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Federal Minimum Wage Will Increase Today

This article was written by in Salaries. 16 comments.


Today, and every summer through 2009, the federal minimum wage will increase $0.70 an hour. For those working full time at the federal minim wage, the increase to $5.85 an hour will mean an extra $1,400 over the previous rate. This 14% raise is pretty significant, but it still keeps the minimum wage earner who provides for a family of three in poverty.

If minimum wage increases kept pace with inflation since 1970, the minimum wage today would be $8.77. If it tracked inflation since 1956, the wage would be $7.27.

Interestingly, the minimum wage would be $3.39 if 1938′s rate of $0.25 was adjusted for inflation.

Here in New Jersey, the state minimum wage is already $7.15. The state’s economy hasn’t collapsed yet and business owners seem to be getting by. All salaries in the state seem to be somewhat higher than most of the nation. Real estate prices and property taxes are higher, and insurance rates are higher, but gas prices are lower.

Higher minimum wage can be done. Businesses who claim they will have to let employees go or raise prices will do what they have to do to survive and compete, and most likely find a way to make it work without the threatened layoffs. The staggered increases will help these businesses, particularly when compared to an immediate full increase to $7.25.

But is a minimum wage hike just an empty gesture? If minimum wage earners are mostly suburban teenagers from families nowhere near poverty, then a minimum wage hike doesn’t help those struggling in poverty, who most likely work part time at a job a little bit higher than the minimum wage.

Well, it will help indirectly, because those close-to-minimum-wage jobs, like those Wal-Mart, will be buoyed by the wage hike.

The minimum wage hike is necessary but it’s probably not going be the biggest contributor to the mission of making poverty history.

Here’s some historical minimum wage data as well as an inflation calculator, which helped me come up with the adjusted minimum wage rates above.

Published or updated July 24, 2007. If you enjoyed this article, subscribe to the RSS feed or receive daily emails. Follow @ConsumerismComm on Twitter and visit our Facebook page for more updates.

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Luke Landes is the founder of Consumerism Commentary. He has been blogging and writing for the internet since 1995 and has been building online communities since 1991. Find out more about Luke Landes and follow him on Twitter. View all articles by .

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{ 16 comments… read them below or add one }

avatar David B

I enjoy your blog, and generally think that you give good advice, but your lack of understanding in this area is disturbing.

Throughout this post, you state that the increase in the minimum wage is “necessary” and intended to help those in poverty. The minimum wage will do no such thing. By that logic, why don’t we just raise the minimum wage to 20 dollars / hour? Surely that would be enough to raise a family of four, wouldn’t it? But employers won’t be able to afford that, you might say. So how do you know what employers (and the economy in general) can afford? 15/hr? 10/hr?

The minimum wage should be driven purely by the free market, and in practice it is anyway. If you don’t have the skills to contribute at least 5.86/hr, then you will not get a job making 5.85/hr, because it is not worth it to the employer. The result of the government raising the minimum wage, is that those on the bottom rung of the employment ladder will not be able to get jobs. As you put it, “businesses will do what they have to do to survive and compete.” You couldn’t be more right. When their costs go up, they will either raise prices or find a way to get more work out of fewer people, which translates to lower quality service or higher prices for the consumer. No employer will absorb a 15% increase in payroll out of the goodness of their heart, without compensating elsewhere.

The federal minimum wage should be 0, and purely driven by the marketplace. This has already been happening anyway, even Mcdonalds pays well above the minimum wage nowadays.

To those of you who are sure to disagree with me, what is the perfect number that will eliminate all poverty without eliminating low income jobs?

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avatar Bill

You said: “This 14% raise is pretty significant, but it still keeps the minimum wage earner who provides for a family of three in poverty.”

Let’s be honest… how many people do you know with a family of three that work for miniumum wage? The last time I ate at Subway they had this huge sign: “NOW HIRING – STARTING AT $7.00/HR”. And this is in a state where the state minimum wage is the same as the federal, not like NJ where its already at $7.15. If anyone currently is working for minimum wage, they should go get a new job because everywhere I look I see “now hiring” signs and they’re paying more.

Why is there so much pressure to raise the minimum wage? The unions with their union contracts tied to minimum wage. If the minimum wage goes up, everyone in the union just got a raise!

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avatar Ted

David, Companies would pay people $1 an hour or less if they could. A minimum wage is a necessary evil, idealistic and impractical economic theories aside.

Besides, the government also got a little raise from this, too. Never forget that.

And in other news, CEO pay only increase 9.53% last year. :(

link

Poor guys, I bet having to pay all these underlings a little extra is killing them. It must be hard on only $10 million a year.

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avatar David B

Yes Ted, “if they could.” That’s the benefit of competition in a market economy, they can’t. Employers have to compete with each other to get the best people. Competition determines wages, not some panel of bureaucrats.

If the only thing standing between companies forcing us all into slavery at $1/hour is the minimum wage, then why isn’t Subway paying the minimum 5.15 in Bill’s (Comment #2) neighborhood? If this is how you think, would you embrace my idea of a $20 minimum wage?

