What today's economy means for workers wages- including minimum wage workers
According to the Department of Labor:
Real average weekly earnings fell by 0.9 percent from May to June...from June 2007 to June 2008...[a]fter deflation by the CPI-W, average weekly earnings decreased by 2.4 percent.Most workers are seeing a drop in real wages, but in that they are just joining the fate of lower-income workers who have long seen their wages dropping in the face of inflation. For those making minimum wage, this month officially marked another increase in the federal minimum wage, up to $6.55 per hour. Yet, adjusted for inflation, that amount is below what the minimum wage was in 1999. And with inflation increasing, even when the minimum wage goes to $.7.25 next year, it will be lower in value adjusted for inflation than when the minimum wage was raised to $5.15 per hour in 1997.
At least states are leading the way in trying to help minimum wage workers keep up with inflation:
The first good news at the state level is that a number of states have increased their minimum wage rates even higher than the federal rate. For example, just this year, some increased rates this month and in coming months include:
- $6.85 per hour in Nevada
- $7.15 in Pennsylvania (for smaller employers to match the rate already for large employers)
- $7.25 per hour in West Virginia
- $7.40 per hour in Michigan
- $7.55 in the District of Columbia
- $7.75 in Illinois
- $7.25 per hour in New Hampshire this September and in Maine this October
Adding in states who have already raised their minimum wage, twenty-six states plus the Distrcit of Columbia, covering more than 60% of the U.S. population, will still have minimum rates above the federal rate this year. And even when the federal rate rises to $7.25 per hour next year, eleven states plus the D.C., covering 26% of the U.S. population, will still have a minimum wage rate higher than the federal level. Five states plus D.C. will have minimum wage rates of $8 per hour or more.
Indexing Minimum Wage to Inflation: But here's something even more important: without any change in federal or state law, an additional six states will likely pass the federal minimum wage rate by 2011 because they have indexed their minimum wage rates to inflation. Washington state, which began indexing its minimum wage rate to inflation back in 2001, will have the highest state minimum wage rate in the country at roughly $8.82 per hour (assuming 3% inflation over the next few years).
Unfortunately, all this means is that the working poor in Washington state and other indexed states will be treading water as prices rise, while the federal and non-indexed state rates will be losing value against inflation. Compared to 1968, when the federal minimum wage was the equivalent of $9.34 per hour accounting for inflation, even the highest state minimum wage rates have lost value against inflation. Measured as a percentage of the average wage, the federal minimum wage peaked in 1952 at 55% of the average wage and has now dropped well below 35% (see this graph courtesy of the Economic Policy Institute).
Note-- some of this content reposted from Progressive States Network.
Very good post Nathan. I think it highlights, in a very easy to understand way, what American workers are up against. Our wages have not been going up and in fact are going down when in comparison to the increase in the cost of living. Part of the problem, and it is a legitmate one imo, some corporations are facing a rise in their cost of doing business and suffer the same way the employees are. Even in the corporate world the profits being made from the rising cost of goods and services in our economy are not being shared equally.
Fwiw, I think here in CT we are about to go up to, or just did, $8.25 per hour.
But states can only do so much. And of course the feds will only increase minimum wage kicking and screaming. In my mind it underscores the importance of trade unions even for low wage workers.
July 16, 2008 5:13 PM | Reply | Permalink
. . . states can only do so much.
I don't know why that should be the case.
I suppose that it could be argued that a state which keeps its minimum wage low would have an unfair advantage in attracting business -- an advantage which only a uniform federal law can eliminate. But it's been demonstrated pretty conclusively (for example, the Washington v. Idaho comparison) that wage differences at this level aren't determinants.
But should Connecticut and New Jersey have the same minimum wage as Alabama and Mississippi?
