When adjusted for inflation, the minimum wage in 2020 in the United States is roughly 33% lower than it was in 1970. Although the real minimum wage in 1970 was only 1.60 US dollars, it is now 10.67 US dollars when represented in nominal 2020 dollars.
Inflation-adjusted minimum wage: what should it be?
Consumer prices rose 5.3 percent in August compared to the previous year, causing some anxiety as the economy recovers from the pandemic. Food prices at home increased by 3%, while food prices away from home (i.e. restaurants) increased by 4.7 percent, according to the Bureau of Labor Statistics’ latest release this week. Rents and energy prices both increased by roughly 9%.
One point of worry for employers and employees in the United States is that activists frequently exploit inflation data to support their campaign for a $15 minimum wage, or even a higher salary of $23 per hour, despite the fact that study shows such steep rises will destroy millions of jobs.
Remember, if we kept up with inflation, the minimum wage would be $23/hr right now. $15 is a good middle ground. #RaiseTheWagehttps://t.co/44l6Rqln0F
Despite the fact that inflation has risen dramatically in the last year, the so-called “The Fight for $15” is still not based on a consumer price index. If the 2009 federal minimum wage increase to $7.25 per hour were indexed to climb with inflation, it would equal $9.22 today, according to Bureau of Labor Statistics data up to August 2021.
If the minimum wage were to be adjusted to the level in 1990, it would be $7.17 now. No matter how you slice it, these data don’t even come close to, let alone support, the $23 hourly rate proposed by the union-backed One Fair Wage.
Indeed, the $15 minimum wage goal that several states and municipalities have already enacted has no precedence in history. An organizing director for the Service Employees International Union’s Fight for $15 campaign joked about the absence of genuine analysis informing their main policy goal at one meeting, saying: “We decided that $10 was too low and $20 was too much, so we settled on $15.”
Unfortunately, these draconian minimum wage targets, which lack economic justification, will wreak havoc on firms and employees as they try to recover from the pandemic. According to the impartial Congressional Budget Office, the Raise the Wage Act of 2021, which proposes a $15 minimum wage nationwide, may cost the country up to 2.7 million jobs. According to economists from Miami and Trinity Universities’ industry and state-level analyses, the hospitality and restaurant industries would bear the brunt of these effects. Increases above the $15 minimum wage would have an even bigger negative impact on employer costs, and could result in the loss of many more employment.
What would be the minimum wage adjusted for inflation in Canada in 2021?
“In no Ontario municipality does $15 an hour give a livable wage,” the Star editorial board noted in November, with some firms, employees, and advocates claiming the increase is years late and won’t do anything to offset the province’s ever-increasing expenses of doing business.
According to the site’s definition, the living wage is computed based on the needs of a family of four with two parents working full-time throughout the year.
Cost of living: According to a Policy Alternatives research released the same year, the living wage in Charlottetown, PEI in 2020 was $19.30 per hour.
Cost of living: According to the McGill Tribune, campaigners have been lobbying the province to raise the minimum wage to $18 to help with living expenses. Increasing living costs, according to a coalition of anti-poverty advocates, might force employees deeper into poverty.
According to a research by the CRHA, an association that represents human resources professionals, Quebec will see record wage increases this year. According to the report, employers in Quebec might offer employees compensation rises of 2.9 percent on average in 2022, the greatest gain in a decade.
Minimum wage: $11.81 (as of October 1, 2021), with annual inflationary adjustments on October 1st.
Cost of living: Once New Brunswick raises its minimum pay in April, Saskatchewan will have the lowest minimum salary in the country.
According to a report released in March by the Regina Anti-Poverty Ministry, one out of every four Regina children is currently living in poverty.
Minimum wage: $15.20 (as of April 1, 2021), plus an annual inflation adjustment on April 1st.
Cost of living: According to a 2019 assessment by the Yukon Anti Poverty Coalition, Whitehorse’s living wage was $19.07 per hour, owing to increases in the cost of living, child care, and transportation.
What should be the new minimum wage?
Legislators submitted the “Raise the Wage Act of 2021” in January 2021, with the goal of raising the federal minimum wage from $7.25 per hour to $15 per hour by 2025. It would be the first hike in more than a decade, and the longest since 1938, if passed.
