Oct 14, 2021 - Economy

How the minimum wage lost relevance

Data: BLS via RSM US; Chart: Axios Visuals 
Data: BLS via RSM US; Chart: Axios Visuals 

The federal minimum wage is now just 28% of average hourly earnings. That's just half its level in 1968, when the ratio was 54%.

Why it matters: The federal minimum is so low — well below the living wage in all states — that it has at this point lost most of its power as an anchoring mechanism.

How it works: Employers like to pay the minimum wage not only because it's the lowest wage they can get away with, but also because it's a wage that the government is explicitly telling them is acceptable.

  • $7.25 per hour is so low, however, as to be incompatible with dignified hiring. Fewer than 2% of workers now earn the minimum wage or less.
  • That's how a new consensus has arrived that $15 is, as Joe Brusuelas and Tuan Nguyen of RSM put it, "the de-facto minimum wage."

By the numbers: $15 per hour is higher, in real terms, than the actual minimum wage has ever been. But at 58% of average hourly earnings, it's a perfectly reasonable baseline.

The bottom line: As David Card showed, higher wages don't need to mean less employment.

  • As Brusuelas and Nguyen write, while higher wages do tend to cause marginal price inflation, "it’s hard to argue that bringing working families above the poverty level would damage the economy."
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