Minimum wage in U.S. has fallen in real terms

August 1, 2001

Free Market Foundation

Over the past 20 years, the concept of a minimum wage has become less popular in the U.S. Established during the New Deal, the minimum wage was once viewed by both the Republican and Democratic parties as an instrument of economic justice. Now it is seen by much of official Washington as an impediment to market operations.

The growing disdain for the minimum wage which now stands at $5.15 an hour is demonstrated by how policy-makers have treated it.

Between 1950 and 1982, the minimum wage was allowed to fall below 45 percent of the average hourly wage in the U.S. in only four separate years.

But since 1982, the minimum has never reached 45 percent and it currently stands at 36 percent of that benchmark.

Even using a conservative measure of inflation, the minimum throughout the 1960s and 1970s was consistently worth more than $5.50 an hour and frequently more than $6 in today’s terms.

After 1980, its value plummeted sinking to less than $4.50 as President Reagan left office.

In 1980, more than 9 percent of hourly employees earned the equivalent of exactly $5.15 an hour. Today, only about 1 percent does.

More than 11 million workers or about 15 percent of the hourly labour force earn from $5.15 to $6.64. Eighty percent of those earners are white and 51 percent of them are less than 25 years of age.

Source: Rick Wartzman, How Minimum Wage Lost Its Status as a Tool of Social Progress, Wall Street Journal, July 19, 2001.

For text (WSJ subscribers)
http://interactive.wsj.com/articles/SB995487254182218412.htm
For more on Income Effects http://www.ncpa.org/hotlines/min/income.html

RSA Note/
American policy makers have recognised that minimum wages are economically and socially destructive in that they make less fortunate people unemployable. They deprive them of their contractual rights by making it illegal for them to agree to work for wages that are lower than the minimum wage. A mechanism that is supposed to work in their favour becomes a serious stumbling block to their ability to earn an income, and most often, also prevents them from acquiring skills.

Eustace Davie, Director, FMF.

FMF\24 July 2001