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America's Skimpy Minimum Wage
In 2012, the 63 million Americans who depend on Social Security are getting their first cost-of-living adjustment (COLA) in three years: a 3.6 percent increase in benefits. In other words, one in five Americans are getting a raise. For the average beneficiary, this amounts to an extra $38.95 a month.
The federal minimum wage is staying put in 2012.
That's not much, but it's something.
For workers earning the federal minimum wage, the COLA for 2012 is…zero. Washington raised the minimum wage to $7.25 on July 24, 2009, and there it stands. There's no regular COLA for the federal minimum wage. (Eight states, which set their own minimum wages slightly higher than the federal level, are raising them in 2012.)
COLAs are necessary because inflation constantly changes the dollar's value. A dollar today isn't worth the same as a dollar yesterday. The year-to-year changes are small, but over time they add up. The Bureau of Labor Statistics estimates that it costs $4.58 today to buy what a buck bought in 1974.
Because of inflation, payments for government benefits can't be set once for all. Most federal programs have some kind of built-in mechanism to update dollar amounts for inflation. For Social Security, benefits have been indexed to changes in the Consumer Price Index (CPI) since 1974.
No Adjustment System
While federal benefit programs like Social Security are indexed for inflation, the federal minimum wage isn't. It only gets adjusted whenever Congress and the White House get around to it. As a result, the minimum wage has only increased seven times in the past 30 years.
Back in 1974, when COLAs for Social Security were first indexed for inflation, the federal minimum wage was $2 an hour. If the minimum wage had also been indexed to the CPI, the inflation-adjusted minimum wage today would be $9.16 an hour.
If the federal minimum wage had been updated since 1974 using the Social Security yardstick, it would now stand at $10.74 an hour.
In other words, after adjusting for inflation minimum wage workers today are paid less — about 26 percent less — than they were in 1974.
But that's not the end of the story. The Social Security COLA is an adjustment made for people who are already receiving benefits. People's benefit levels are determined at the point of retirement by the average wages they earned over the course of their working lives.
Because of inflation, it's not fair to lump wages earned in the 1970s with wages earned in the 2000s. The earlier wages have to be adjusted to make them comparable with recent wages. But the Social Security Administration doesn't use the CPI for this purpose. It uses something called the Average Wage Index (AWI).
The AWI is exactly what it sounds like. It's an index of the average wages paid in any given year. Because wages tend to go up faster than inflation, the AWI goes up faster than the CPI.
The Social Security Administration uses the AWI instead of the CPI because the CPI doesn't capture changes in living standards over time. The CPI adjusts for changes in the cost of living, but it doesn't adjust for changes in the quality of life. Simply put, we expect people to live better in 2012 than they did in 1974.
How about $10.74 per Hour? $14.41? $26.96?
If the federal minimum wage had been updated since 1974 using the Social Security AWI, it would now stand at $10.74 an hour. That's quite a bit more than the $9.16 an hour it would be if it had been updated for inflation using the CPI. It's a whole lot more than today's $7.25 an hour federal minimum wage.
A very strong case can be made for a $10.74 minimum wage, which is only 50 cents higher than San Francisco's CPI-adjusted minimum wage.
But that's not the end of the story. The Social Security AWI is based on the changes in people's average annual wages over time. Wages, however, have not kept pace with rising economic prosperity.
Since the 1970s ordinary workers' wages have failed to rise along with the economy as a whole. The massive rise in non-wage income (dividends, interest, and capital gains) has made workers' wages a smaller and smaller slice of the overall pie. America's total personal income per capita — including income from all sources — has risen much faster than the Social Security AWI.
Between 1974 and 2011 the AWI rose a cumulative 17 percent (adjusted for inflation). Per capita personal income, on the other hand, rose 57 percent (adjusted for inflation). Had the minimum wage been indexed to per capita personal income growth starting in 1974, the minimum wage today would be $14.41 an hour.
That's a far cry from $7.25.
By today's standards $14.41 an hour might sound like a lot for a minimum wage, but it doesn't have to stop there. At the top 1 percent of the American income distribution, average incomes rose 194 percent between 1974 and 2011. Had U.S. minimum wages risen at the same pace as U.S. maximum wages, the minimum wage would now be $26.96 an hour.
The difference between $7.25 an hour and $26.96 an hour shows just how much inequality has increased in America over the past four decades.
