On minimum wage

No one asked for my take, but here it is anyway.

Democrats in Congress are looking to pass a $15/hr federal minimum wage as part of their first big bill when the Biden administration takes office, so naturally Online is full of Discourse about the minimum wage.

No one asked for my contribution, but, in keeping with the finest traditions of the internet, here it is anyway.

First of all, $15/hr is more than twice the current federal minimum wage, which has remained unchanged at $7.25/hr since 2009 — the longest stretch without an increase since the federal minimum hourly wage was first passed in 1938.

The previous record-holder was 9 years, from the 1981-01-01 increase to $3.35, to the 1990-04-01 increase to $3.80. In 2020 dollars, those are the equivalent of $10.03 and $7.68 respectively. (I’m using the Bureau of Labor Statistics’ CPI Inflation Calculator for all relative value figures in this post.) $3.35 in 1990 was worth the equivalent of only $2.26 back in 1981, or $6.77 in 2020; in other words, over that nine year span, someone working full-time — that is, 40 hours a week, with two weeks off a year (that should also be reconsidered, we should consider a 20- or 30-hour week the “full time” standard and organize our society accordingly, but that’s a whole other argument) — at minimum wage went from making the 2020 equivalent of about $20,000 a year to about $13,500 on 1990-03-31. Then the next day, our hypothetical worker got an oh-so-generous raise, of about $1800/yr in 2020 dollars.

The careful reader will have noticed that one thing that happened in between those two minimum wage increases was the entirety of the 1980s, and all of the economic, societal, and moral damage that the Reagan era did to the United States. Indeed, if you look at the 2020 equivalent minimum wage over time, there are two very distinct eras: from $1.00 ($9.72) in 1956 — I’ll use the “nominal (2020 equivalent)” convention from here on, to save typing — to breaking $10 at $2.00 ($10.61) in 1963, a high of $1.60 ($12.19) in 1968, through to the 1981 increase to $3.35 ($10.03); then a sharp drop in the neoliberal ’90s, and hovering in about the $7.50–$8.50 (in 2020 dollars) range ever since.

If our worker starts a full-time minimum wage job on January 1st, 1979, and works 2,000 hours a year without fail for 42 years, bringing them up to today, their pay has declined from $5,800 ($22,120) a year to $14,500 in current dollars. Over approximately the same period, median rent in the US has gone from $308 ($1031) in 1980, to $600 ($1226) in 1990, to $1064 ($1287) in 2009 when the minimum wage was last increased, to $1588 ($1669) in 2018.

YearAnnual PayAnnual RentRent as % of Pay
Annual pay at minimum wage vs. median annual rent, per the sources linked in this post

Obviously it’s been some four decades since it was even remotely possible to live on a single full-time minimum wage job without other ways of generating income or reducing costs. Indeed, even an increase to $15/hr — $30,000 at full time — would only return minimum-wage workers to approximately the 1980 norm of spending “just” two-thirds of their pay on rent.

A quick note here that opponents of raising the minimum wage like to insist that it’s “not meant to be a living wage,” that it’s supposed to be for “starter jobs” for teens who still live with their parents, etc. But this is an absolutely ahistorical claim in the first place — at the time the original Fair Labor Standards Act was passed in 1938, it was understood to establish a wage standard that would support a “minimum standard of living necessary for health, efficiency and general well-being, without substantially curtailing employment” — and wouldn’t be morally acceptable even if it were true, because the plan fact is that millions of people who are not dependent teens supported by their parents do, in fact, work minimum-wage jobs. This is all the time I’ll spend on that garbage argument.

So ultimately my position is that passing the biggest minimum wage increase we can as soon as we can is great, and if that means the increase is only to $15/hr in order to get a bill passed in Biden’s first hundred days, well, that’s fine. It’s a lot better than not passing an increase or taking longer to pass one, and it’ll help a lot of people, but it’s also not enough. (I believe I read, though I don’t currently have a source to link, that the bill would also close the loophole that allows employers to pay disabled people less than minimum wage, which is very good if true; I don’t know whether it would eliminate or even change the tipped minimum wage, which is also something that really needs to be done, because that’s a major vehicle for wage theft.)

The thing is, the government has data on various costs of living around the country. If someone asked me what the minimum wage should be, I’d say: it should be automatically set every January 1st to the higher of 1) whatever it currently is, or 2)

let r1r10 be the median rent in the most recent year for which data is available, in the 10 largest cities in the country
then let r be the mean of r1r10 (r1 + r2 + … + r10) ÷ 10
then let y be r × 12 to give the mean annual rent
then let s be y × 3 to give an annual income high enough to pay that rent and still have a decent standard of living
then let w be s ÷ (40 × 50) for full-time employment, giving an hourly wage over a year of 40-hour weeks with two weeks off.

If we assume the median rent figures above are close enough to current to substitute for r, instead of hunting down the individual components of that mean and calculating it, then we have r = $1669, y = $20,028, s = $60,084, and w = $30.04/hr is our new minimum wage.

So $15/hr is a big improvement, but it’s literally only halfway there, and unless the law is changed to incorporate a formula (maybe like mine, though mine is very off-the-cuff) for automatically adjusting it on a regular basis (maybe every year, maybe every two or five years; I think more than five years without an adjustment is clearly too long), even raising it to the $30/hr it should currently be would only be good enough temporarily.

Author: Scott Madin

I'm interested in all kinds of things.