Declining Value of the Federal Minimum Wage Is a Major Factor Driving Inequality
As is well-documented in The State of Working America, 12th Edition (Mishel et al. 2012), the U.S. economy has worked primarily to the advantage of a small sliver of winners. Meanwhile, the vast majority of workers have not fared well—a trend that stretches back to the 1970s.
Between 1973 and 2011, the median worker’s real hourly compensation (which includes wages and benefits) rose just 10.7 percent. Most of this growth occurred in the late 1990s wage boom, and once the boom subsided by 2002 and 2003, real wages and compensation stagnated for most workers—college graduates and high school graduates alike. This has made the last decade a “lost decade” for wage growth. The last decade has also been characterized by increased wage inequality between workers at the top and those at the middle and bottom, and by the continued divergence between overall productivity and the wages or compensation of the typical worker. This divergence has been demonstrated anew in the current recovery over 2009-2011 as real wages fell for the bottom ninety percent of the wage distribution but rose for the top five percent (Mishel and Finio 2013).
Contrary to some political rhetoric of late, wage stagnation for American workers and rising inequality is not due to lack of effort; the broad middle class has increased its productivity, upgraded its educational attainment, and worked more hours (Mishel 2013). Rather it is due to certain policies that have weakened the bargaining position of low- and middle-wage workers. Among these policies is the refusal to set the minimum wage at a level where it establishes a well-enforced wage floor at 50 percent of the average wage. This paper reviews the history of the minimum wage over the last 50 years and the role of a lowered value of the minimum wage in rising wage inequality.
-Legislated increases in the federal minimum wage in both 2007 and 2008 boosted it from $5.15 in 2006 to $7.25 in 2009, its highest level in real terms since 1981. But even after this nearly 41 percent increase, the minimum wage in 2009 was still 7.8 percent less than its value in 1967 (in 2011 dollars).
-In 2011, the minimum wage was worth only about 37 percent of what an average worker earned per hour, not far above its lowest point, reached in 2006, in 47 years.
-A higher minimum wage would disproportionately affect women: They constitute a majority (54.5 percent) of those who would benefit, greater than their 48.3 percent share of the workforce. Historically, the minimum wage has been more important in setting a floor for women than for men.
-The vast majority (87.9 percent) of those who would be affected by the higher minimum wage are age 20 or older.
-A higher minimum wage would help address growing inequality, particularly as it affects lower-wage women. Between 1979 and 2009 the erosion of the minimum wage explained about two-thirds (65.5 percent) of the large 25.2 (log percentage point) expansion of the wage gap between median-wage workers and workers at the 10th percentile in wages—known as the 50/10 wage gap—among women but just over a tenth (11.3 percent) of the smaller 5.3 expansion of the 50/10 wage gap among men. For workers overall more than half (57.0 percent) of the increase in the 50/10 wage gap from 1979 to 2009 was accounted for by the erosion of the minimum wage.
The following discussion replicates the text, tables, and figures from the minimum wage discussion in Chapter 4 of EPI’s The State of Working America, 12th Edition. The tables can also be found online at stateofworkingamerica.org.