An Inequality Indicator
Inequality has risen across the developed world in recent years, but nowhere as much as in the United States. Incomes are higher for the top 1 percent in America than anywhere else in the world. And the rest of the world's developed countries in turn have much higher minimum wages.
In Canada, the minimum wage is between 9 and 11 Canadian dollars, depending on the province or territory. That's between $8.59 and $10.50 in U.S. dollars. These figures and the figures below are based on average exchange rates for the three year period 2009-2011.
In the United Kingdom, the minimum wage is £6.08, or about $9.56. In France, it's €9.19, or about $12.44. In Australia, the statutory minimum is A$15.51, or about $14.20, but very few workers earn so little. The standard wage for fast food and other service jobs is A$17.03, or about $15.59.
In all these countries, minimum-wage work also includes benefits like paid sick days and government-sponsored universal health insurance.
So how high should the U.S. minimum wage be? It's currently $7.25. Adjusted for inflation using the CPI it would be $9.16. Adjusted for wage growth using the AWI it would be $10.74, similar to the minimum wages found in other countries.
On the other hand, if the minimum wage had grown along with personal income overall, it would now be $14.41. That would put us on the high end of international comparisons. Once upon a time, America was always on the high end of international comparisons. Maybe someday we'll get there again.
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Show Allhttp://www.heritage.org/multimedia/audio/2011/05/istook777-minimum-wage-costs
"It's time for common sense; I'm Ernest Istook.
A new book, by black author Walter Williams, claims government hurts those it pretends to help.
Minimum-wage laws are one example. The 40 percent increase in the minimum wage coincided with the collapse of the American economy between 2006 and 2009.
When labor costs go up, employers hire fewer people. The first to lose opportunities are minority teenagers with the poorest job skills. Those needing work experience are pushed out of the market before they can learn.
Williams says it's a redistribution of wealth, this time from low-skilled people to higher-skilled people, and especially protects labor unions against competition from those who are willing to work for less—a savings that would be passed along to consumers.
Minimum wage laws are touted as protection for the poor, but sometimes they cost those poor the opportunities they so badly need.
For common sense, from The Heritage Foundation, I'm Ernest Istook."
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Mr. Babones is obviously a job killer as apposed to a job creator. As the Heritage foundation points out the minimum wage is already too high. The transfer of wealth to the poor that it allows is killing this country. We actually need to stop paying workers altogether so we can allow the American economy to break free from the tyranny of the transfer of wealth to the poor. Instead we need all of the nations wealth to be transferred to the top 1% so it can trickle down to average people, by not paying those people a wage at all. As the heritage foundation points out, we need to stop paying workers all together so we can protect minority teenagers, this is just common sense people.
Next of course we should raise taxes on the 99% so they have some skin in the game, so to speak. Taxes should be ended all together on the 1%, again so more will trickle down from the job creators to average americans by not paying them, just more common sense.
We need more free trade laws to create more american jobs. I understand that the tea party is proposing free trade legislation that will make it illegal for large corporations to hire american workers for any new jobs. Only foreign workers can be hired. It is expected that this will be the stimulus that will bring the country out of the current great depression by creating millions of new american jobs by not allowing companies to hire americans.
This is all common sense people. It has been thoroughly thought out by the great minds at think tanks like the heritage foundation. If it doesn't make sense to you, it is just because it is above your pay scale, which if you are not getting paid at all makes sense.
So people who are you going to believe, the heritage foundation and me, or your lying eyes?
sound thinking reasonably applied, well done
Exactly. And if wages were eliminated entirely, and replaced by slave labor, there would be full employment, because employers hire not because of the need for laborers, but because of their cost. The less they are given, the more are employed. All hail the wisdom of the Heritage Foundation!
As one who has lived and breathed the abysmal wage stagnation and inhumane minimum wage levels foisted on us by our wealthy keepers, I appreciate whenever any journalist tries to bring attention to US minimum wage figures.
However, your statement, "Because of inflation, it's not fair to lump wages earned in the 1970s with wages earned in the 2000s. The earlier wages have to be adjusted to make them comparable with recent wages," is a bit confusing.
I know little about economics, but there is something bothersome in that statement...according to my purely experiential knowledge of wage inequality and its unpleasant economic effects. If one adjusted the earlier wage to be comparable to the recent wage, and the recent wage is actually lower than the earlier wage, wouldn't the adjustment of the earlier wage make it seem like you earned even less in the past than you actually did?