Many state and local governments have already established a $15 minimum wage, while the federal minimum wage has stayed unchanged. (In 2014, for example, Seattle mandated that employers gradually raise their minimum wage until it hits $15 per hour.) Seattle’s minimum wage will be $16.69 per hour in 2021.) Nonetheless, such a huge change at the federal level will undoubtedly be controversial and hotly disputed.
Advantages
Raising the federal minimum wage to $15 per hour would help low-income people improve their overall level of life. These workers would be able to cover their monthly expenses more readily, such as rent, car payments, and other household costs. “Today, a full-time worker cannot afford a basic, two-bedroom apartment in any county in the United States,” said Representative Robert Scott, leader of the House Committee on Education and Labor. Senator Bernie Sanders has also stated that the minimum wage should be $15, as he feels that full-time workers should not be forced to live in poverty.
A second, less visible benefit of hiking the minimum wage has been proposed: improved staff morale. Not only will happier employees make for a more cohesive and effective workforce, but they may also increase customer satisfaction. Furthermore, if employees are happy with their jobs and compensation, they are less likely to leave, which saves the company money on hiring and training.
Proponents say that raising the minimum wage to $15 will assist women and minorities. A $15 minimum wage would improve the pay of 31% of African Americans and 26% of Latinos. Furthermore, a disproportionate number of minority workers live in one of the 21 states with a $7.25-per-hour minimum wage.
Disadvantages
Small firms, according to opponents of raising the minimum wage, would suffer as a result of such a significant increase. An rise in the federal minimum wage will dramatically increase small businesses’ operating costs and tighten profits, just as they are beginning to recover from the international Covid-19 outbreak.
Raising the minimum wage to $15 would also boost daycare expenditures by 21% on average in the United States. In 2019, the average hourly wage for an early childcare worker in the United States was $11.65. As a result, a nationally enforced $15 minimum wage would nearly triple the cost of labor for childcare providers.
Advocates on both sides will continue to cite several reasons in favor of their viewpoints as the federal minimum wage debate continues to elicit passionate opinions. Those who oppose a minimum wage claim that market forces should be in charge. If there is a lot of competition for talented personnel, a business may have little choice but to raise salaries to keep staff. Employers and employees should be aware of both sides of the issue and prepare for a change in the federal minimum wage law that is almost certain to occur.
(This article was greatly aided by Logan Adams, a spring clerk in our Dallas office.)
Will increasing the minimum wage lead to higher inflation?
As inflation reaches historic highs, lawmakers and analysts are debating the causes, which include pandemic-related shocks as well as government-imposed limitations and swings in consumer demand.
One New York Times writer remarked this week on Twitter that recent media headlines about inflation are “all hype.” “Policies like the $15 minimum wage” are blamed by “wealthy people.” Instead of being justified in her concern over fast rising prices for everyday items, she claims the recent coverage is “hysteria,” implying that inflation benefits lower-income people since “inflation helps borrowers, and that’s what the fuss is about…not milk prices.”
Minimum wage increases in the past have been shown to induce price increases, which disproportionately affect lower to middle-income persons who spend a bigger amount of their wages on inflation-affected commodities like groceries.
The snowball effect between minimum wage hikes, such as the $15 per hour now in place in numerous states and localities and proposed at the federal level this year, and price increases is documented in a report by Heritage Foundation fellow James Sherk. A $15 federal minimum wage, for example, represents a 107 percent increase over the current federal minimum pay of $7.25 per hour. Employers must adjust their business models to accommodate for the increased labor expenditure when governments enforce substantial minimum wage increases. In many circumstances, this necessitates firms raising consumer pricing to compensate for the higher cost of providing their goods or services. Sherk claims that this hurts minimum wage workers and lower-income consumers the most, because the costs of the products they buy have climbed as well, lowering their newly boosted salaries’ purchasing power.
According to one analysis of the existing minimum wage research, which mostly contains data on price effects from the United States, a 10% rise in the minimum wage raises prices by up to 0.3 percent.
According to one of the studies evaluated by the American Enterprise Institute, the same price boost might produce price rises of up to 2.7 percent in the southern United States, where living costs and earnings are much lower. Recent study also suggests that increased minimum wages have a greater inflationary impact on employers of minimum wage earners. A research by the Federal Reserve Bank of Chicago and the United States Department of Agriculture indicated that raising the minimum wage more than doubled the price increase effect in fast-food restaurants, and much higher in lower-wage areas.
