Wednesday, August 12, 2009

Minimum Wage Stuck in the 1950s? No Way

Are you better off than you were 40 years ago? Not if you’re a minimum wage worker. It would take $9.92 today to match the buying power of the minimum wage at its peak in 1968.

The minimum wage is stuck in the 1950s. With the raise to $7.25 per hour, the minimum wage is higher than 1950s inflation-adjusted $6.71, but lower than the 1956 minimum wage of $7.93 in today’s dollars. The long-term fall in worker buying power is one reason we are in the worst economic crisis since the Great Depression.

Consumer spending makes up about 70% of our economy. The minimum wage sets the wage floor. We can’t build a strong economy on poverty wages. A growing share of workers make too little to buy necessities — much less afford a middle-class standard of living.


Meanwhile a growing share of business revenue has gone to executive pay and profits. In 1968, the richest 1% of Americans had 11% of national income. By 2006, they had 23% — the highest share since 1928, right before the Great Depression. We can’t build a strong, sustainable economy on a 1950s’ wage floor, 1920s’ income gaps and ballooning Wall Street bailouts.

~From "
Minimum Wage Stuck in the 1950s" in the Miami Herald


From a
previous CD post:

In 1949, the minimum wage was $0.40 per hour, and a full-time summer job (40 hours per week for 12 weeks) would have generated $192 in total summer earnings (ignoring taxes). Using a Sears catalog for retail prices, $192 would have only purchased the following 4 items in 1949:

Now contrast that with 2009. At the current minimum wage of $7.25 per hour, a full-time summer job will generate about $3,500 this year, which would be enough to purchase the following list of 28 items (click to enlarge):

Bottom Line: The inflation-adjusted minimum wage might be stuck in the 1950s, but when you adjust for the purchasing power of what you can buy with income earned at the minimum wage, the minimum wage today is light years ahead of the minimum wage of the 1950s.

As economist W. Michael Cox (chief economist at the Federal Reserve Bank of Dallas) reminds us:

Add it all up. When it comes to their economic prospects, today’s young Americans are the Luckiest Generation in history—at least until their children grow up and forge an even luckier one. And even if real wages are flat, the explosion of new products over time at lower and lower prices translates into a rising standard of living for all income groups, even minimum wage workers.

Originally posted at Carpe Diem.

16 Comments:

At 8/12/2009 1:36 PM, Blogger OA said...

I like this conclusion at the end:

"We can’t build a strong, sustainable economy on a 1950s’ wage floor, 1920s’ income gaps and ballooning Wall Street bailouts."

Really? Why not? Perhaps she can find other people to quote to prove like:

"Camille Caramor, owner of a Louisiana Christmas tree farm and paralegal service, says, "A minimum wage increase could be the most important factor in powering our economy out of the recession.""

Gee if Camille says that with her background in growing trees and as a paralegal, it must be true.

 
At 8/12/2009 2:37 PM, Blogger Andy said...

Does this even matter? Almost no one earns the minimum wage. Isn't something like 10th percentile wage a more useful measure?

 
At 8/12/2009 2:47 PM, Blogger 1 said...

Alright now! Let's play the race card and see if we can get some incipient, white pseudo guilt in play: '"It is criminal to have people working on a full-time basis . . . getting part-time income," King told workers in Memphis, Tenn., days before his murder. King said, "We are tired of working our hands off and laboring every day and not even making a wage adequate with daily basic necessities of life."'...

This leftist drivel is from the outstanding foundation for socialist economics the Progressive

Holly Sklar is neck deep with these folks...

 
At 8/12/2009 3:23 PM, Blogger Paul said...

Mark,

I respect your work and enjoy reading your blog, however, I question the dataset used in your analysis. The benefit on cost savings seems to be somewhat myopic and framing a positive recapture of the purchasing power argument would be utilization of selective logic.

 
At 8/12/2009 4:47 PM, Blogger Realist Theorist said...

Based on your examples, a kid who lives with his parents and earns minimum wage would be better off today than in the 1950s.

However, what about someone who had to rent his own place and pay for his food? In other words, what about someone who bought a fair amount of things that had little Chinese input?

 
At 8/12/2009 5:11 PM, Anonymous Anonymous said...

Yeah, consumer spending makes up 70 percent of GDP but minimum wage employees make up a miniscule proportion of that. Doubling their wages wouldn't budge GDP but it would permanently end most of their jobs.

Consumer spending has been rising steadily as a percent of GDP due to increased indebtedness and declining investment and net exports. Our debt service ratio has delined a little lately, but remains near a record high.

 
At 8/12/2009 5:25 PM, Anonymous Anonymous said...

And I would argue that their buying power is even greater than what you get from the Sears Catalog. You have a sonicare toothbrush on there for $100, I just got mine for $50 on sale at Target. They have a Playstation 2 for $150, Walmart has it for $100. So if you went to Walmart and Target you would have greater purchasing power than Sears.

 
At 8/13/2009 3:51 AM, Anonymous Anonymous said...

