Implications of Federal Minimum Wage Extend Beyond Earnings

President Franklin D. Roosevelt, the first to attempt to establish a federal minimum wage, addressing the nation over broadcast (Image)

In 1978, when the federal minimum wage was standardized at $2.65 for all covered, non-exempt workers, minimum wage laborer could purchase the equivalent of $10.72 worth of goods in 2019 with their hourly earnings. In 2019, workers earning the current federal minimum wage of $7.25 can afford $3.47 less with each hour of work, which means that, though the numerical value of the minimum wage has risen substantially since 1978, the federal minimum wage’s value has actually decreased.

Even among states that have raised the minimum wage above the federal requirement, only Washington, Washington, D.C., and Massachusetts have minimum wage laws which represent a real wage gain since 1978. 48 U.S. states have, in real dollars, lower minimum wage requirements today than in 1978. In the extreme cases of Wyoming and Montana, where the state minimum wage is $4.00, the lowest earners can afford $6.72 less with each hour’s earnings than they could in 1978.

At the same time, the demographic working in positions with these payouts has shifted substantially since 1978. Less than half of all workers earning the minimum wage in 2016 were single people between the ages of 16 and 24. The idea that minimum wage positions are intended for young people who are not necessarily independent or who have fewer financial responsibilities is no longer reflected in the demographics of minimum wage earners.

Since the standardization of the federal minimum wage, the annual inflation rate in the United States has averaged 3.47%. If the federal minimum wage accurately reflected this inflation rate, the current federal minimum wage would be $10.72. While some states and companies do adjust the minimum wage annually to reflect the cost of living for that year or to reflect inflation rates, this is not standardized and does not ensure that all workers receive the same payment even in the same type of position. Moreover, many workers who make more than the minimum wage are still earning “just above” that amount, which means that they would also benefit from an hourly rate that reflects inflation rates.

Based on the increased cost of living and the average annual inflation rates as well as a comparison with other Western nations, the United States would be expected to have a federal minimum wage rate of about $12.00. While this does represent an increase above that which is required by inflation rates, it matches the current cost of living to maintain the standard of living originally intended with the implementation of a federal minimum wage.

The argument can certainly be made that states or even companies should be held responsible for paying their workers fairly. An argument could also be made for the idea that there should be no minimum wage laws at all. However, regulations (or lack thereof) like these have the potential to severely exacerbate the poverty cycle. Already, the rising gap between the former and current standards of living for minimum wage workers makes the “American Dream” of working hard to arrive at one’s ultimate goals increasingly unattainable. Decisions about the federal minimum wage over the next months and years will impact not only minimum wage earners, but also the national and international perception of American culture.