How to Stop Talking about the Minimum Wage

The current federal minimum wage is $7.25 and working at $7.25/hour at a full time job gets you a yearly salary of $15,080. The poverty line for a two person household is $15,930. So it’s possible to have a full time job and still live in poverty, especially if you are a single parent or need to support any kind of dependent. If you believe that a full time working adult should be able to support his or her family, then it’s pretty obvious that we need to increase the minimum wage.

But that’s not what I want to talk about, because there’s a deeper problem around why the minimum wage doesn’t raise you above the poverty line, and it has to do with how we increase the minimum wage. In the past 20 years, we’ve increased the federal minimum wage 5 times. The last time the minimum wage was increased was in 2009. The problem is $7.25 in 2009 is a different amount of money than $7.25 in 2015. Because of inflation, the cost of living increases constantly.

Instead of saying it has remained steady, it is more accurate to say that minimum wage has been dropping for the past 6 years.

The poverty threshold for a two person house in 2009 was $14,570, which is under the $15,080 salary someone in 2009 would have made working full time at minimum wage. Wages have dropped by just shy of 10% in the past 6 years when accounting for inflation. Minimum wage discussions aren’t something we can just push off for later, or wait until it’s politically feasible, because the longer we wait, the more that workers wages drop.

Notice how minimum wage drops when there are long periods where there’s no legislation around it. https://commons.wikimedia.org/wiki/File:History_of_US_federal_minimum_wage_increases.svg

But even if we were to raise the minimum wage, such that people making minimum wage can once again support their family it’s just pushing the problem down another 5–10 years. Because $10 or $15 today is not going to be the same as $10 or $15 in 2025. It just seems like bad policy when we only fix issues when they get dire with a band-aid solution that we know will be a problem 10 years down the road. If we continue down this path, we will have to keep revisiting this issue, keep bringing up the same debates and waste a ton of time, energy and capital.

There’s a Better Way

Minimum wage isn’t the only place where this is an issue. If social security checks remained constant, they too would have lower buying power over time and run into the same issue. But social security doesn’t have this problem. This is because every year, a cost of living adjustment or COLA is computed based on inflation and social security benefits reflect this adjustment. That way, over time, benefits don’t decrease because of congressional inaction.

In the context of a minimum wage, this isn’t a particularly new idea. 16 states already have laws that introduce some form of an indexed minimum wage, which automatically adjusts minimum wage on a yearly basis which means while the wages of minimum wage workers fall for the rest of country, they hold steady for people in those states.

http://www.epi.org/publication/webfeatures_snapshots_20051221/

The idea of an indexed minimum wage has gotten support from Barack Obama, Hillary Clinton, Mitt Romney, Ben Carson, and many others. It’s been introduced in proposed amendments to the Fair Minimum Wage Act. When proposed, it’s usually tied to an immediate increase to restore workers wages back to previous numbers and then locking it at that amount (via indexing). Unsurprisingly these bills don’t make it through congress and so we’re stuck with minimum wage workers making less and less each year until congress acts. The silver lining in all this is that a lot of states are picking up the slack and many states have higher minimum wages and are indexed to make sure those wages don’t provide less buying power over time. I really do hope that this gets fixed on a national level and/or more states get on board.