Raise the Damn Minimum Wage

This might not be topical, but I think it’s important.

The real value of the US federal minimum wage peaked in 1968 at $8.60 in 2018 dollars (using a chained CPI - using a traditional CPI measure its closer to $11.50). If you were a naïve optimist, this would be surprising, since the United States is much richer today than it was in 1968, with GDP per person, productivity, and average wages all having grown significantly since then.

In 1968 the US had a (real) GDP per person of $23,000; that’s comparable to modern day Uruguay, Romania, Croatia, and Panama. Today our GPD per person is $53,000. That means that our society has more than twice the amount of resources per person we did in 50 years ago – though it sure as hell doesn’t feel like it.

Over the past 50 years, average wages in the US have increased significantly, while the federal minimum has increased, much more slowly.

In 1968, the minimum wage was about half the average hourly wage. In 2018 the minimum is less than a third. Note that this data excludes supervisory workers, so underestimates the growing divergence.

Productivity has also increased since 1968, with output per hour being 2.4 times what is was in 1968. Meanwhile, average hourly earnings are only 1.4 times what they were 50 years ago.

So what’s my point here? That raising the damn minimum wage is hardly the end of the fucking world, and people shouldn’t fucking panic about it.

Assuming perfectly competitive markets (stop laughing!), somebody who was paid $8.60 an hour in 1968 produced at least $8.60 of value an hour in 1968. I’ll be conservative and say productivity growth has been slower for minimum wage work than work on average, so their productivity has only increased by half as much – a mere 70%. Then an hour that created $8.60 of value 50 years ago should create $14.72 today.

Or we could take another track, and ask what the minimum would be if we tried to keep it at half the average. Since hourly average wages in 2018 are 22.60, the minimum wage would be $11.30.