Raising The Minimum Wage: Income Equality or Job Killer?

Massachusetts passed the first wage law in 1912, followed soon after by thirteen more states and the District of Columbia.

However, the Supreme Court ruling in Schechter Poultry Corp. v. United States (1935) resulted in the defeat of a major provision of President Roosevelt’s “New Deal” and further efforts would not succeed until Congress passed the Fair Labor Standards Act (FLSA) in 1938. A national minimum wage was established at $0.25 per hour.

A few very sobering facts: , a startling perspective in relation to the federal minimum wage today at $7.25 per hour.

Calculate this in reverse and that same $1.00 in 1938 would have the purchasing value of $119.84 in 2014. In other words, the 1938 federal minimum wage of $0.25 had the equivalent purchasing power of $29.96 in today’s money.

Fast forward a few decades for a more digestible formula. In the period between 1974 and 2014, $1.00 in 1974 is equivalent to $4.73 today. Now, putting this in perspective, the 1974 federal minimum wage of $2.00 in today’s money would have been equivalent to $9.46 in purchasing power. Can you see the trend?

So what’s happening?

The University of Oregon calculated and graphed the nominal and real values of minimum wage since 1938. The current minimum wage in real dollars is equal in purchasing value to the 1960 minimum wage. As it turns out, Congress approved increases in minimum wage, but they were legislated in advance and with little regard for inflation, thereby effectively reducing the purchasing power of those minimum wage earners over the past 54 years.

To put it mildly, although minimum wage increased by 40% between 2007 and 2009, it remains well behind the curve. For millions of underemployed Americans working multiple part-time jobs just to subsist, this has serious repercussions.

In a July 2012 interview with NPR, Senator Tom Harkin (D-Iowa) said he believes increasing the minimum wage would stimulate the economy, produce as many as 100,000 jobs, and increase the GDP by $25 billion.

Improving the economy is still on the minds of most Americans. Gallup’s Economic Confidence Indicator remains in the negative numbers at a pretty dismal -18. Americans wishing to save have a sizable hurdle in their way and it is not likely to be overcome anytime soon by the 45% of Americans still struggling.

From Gallup:

“Americans’ desire to save money rather than spend it may help those vowing to show more financial restraint in the new year. Still, this desire may not translate into more savings in 2014, as those with the least resources in terms of disposable income are actually the most likely to prefer saving money to spending it. This may mean that even as much as the country professes to enjoy saving money, not all are able to do so for financial reasons.”

Eleven states — Arizona, Colorado, Connecticut, Florida, Missouri, Montana, Ohio, Oregon, Rhode Island, Vermont and Washington — already took steps to increase the minimum wage in their own states, but wages will still remain well below the threshold of inflation.

Not surprisingly, the debate will follow traditional partisan lines in 2014 and public opinion will likely favor the more liberal-minded politicians given the state of the economy and lingering unemployment / underemployed rates. However, thanks to the sputtering implementation of the Affordable Care Act, Democrats may not have anymore leverage than their opponents across the aisle.

It’s very unlikely the 113th Congress will do anymore than they’ve been doing, which is to say nothing will be debated, much less accomplished in this matter.  However, while economists, politicians, and political commentators disagree on the effect minimum wage has on the elasticity of demand and supply in labor markets, it will most certainly continue to be a major issue throughout the 2014 midterm elections.

Where do you stand? Would an increase in minimum wage be beneficial or detrimental?

Weigh the arguments: Why We Should Raise The Minimum Wage and Why We Should Not Raise The Minimum Wage

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