July 16, 2008 8:58 PM | Reply | Permalink
The attracting/losing business issue is a legitimate one for states. Just one example...CT lost most of the manufacturing jobs which Stanley Works accounted for to southern states. Not all of it was because of wages, there were also tax breaks thrown in to 'sweeten' the deal but wages were a big consideration. I use Stanley Works as an example but it has happened across the manufacturing sector in CT. First the jobs went south and then with free trade many of the jobs that went south ended up going overseas for the exact same reasons. When given a choice corporations will always relocate jobs to areas where they can pay the lowest wages.
You do have a very good point about wages on a state by state basis Ellen. The cost of living in Mississippi and Alabama is lower when compared to Connecticut, New Jersey or any other northeastern state. And in some cases, again comparatively speaking in terms of cost of living, Mississippi and Alabama workers are doing better economically than workers being paid more in the northeast. But here in the northeast we expect/demand good roads, and good schools (at least in suburbia) while still trying to provide a strong social 'safety net'...and we are taxed accordingly, heavily, on everything. I do not mind high taxes if the money is put to good use (which sometimes it is and sometimes it isn't) but it makes everything much more expensive not just for the people but for businesses too.
Imposing high taxes while mandating higher wages has driven people and businesses from the northeastern states. So in order to keep the businesses we have left the taxes imposed on them are being rolled back and ending up more and more on the backs of the people. Fortunately, in Connecticut's case specifically, we have Fairfield County (aka 'The Gold Coast') which provides the state with a lot of tax revenues. But even with that money there is an budgetary shortfall and the cities and towns have to either provide less services or raise taxes themselves...and when given those choices 9 times out of 10 the choice is less services. And it has become progressively worse as the 'starve the beast' crowd now in power in Washington gives more away to the corporations and less aid to the states.
I think states can do some but they run a big risk if they tinker with wages too much or raise taxes on corporations doing business in their respective states.
July 16, 2008 9:42 PM | Reply | Permalink
libertine,
when Republican Tom Ridge was Governor of Pennsylvania with a Republican House and Senate, they teamed up to cut business taxes, and to make up the shortfall, they cut the state's donations to local school districts. Following this, the local school taxes rose. Republican Christie Whitman pulled the same crapola when she was Governor of New Jersey.
On another note, while we had this Republican regime in Harrisburg we kept hearing a Republican White House, House and Senate babbling about the evils of the Estate Tax, even with the exemptions of the first $2 Million. However, the PA Estate tax is much more onerous as there are no dollar exemptions, you pay on the entire estate.
Ridge reduced the tax from 6% to 4.5% for children, from 15% to 12% for siblings, and 15% stayed the same for nieces and nephews and non relations.
Remember, this is on the ENTIRE estate. Onerous on the Federal level, not so onerous on the State level.
July 17, 2008 3:30 PM | Reply | Permalink
libertine,
when Republican Tom Ridge was Governor of Pennsylvania with a Republican House and Senate, they teamed up to cut business taxes, and to make up the shortfall in the budget, they cut the state's donations to local school districts. Following this, the local school taxes rose. Republican Christie Whitman pulled the same crapola when she was Governor of New Jersey.
On another note, while we had this Republican regime in Harrisburg we kept hearing a Republican White House, House and Senate babbling about the evils of the Estate Tax, even with the exemptions of the first $2 Million. However, the PA Estate tax is much more onerous as there are no dollar exemptions, you pay on the entire estate.
Ridge reduced the tax from 6% to 4.5% for children, from 15% to 12% for siblings, and 15% stayed the same for nieces and nephews and non relations.
Remember, this is on the ENTIRE estate. Onerous on the Federal level, not so onerous on the State level.
July 17, 2008 3:31 PM | Reply | Permalink
Isn't this perfectly wonderful social policy? Giving the "have nots" a shot at better jobs is good.
Actually its lower costs in total. Wages are only one part of labor cost. Work rules and productivity are a big part as well.
July 17, 2008 11:08 AM | Reply | Permalink
I've often wondered whether management opposition to "work rules" was based primarily on economics or on psychology ("ego defense" -- it's my company; and nobody's going to tell me how I can run it -- else, I'm a lesser man in my own eyes).
July 17, 2008 4:30 PM | Reply | Permalink