidents and a conservative Republican.

This relatively high minimum wage was retained until the time of Ronald Reagan, another of our greater presidents and a conservative Republican; who along with George H. W. Bush lowered the present value of the minimum wage by the simple expedient of making no changes at all.

During the period from 1981 to 1990 the present dollar value of the minimum wage dropped due to inflation from $8.61 per hour to $6.00 per hour, and never really recovered too much from that low. I say that Eisenhower was a greater president than Reagan, though I’m sure there may be some who would debate that point.

Reagan certainly did usher in another major economic miracle. I would say, though, that some of the miracle may have come at the price of reducing people’s wages. Reducing the value of the minimum wage over time to the point where good hard-working people had to reach too far to buy homes may well have ultimately led to the 2008 housing bubble. During this same Reagan period, the method of computing the CPI was changed so that the stated “cost of living” did not rise as fast as it did in the past, leading also to lower wage increases and the housing bubble. (See my blog entry “Housing Prices and the Consumer Price Index,” dated January 4, 2013.)

Nevertheless, at least since 1990, the last 23 years, the value of the minimum wage in terms of 2013 buying power has stayed roughly at the level of around $7.00 or a little more per hour. Any higher minimum wage would be a break with recent precedent and would take us back to the Eisenhower days.

The best reasons to go back to the Eisenhower days would be to increase the buying power of the average American. There are quite a lot of “average” Americans who work at the minimum wage, and most of them are grateful for having a job at all. However, these average Americans cannot really contribute to further economic growth when they are spending all their money on necessities only and have nothing left over for buying the things they want, or for saving or investing.

I know it seems like a small matter, yet adding and additional $5.00 or more to the minimum wage will actually have the net result of stimulating buying power, and give more people an opportunity to pay down debt, and will thus help the economy to maintain its current and future strength. More people will be able to buy the goods and services produced by American businesses.

Other countries, including China and India, could also benefit from establishing laws creating minimum wages. It would create greater internal buying power, so these countries wouldn’t have to rely so much on their export trade.

From Copyright © 2013 by Michael H. McGee. All commercial rights reserved. Non-commercial or news and commentary site re-use or re-posting is encouraged. Please feel free to share all or part, hopefully with attribution.

3 Responses to “The Minimum Wage: Time For an Increase”

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  2. How Much Money is Out there? | mcgeehome - December 18, 2013

    […] In this wealthiest time in history, though, all our citizens should be sharing in this fabulous bounty to some degree. Even simple measures such as raising the minimum wage to ten dollars an hour will help (and this will also trigger wage increases all the way up the hourly scale). See my article at […]

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