For example, if I earned $10 per hour in 1979...and only $9.27 per hour in 2010...shouldn't the later wage of $9.27 be adjusted upward to make IT comparable (according to inflation) to the earlier wage? Wouldn't it be reasonable if properly adjusted averages were used to determine one's Social Security benefits? Maybe I'm misunderstanding something that is very simple. Maybe not. Anyone out there with a clearer explanation of this?
In any case, I and millions like me who are reasonably intelligent folks with no particular aspirations to climb the corporate ladder or be ruled by money have been wage oppressed for a long long time and will likely continue that role as social security recipients. And being a late baby boomer, I've had to listen for years to all the manufactured horror stories about how the wave of 'baby boomer' retirees will bankrupt/deplete the woefully inadequate SS funds...as I have also had to listen to how much is spent on war and presidential elections (and other abhorrent political behaviors often justified as somehow blessed or directed by God).
What utter bull$hit.
If the powers that be have their way, minimum wages will be as low as the boss wants them to be and SS will be completely privatized by the time all baby boomers have reached retirement age......the red tape to qualify along with the fees likely to be imposed to file and have the account managed will be so convoluted, confusing, and costly that many will simply not be able to retire...not that it is an easy or painless process now.
I don't recall there ever being much more than light conversation, a lot of lip service, and only minor concessions and adjustments made concerning minimum wage and Social Security retirement age/benefits during my lifetime. But, I guess it's good that we still occasionally talk about it.
1. Despite high unemployment, entry level jobs for the unskilled (retails clerks, etc.) in my area typically start above the minimum wage. This may be because minimum wage isn't worth the cost and effort so it doesn't attract, motivate or retain enough workers, even for the least desirable jobs.
2. A friend told me that he stopped and interviewed a young panhandler displaying a "will work for food" sign. He said the guy was healthy, clean and articulate so he offered him a job at $10/hour, nearly double the minimum wage at that time. He was shocked when the guy quickly refused, stating he did better on the street. My friend said that experience showed him what was "wrong with america"; that the workforce had become shiftless, etc. I thought about it for a moment and replied that actually the street guy was a savvy american entrepreneur who had figured out that panhandling paid more than double the minimum wage and was optimizing his labor investment, (just like they teach in B school). Then there are the benefits of fresh air, no time clock, no paperwork, no withholding taxes and no bosses. And he's not a union member, so he should qualify as a model republican citizen.
Plenty of jobs are at minimum wage where I live. And where jobs pay a dollar or two above it, they do so only becasue the minimum wage serves as a benchmark datum for wages to the extent that a lone powerless worker (with little market price information becasue of the USAn wage-secrecy "ethic") can bargain wages with a boss. So, when minimum wage was a dollar lower, the other wages were a dollar lower also.
In the days when more workplaces were unionized, the prevailing union wage would serve a similar purpose - but in the pulling, rather than pushing direction. It would cause comparable non-union work to pay much better too. And, to the extent that non-union manufacturing and non-union coal mining that prevails nowadays may still pay a relatively high wage, it is only due to the residual effect of former union domination. This is changing, however. I have strong suspicions that in mining, every new miner is offered a bit less pay than the new miner hired a few days earlier. As long as it pays better than Wal Mart, they will come. And this strong, uniquely USAn "ethic" (and often stern workplace rule) of a worker not divulging their pay to any co-workers keeps this system going. So much for "free markets" when it comes to labor.
Your friends anecdote doesn't sound very credible to me. Reagans flippant remarks (what is it about right-wingers and flippancy?) comes to mind. But, your panhaldling remark is similar to how I've always thought of drug dealers in blighted and economically abandoned urban areas. Absent any other opportunties, and facing racial discrimination when there are they _are_ the ambitious and hard-working people in the neighborhood.
A "job" for that healthy, young, attractive, jobless guy on the street will run you at least $50 an hour.
Labor burden isn't actually that high, but you make an excellent point. As a prior small business owner, I was surprised at how expensive it was to hire employees. And sadly, many employees don't care that much about the business they're supposed to be helping, only the paycheck, which admittedly wasn't that special.
