The Shrinking Minimum Wage

This weekend, the New York Times magazine published an interesting essay on America’s growing inequality and the fact that a college degree was no longer a guaranteed ticket to success. The writer, Adam Davidson of NPR’s “Planet Money,” connects that insecurity with the 2012 election, which is “offering a choice between two visions of how to return us to this country’s golden age — from roughly 1945 to around 1973 — when working life was most secure for many Americans, particularly white, middle-class men.”

It’s a thoughtful piece, well worth reading. But I was also struck by a point Davidson makes about the minimum wage:

“The actual rules have also changed notably since the 1970s. Back then, there were all sorts of stabilizers that pushed working-class wages up and kept rich people’s wages lower. The minimum wage, at its pre-1970s peak, was almost 50 percent higher than it is now (inflation adjusted, naturally).”

Could that really be the case? Didn’t we just raise the federal minimum wage to $7.25 per hour? It seemed like it was $5.15, forever. (In Massachusetts, minimum wage is $8.00 per hour.) So, I went back and ran the numbers and created the chart above — the blue line shows the minimum wage rate through the years, while the red line adjusts it for inflation.

A few interesting conclusions: Minimum wage, which was created in 1938 ($0.25 per hour!), was pretty low during its early years, hovering between $3 and $5 per hour. In 2006, after 10 years without an increase in the wage, we hit a 56-year low; President Bush and Congress raised it in 2007 to $5.85. As for the highs: as Davidson aptly points out, minimum wage was quite a bit higher from the mid-1950s through 1980, when America was experiencing its “golden age.” In 1968, it hit a stunning $10.40 per hour. That’s not much to live on, but it’s also quite a bit more than the current average salary for a sales associate at Walmart ($8.80 per hour) or a cashier at Home Depot ($9.37 per hour).

That raises a few important questions: Should we raise the minimum wage again? Should we finally peg it to inflation, so we don’t have a politicized fight every few years? And most important: Would a higher minimum wage help return America to prosperity?