In regards to CEO pay, I’d suggest you read this: link

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avatar Ted

You raise interesting questions Dave. Why doesn’t the greatest Sandwich Artist in the world make $20 an hour then? Do you think the wage might go up to $20 without the minimum wage? Maybe. You and I know probably not.

The greed article was an interesting straw man.

Here’s something for you: link

“So when is enough, enough? Now is the time, long overdue in fact, to admit that for the rich, for the mega-rich of this country, that enough is never enough, and it is therefore incumbent upon government to rectify today’s imbalances. “The way our society equalizes incomes” argues ex-American Airlines CEO Bob Crandall, “is through much higher taxes than we have today. There is no other way.” “

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avatar David B

I’m sure that the best sandwich maker in the world makes much more than $20. The best sandwich maker in the world (an abstract concept, but for the sake of discussion…) would be able to do things like open a chain of delis, or work at some swank up-scale restaurant.

As for the people working in an actual Subway, they don’t make 20 because they don’t produce $20/hr. Working at a fast food joint requires a lower skill set that is not in high demand, and is paid accordingly. Since it does not require a lot of skill (relatively speaking) there are many other people who are willing to work there for less money. It is up to the individual to develop marketable skills beyond that if they want to make more money.

The minimum wage is no different than any other element of a command and control economy. What should the price of gold be, Ted? Surely you want poor people to be able to afford some nice jewelry, so let’s just make gold $5 per pound. How about the price of housing? Surely you can see the problems this would cause. You mention a straw man, and yet you don’t even answer any of the questions I posed. So again, what is the magic number for the minimum wage? Would you like to raise it incrementally until unemployment increases by about 5 or 10 percent, or is that the plan already? No one person (or group of 535 people for that matter) has the ability to determine what the minimum wage should be in a dynamic economy that is constantly changing from day to day as people buy, and sell their services. The only way to effectively set a minimum wage is to let the market determine it.

I’ve read Bill Gross before, and we just have a different philosophy about human nature. I don’t want to us to stray too far off topic, but where our main disagreement lies is your (and his) assumption that wealth is a zero sum game, made up of a finite number of pie pieces. If one person gets richer it doesn’t mean that it is at another person’s expense. Ayn Rand said it best, “Ask yourself whether you would be able to discover how to till the soil and grow your food, whether you would be able to invent a wheel, a lever, an induction coil, a generator, an electronic tube – then decide whether men of ability are exploiters who live by the fruit of your labor and rob you of the wealth that you produce”

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avatar PaulD

“Now is the time, long overdue in fact, to admit that for the rich, for the mega-rich of this country, that enough is never enough, and it is therefore incumbent upon government to rectify today’s imbalances.”

I don’t see why the conclusion, “it is therefore incumbent upon government to rectify today’s imbalances” follows from the premise, “enough is never enough” for the megarich. As long as the megarich obtained their money through honest means, why is it the government business to reduce their wealth. Bill Gates obtained his money by providing a product that has provided enormous benefit to the world. I think it is great that he is willing to share his wealth, but if he wanted to hoard it, why would that be a problem for the government to solve.

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avatar Foobarista

If you tax the megarich into the ground, they’ll just relocate their income, or themselves, offshore. When soak-the-rich policies are tried, they always miss the rich, because of their ability to hire skilled lawyers and buy off politicians.

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avatar doinkman

I love your blog Flexo…but this has to be…one of my ‘least’ favorite posts. :)

when will people realize that raising the min. wage is just another tool to manipulate the market. I bet the same people that complain about the “absurdity” of giving somebody $0.75 more an hour completely support giving the rich a tax break to spur economic growth.

Giving poor people a little bit more money is just a more reactive way to pump money into the economy…after all it’s not like they are going to save it.

The more people in the middle-class of a country, the higher wealth of that country. That is not disputed. We should always be looking for ways to fatten up (fiscally, not physically) the size of the middle class and suggesting otherwise just proves how little faith free market conservatives have…ironically…in the free market.

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avatar Luke Landes ♦127,500 (Platinum)

David B: The free market, if left completely unchecked, would have a disastrous effect on society. That’s why there are tons of regulations that capitalism must abide by, including the minimum wage.

Bill: I don’t know any three-person families living on minimum wage, but how could I? I live in a state whose minimum wage is significantly higher than the federal minimum wage. Just because you don’t know anybody who fits the criteria, that doesn’t mean they don’t exist. I don’t know anyone in poverty — but poverty certainly exists.

David B: I like your comment about the “best sandwich maker in the world.”

doinkman: Minimum wage is such a controversial topic, stirring up emotions, and I can only blame that on politicians. The wage increase in theory can spur the economy but it may not be enough to have that much of an effect.