One of the best ways we could promote the broad economy is not just to raise the minimum wage, but to help small businesses afford it. There is a gap between zero and about a dozen or so employees that is extremely difficult for many small businesses to bridge. By helping those small businesses make the transition to fuller employment, we would dramatically improve the small business success rate (which is very poor) and provide more sustainable job opportunities for the 70-80% of American businesses, which are known as mom-and-pops, not fortune 100s.
The US has the lowest minimum wage in the industrial world - yet it could get a lot worse. There is legislation being wirtten up by some Republican members of congress (including Ron Paul) to abolish the federal minimum wage altogether.
Of course, they say the states and local governments can still have their own minimum wage, but this is an utterly bogus argument, becasue in practice, large businesses will play the states and cities against each other in race to the bottom.
Yep, all the bullshit about "states' rights" is code for, "Let's roll back progress!"
And according to the US bssiness right, any country with the minimum wages of Australia or Germany should be a complete economic basket case - yet they have the healthiest economies in the world. This kind of discredits their "theories" doesn't it? This is not suprising, becasue the economic "theories" of the wealthy business class have always actually been thinly velied blackmail.
Most excellent point about the relative economic health of countries with higher minimum wages.
What is so often lost is that virtually all the money that goes to minimum-wage earners actually gets spent into the general economy. The rich should welcome higher minimum wages precisely because it does keep the wheels of the economy turning.
I gave a mcdonalds hamburger meal to a panhandler who had a sign that said "will work for food" .. he promptly threw away the hamburger as I drove away.
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I don't give anything to panhandlers anymore.
hey martha glad to see you are no longer poisoning folks with that crap from macland
last thing an unemployed worker needs is a clogged colon
but you have spoken volumes about your christian ethic and deep commitment to your fellow man
not even a big mac - just a lousy oil burger
you could have thrown in some of the gmo fries and corn syrop coke but let's not go over the top with this whole helping mankind thing...
glad to see you are done with bonaparte
lmaowrofl
Med: Your wry humor and visuals are growing on me. Good one. I laughed out loud... and laughter is a very useful, cost-effective therapy these days!
I haven't experienced that with panhandlers I've encountered. I encounter panhandlers frequently in a sidewalk setting, not from the window of a car, so I talk to them and establish trust. If I was panhandling, I would not trust food tossed to me out of a window of a car either. Put yourself in their shoes.
And, why do so many homeless panhandlers line up at food-not-bombs events, or more recently, at our occupy camp kitchen?
Put yourself in their shoes. With rare exceptions, someone does not do something as humilating as panhandling unless they are forced to. My apporach is this: The error of giving aid to someone who may not sincerely need the pittance I give them is not nearly as severe an error as withholding aid to someone who genuinely needs it.
It would be nice if there was such an honor amongst panhandlers, but it just is not true that "they" (some) would not do it unless forced by their dire situation. I once owned a small store nearby a homeless haven along a well-known river. I know first hand from them about panhandlers. I was asked to speak to a local homeowner's association about the local problem. Local politicians also spoke with me.
Here's what you need to know. There are many folks not homeless but living marginally. They get food stamps and other subsidies perhaps. Many of them have worked, or are working, and many own autos and even homes (they usually share with relatives). So what happens? Panhandling is "free" money, with no taxes and no need to report to social services, etc.
We used to have some of these professional panhandlers come into our store, where they sometimes boasted of "making" a hundred dollars in just a few hours. Some of them worked in teams, knowing which spots to panhandle and how to make their presentation. They usually bought cigarettes, beer and lottery tickets along with their sandwiches, candy bars and chips.
The actual down-and-out homeless had precarious relations with these professional panhandlers. On one hand, they competed with those actually in dire need. On the other hand, they saw them as comrades, with whom they shared similar problems.
As for some of those actually in dire need - we use to pay them for various duties around the store. We even gave a few regular jobs over the years we were there. As a rule, they were decent people but not not very industrious. Many refused to clean up, work very hard, or do anything more than the simplest tasks. This while also being quick to tell you how capable and motivated they were.
Much of this is not fair to the great many who are sincerely in need, and especially to the few who do truly appreciate the opportunity and will work hard to improve their station. But by the same token, it is not realistic to believe that the subculture is 1) affected by the stigma of panhandling and 2) necessarily compelled to be honest or honorable in their intentions.
Well, to be honest, this was even in the days before Bush II, this was during the Clinton years.