After a heated debate, I volunteered to eat off of the amount I would get if I were on food stamps. I had to track all my expenses, the meals had to be nutritious, and if I received gratuitous meals I had to record that as as anomaly. If I remember correctly, the benefit amount was $37 a week at the time.

I ate lots of rice, pasta, canned vegetables, small portions of meat, and drank mostly water and some juice. I could afford to got to a restaurant about once during the month.

The meals were probably healthier than I eat today at restaurants and home. It really wasn't hard to do and I considered writing a food stamp gourmet cookbook. At the time I was working two part time jobs and going to school. I made about $800 a month and had only $400 in budgeted expenses except for repairs to my beat up car and parking tickets from the city. The car was a necessity sincethe jobs and school were 15 miles apart.

I volunteered to feed people in homeless shelters who were eating better than I was. The thing that hits me right between the eyes here is how many 'poor' people have cars, televisions, cell phones, smoke cigarettes, and are OBESE.

I lost sympathy for them a long time ago.

 
At 8/13/2009 3:59 AM, Anonymous Anonymous said...

Since when is it against the law for minimum wage workers to have two jobs?

I've worked 80 hours a week in some 'normal' jobs without any additional compensation. I joked that my hourly pay rate was lower than my admin assistant.

Minimum wage jobs aren't meant to support a family of 4 with a non-working spouse, but it most certainly can be done. Any job isn't 'meant' to meet your financial needs but to compensate you for the value of your labor to your employer. Paying you bills is your problem, not your employer's.

 
At 8/13/2009 7:27 AM, Blogger sethstorm said...

The problem with that is in the quest to fit to $3500, you picked items that have no attention at all to quality.


So if you went to Walmart and Target you would have greater purchasing power than Sears.

Only if you don't count the entire (monetary, time and otherwise) costs of repeated purchases, ink refills, and other things that add to the total cost, over time.

That's where those knockoff/cut-rate Chinese goods lose their lustre, quickly.

After 3-5 years of constant use, I'd expect half of those items to be gone/broken at the very least.


In other words, what about someone who bought a fair amount of things that had little Chinese input?

You mean people who only buy it only if there is no alternative that exists?

 
At 8/13/2009 8:35 AM, Anonymous Junkyard_hawg1985 said...

Mark,

These type of articles is one of the reason I like to read your posts. You do look at the long term to see the big picture trends in many items. I like that you list many items that didn't even exist in 1950 (It is like an apples to oranges comparison where oranges didn't exist in 1950).

I did do a comparison of items that would be the same today as it was in 1950. For example, an ounce of gold today is the same as an ounce of gold in 1950. For the same Summer of work, in 1950, the minimum wage worker would have earned 5.53 oz gold compared to only 3.67 oz in 2009. Likewise, the worker would have earned 262 oz of silver in 1950 compared to 240 oz in 2009. I would consider silver and gold to be true money in this case. In true money, wages have dropped some.

What can you buy with that real money? Usable commodities that can be a direct comparison:

For a summer of work in 1950, you would earn 119 bushels of corn. In 2009, you would earn 1042 bushels of corn.

For a summer of work in 1950, you could buy 7385 kwh of electricity. In 2009, you could buy 30,809 kwh of electricty.

During the 1800's the century saw a net deflationary period (value of money fixed to gold). Equivalent items were cheaper in 1900 than they were in 1800. We seem to be seeing the same thing today when we use a fixed monetary value like gold or silver. Items are cheaper on a real basis.

 
At 8/13/2009 12:20 PM, Anonymous Norman said...

You shouldn't have even published this without including taxes.

 
At 8/15/2009 4:26 PM, Blogger Jeff Hall said...

So, in essence, young people today can afford to buy inexpensive camcorders and laptops; but unless taxes, house prices and medical-care costs decline to their historical levels, buying a house and raising a family are just pipe dreams unless you get some sort of government aid.

 
At 8/28/2009 9:42 PM, Anonymous Anonymous said...

Cell phones?! TELEVISIONS?! CARS?!?!

OUTRAGEOUS!!!!

BTW, in the 50's you could go to college with a part time income. You could rent a room. You could eat. Sure, you can buy a bunch of electronic gadgets, but no one who makes minimum wage has enough money at the end of the month to buy a hundredth of what you listed. Keep justifying slavery. I hope it makes you feel good.

 
At 10/11/2009 1:47 PM, Blogger markbaland said...

Luxurious and whimsical purchases of entertainment and convenience items from the Sears catalog may be easier than it was in 1940, but what about the prices of food, housing, fuel, electricity, insurance, college education, and other vital needs? I'm going to go and look up the statistics, but I'd be surprised if those haven't all increased at a far greater rate than the pay of most people.

 
At 7/14/2012 10:43 AM, Blogger cinc210 said...

Well in 1950 white people lived in flop houses similar to whites living in the motels today. Whites were more renters and houses were much smaller. College a lot less whites attended college and granted they were cheaper. More whites were dirt poor in 1950 the rural areas had no indoor plumbing, no air conditioning and so forth. In fact Michael Harrington published a book the other America in early 1960 discussing the rurals conditions of whites in Kentucky, the South these days most poor in the South are blacks not whites but it those days whites were as well.

 

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