Raise the Minimum Wage, or Lower the Cost of Living?

min wage

By Ed Ring

 

Increases to the minimum wage in California are moving closer to reality. As reported on March 30th by MyNewsLA.com, “Los Angeles County Supervisors Sheila Kuehl and Hilda Solis will ask their colleagues to approve spending up to $95,000 to have the Los Angeles Economic Development Corporation review a series of studies of the issue performed in relation to the city of Los Angeles’ proposal to raise the minimum wage to $13.25 an hour by 2017 and to $15.25 an hour by 2019.”

California’s minimum wage is currently $9.00 per hour. The federal minimum wage is currently $7.25 per hour.

Largely lost in the debate over the “fight for fifteen” (dollars per hour) is America’s inflation adjusted minimum wage based on historical precedents. It’s an interesting topic that deserves discussion, because historical minimum wages expressed in 2015 dollars vary a great deal. Since establishing the first federal minimum wage in 1938, the amount has been adjusted 22 times. As can be seen on the chart, between 1938 and 1968 the minimum wage expressed in 2015 dollars rose steadily. In 2015 dollars, for example, the 1938 minimum wage would be $4.13, rising to $11.01 per hour by 1968. Since then, it has been in decline – in 2015 dollars the minimum wage was roughly between $9.00 and $10.00 per hour during the 1970’s, then fell to roughly between $7.00 and $8.00 from 1980 through 2009, when it was last adjusted.

Historical Minimum Wages
Expressed in 2015 Dollars
20150331-UW_Ring-MinimumWage

 

Those who believe in minimum wage laws can draw many conclusions from this data. What they cannot easily conclude, however, is that the minimum wage, today, can rise much beyond $10.00 per hour and still conform to historical norms. Only twice, in 1968 and 1974, did the inflation adjusted minimum wage exceed $10.00 per hour.

From this perspective, California’s state minimum wage, $9.00 per hour, finds itself placed almost exactly at the median in terms of historical federal minimum wage levels expressed in 2015 dollars. From what should be a reasonably compelling economic standpoint, there is no urgent reason to increase the minimum wage above $9.00 per hour, even for those who are solidly in favor of having minimum wage laws. While one may argue that California has a higher cost of living than most other places in the United States, justifying a minimum wage higher than the historical median, one might also acknowledge that many of the benefits offered minimum wage earners today were not available until relatively recently. Examples include the earned income tax credit, not established until 1975, and the steep discount on health premiums offered under Obamacare.

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