In addition, a Stanford University economist looked at the impact of price hikes by income level and discovered that while “Minimum wage workers come from a wide range of socioeconomic backgrounds, and raising the minimum wage has the greatest impact on the poorest 20% of households.
Minimum wages encourage firms to raise prices to cover some of the additional pay bill, according to this analysis of previous findings. However, this comes at a price employers must be careful not to raise prices too much, as this will generate price-sensitive client demand. Employers are unable to raise prices if they believe that doing so will reduce demand and result in decreased revenues, which will not be sufficient to fund increases in employee wages. Employers are obliged to adjust costs in other ways if this happens, such as lowering other employee benefits, reducing scheduled hours, or laying off staff entirely.
Sherk claims that the price hike effect of rising minimum wages is combined with large job loss effects, implying that minimum wage people are more likely to lose their jobs or have their hours decreased as their cost of living rises. As a result, he believes that increasing minimum wages is an unproductive approach to provide benefits to low-wage workers due to inflationary and job-killing impacts.
Why hasn’t the minimum wage been raised in line with inflation?
Inflation has not kept pace with the minimum wage. Because the federal minimum wage is not inflation-indexed, its purchasing power (the number of products that can be purchased with one unit of cash) has plummeted since its peak in 1968. In 1968, the minimum salary was $1.60.
How do you figure out inflation adjusted earnings?
For instance, if your current annual income is $50,000 and the 12-month inflation rate is 2%, your adjusted salary would be $51,000 (50,000 1.02 = 51,000), resulting in a $1,000 CPI rise ($51,000 $50,000 = $1,000).
What is the formula for calculating inflation?
Last but not least, simply plug it into the inflation formula and run the numbers. You’ll divide it by the starting date and remove the initial price (A) from the later price (B) (A). The inflation rate % is then calculated by multiplying the figure by 100.
How to Find Inflation Rate Using a Base Year
When you calculate inflation over time, you’re looking for the percentage change from the starting point, which is your base year. To determine the inflation rate, you can choose any year as a base year. The index would likewise be considered 100 if a different year was chosen.
Step 1: Find the CPI of What You Want to Calculate
Choose which commodities or services you wish to examine and the years for which you want to calculate inflation. You can do so by using historical average prices data or gathering CPI data from the Bureau of Labor Statistics.
If you wish to compute using the average price of a good or service, you must first calculate the CPI for each one by selecting a base year and applying the CPI formula:
Let’s imagine you wish to compute the inflation rate of a gallon of milk from January 2020 to January 2021, and your base year is January 2019. If you look up the CPI average data for milk, you’ll notice that the average price for a gallon of milk in January 2020 was $3.253, $3.468 in January 2021, and $2.913 in the base year.
Step 2: Write Down the Information
Once you’ve located the CPI figures, jot them down or make a chart. Make sure you have the CPIs for the starting date, the later date, and the base year for the good or service.
What exactly is wage inflation?
Pay push inflation refers to an increase in the cost of products and services as a result of wage increases. Employers must raise the prices they charge for the goods and services they deliver to sustain corporate profits after pay increases. The overall increase in the cost of products and services has a cyclic effect on pay increases; as the total cost of goods and services rises, greater salaries will be required to compensate for rising consumer goods prices.
Is it necessary to raise the minimum wage?
Raising the federal minimum wage will boost consumer spending, boost company profits, and help the economy expand. A little increase would boost worker productivity while also lowering turnover and absenteeism. It would also help the economy as a whole by increasing consumer demand.
Is it good or bad to raise the minimum wage?
Democrats are sticking to their plan to raise the federal minimum wage to $15 per hour. They want to include it in the next stimulus package, but the Senate parliamentarian says it can’t be done through the budget reconciliation process. So, while it might pass in the House, it’s likely to be dropped from the Senate bill.
Now, lawmakers are proposing a “Plan B”: taxing corporations with $1 billion or more in income if they don’t pay their workers a $15 salary. Senator Josh Hawley, a Republican, proposed the bill (MO).
Some Republicans have expressed support for increasing the federal minimum wage to $15 per hour, but not to that level. Senators Mitt Romney (UT) and Tom Cotton (AR) proposed a four-year plan to raise the minimum wage to $10 per hour, but employers would have to certify that their employees are legally documented. According to a 2019 CBO assessment, raising the federal minimum wage to $10 per hour would have far fewer consequences on employees than raising it to $15 per hour, and would have no effect on the number of people living in poverty.