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avatar David B

@flexo: Poverty certainly exists, but it’s true that there aren’t a lot of people on the minimum wage trying to raise families. According to the National Bureau of Labor Statistics, of the 75.6 million hourly workers in the US, 1.9 million are paid at or below the minimum wage. Keep in mind that included in that number are people like wait staff who make substantially more than the minimum wage off of tips. More than half of minimum wage workers are under 25 and about 30 percent are between 16 and 19. Furthermore, according to the CATO Institute, only 1.5% of minimum wage earners are in a situation where there wages are for supporting their living conditions. That equates to about one hundredth of one percent of the US population.

In any case, a couple of you are missing the point. I’m saying that raising the minimum wage will HURT the poorest people who have no skills. Now in reality, it is probably still low enough that it won’t really do any damage, but if the economy hiccups that could change. This is essentially telling employers that they are only allowed to hire people who can contribute at least a certain amount. This would exclude the poorest people who just need a job so they can get a little experience. The minimum wage raises the price of entry into the work force, and the poorest people will be the ones hurt.

I’ve mentioned this point about five times now, but I guess that means it’s valid since nobody seems to be able to debate it. But if your goal is to “give” money to the poor, why not raise the minimum wage higher? How can one argue that a number is too low if they don’t know how much is too high?

Flexo, I’d also be interested to hear an example that would have “disastrous consequences.” I agree that we need laws to protect property rights and keep people from stealing in one form or another so that the market can function, but off the top of my head I can’t think of an example of something that “regulates capitalism.” For the record, you can’t actually “regulate capitalism.” You can regulate companies and people, but I think I know what you mean.

I do agree that you’re right about the politicians. The biggest political contributors in this country are labor unions, and interestingly almost all collective bargaining agreements are indexed to the minimum wage. So this would give a nice little bump to many millions of people who are already doing quite well for themselves, thus hurting American industries even more.

@doinkman: Judging by your handle and the depth of your comment, I’m guessing you’re about 14 years old. At this point, you don’t have a level of understanding that even warrants a response. I’m not just saying that because I disagree with you. Ted and I have disagreements but he and I can enjoy a nice debate. I’d suggest you develop a better understanding of the issue before you post again.

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avatar doinkman

@ David B.
Wow. What did I say to deserve that? Get down off your high horse David, I was just posting my thoughts on an issue, same as you. For the record, I’m hardly a 14-year old kid. I’ll admit I’m far from an expert in the subject but I do have a MS in Environmental Engineering, so I am not exactly an idiot either. If this ‘debate’ were about the metabolic rate of anaerobic digestion I would totally dominate you. :)

I take it you’re a free-market conservative type judging by your reaction and CATO reference. Fair enough, I think they do a lot of good stuff. But care to share that study w/ the rest of us?

I think you can say the minimum wage is too low, when it’s results in a salary well below the poverty level. Just because you can say defining the upper bounds is completely subjective (which it is), that does not provide any reasoning on why you shouldn’t raise the lower level. This type of comparison may be an effective debate technique, but it certainly does not prove any policy points.

Have a nice day, and maybe just chill out a little.

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avatar doinkman

I would like to note that David B. was so intimidated by my superior intellectual abilities and reasoning skills that he has chosen not to respond and defend his flawed logic. Quite frankly, I can’t blame him.

Let this stand as a permanent record in the internet archive.

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avatar David B

Hey doink, relax, I wasn’t trying to be disrespectful. I really did think you were about 14-16 years old, and after your little taunt I still do. You also have the grammar of a teenager. It was supposed to be “its” at the beginning of your third paragraph, but that whole sentence didn’t really make sense anyway.

I’m not sure what makes you think you have “outreasoned” me, but think what you want. Suffice it so say we disagree. For the record, what you said about the minimum wage being too low because it’s well below the poverty level isn’t really true. It isn’t necessarily below the poverty level, let alone “well below” it. For a single person 5.15 is actually slightly above the federal poverty level (just google it), but that’s not really relevant to the arguments I was making. I think I have illustrated by now that the overwhelming majority of people earning the minimum wage are not trying to raise a family. Judging by your statement, however, I gather that you want to pay every teenager (yourself included) in this country enough money to support a family of four. Maybe that’s the reason you want to increase the minimum wage so badly, it’s the only way you can get a raise.

Anyway, I think I’ve said all I want to say about this. Some of us disagree. Let’s leave it at that. Please don’t try to incite me again with some childish taunt.

Although … I think flexo likes this debate, since he did ANOTHER minimum wage post yesterday. ;-)

Cheers

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avatar doinkman

Ha! Saying you weren’t trying to be disrespectful is like saying I wasn’t trying to be a condescending asshole in my last post.

In the future if you disagree with a persons viewpoints or post, there are far more ‘adult’ ways to respond than your original post.

I just hope when I grow up I can be as smart as you.

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avatar Luke Landes ♦127,500 (Platinum)

There’s no need for personal attacks or snide remarks. Let’s stick to the issues. Healthy debate is expected, but further comments that don’t address the issue will be removed. Thanks.

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