Why structure your thinking around an event that happened 15 years ago? How do you know it represented the true feelings of the poor towards donated food? And, as somebody mentioned elsewhere, don't you think YOU would have questions about a bag of food somebody handed you? Especially after hearing tales of homeless people getting the sh#* kicked out of them by passers by?
I've seen plenty of panhandlers who are dressed rather nicely - better than me, in fact, so how is one supposed to tell if one is "humiliated" or just out to make some free cash or some drug money? I've seen folks with signs saying "I don't need food, I just want a beer."
I'm not handing over my hard-earned money to a guy with a crack problem, any more than I would donate to billionaire politicians.
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AFA the hamburger guy -- I didn't toss the mcd's bag at him, I HANDED it to him at a red light, he took it and said "Bless You" and then tossed it over his shoulder as I drove away. It's not like I had made a homemade sandwich and put it in a baggie, it was actually MY lunch that I had felt compelled for some reason to give.
pjd412 says: Put yourself in their shoes. With rare exceptions, someone does not do something as humilating as panhandling unless they are forced to.
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I am one broken shoelace away from being in their shoes. I work 3 jobs (none with health insurance), my hubby works 10 hours a day 6 days a week (he actually has HI, but can't afford the "family plan" - that would just about halve his income). Despite all that, we are still living hand to mouth, month to month, deciding whether to pay a bill or buy food.
THAT is EXACTLY why, when I actually do have enough to donate things, I donate actual clothes or blankets or shoes, or even food, rather than just $$.
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It's WAAAAAAYYY to easy for donated monies to disappear, not used for the intended purpose, as anybody who reads CD can figure out.
Maybe you should be the one asking for help from the street people.
Make no mistake, the difference between the $ 10.74 of the SS AWI and
$ 7.25 is THEFT from those least able to affort it by (mostly) the One Percenters. We're talking surplus value here - Robin Hood in reverse. The money that the working poor does not get goes directly into the pockets of the uber rich - the only group whose income is increasing.
The reality is that wages are NOT stagnant - they are falling, and falling rapidly. Why? Because the bourgeoisie can get away with it. So they do.
Great blog by NC-Tom. I love the logic of die hard Republicans, except for the fact that it resonates with so many people.
I also thoroughly enjoyed all the comments by pjd412. It is obvious that you have given these problems some serious thought over the years and your comments are well reasoned and enlightened.
Now that South Korea, who incidentally was the poorest country in the world in 1953, has a minimum wage that is about to exceed that of the U.S., it is sad to see how disconnected the 99% are from participating in restoring representative government. Yet that same 99%, sometimes from necessity, shop vigorously at Walmart which is one of the chief sponsors of lobby groups who press for reducing or eliminating the minimum wage. In more developed countries like Canada, Germany and France, the general populace is disturbed at how low their own minimum wages are despite being much higher than the wages here. My point is that every country's 99% struggles to narrow the income gap, but the 99% in the U.S. has one of the poorest track records. A simple move like raising the minimum wage to $18 an hour here, would do more to rescue Americans out of poverty than any other piece of legislation. This should be one of the central themes to any independent running for office in the U.S. (as well as universal healthcare, full employment and taxing the wealthy) as it will never be incorporated into the Democratic or Republican lexicon.
Inflation is not natural. Inflation is artificially calculated and controlled, by private entities, known as the "federal reserve". It creates artificial inflation for a very important reason: To keep the people in fear and subservience to the "federal reserve", i.e. the "Wizard of Oz". The control mechanism is the rate of creation of funny munny, created out of thin air, by those with enough "chutzpah" to do so. Anyone can do it of course. When that rate is not adjusted to temper the various other transients (crashes/smashes) produced by casino royal speculation frenzies, inflation/deflation can get out of control.
What resonates with the people is zero inflation. The people cannot fathom why there is non-zero inflation, until they realize that the whole economy is a casino royal gambling/speculation frenzy, of various intensities that depend on how greed-stricken the elites are at the moment, and how close the people are to responding with the sledgehammer of mass revolt. What's new today is that the people's awareness of elite rackets, and how to purge them, is growing exponentially. Soon the revolution will commence, and the "federal reserve" and its rackets will be dismantled first. The people will soon thereafter finish building the "people's economy", zero-inflation, zero-growth, zero-speculation, fully stable, fully secure, natural, normal.
Actually, a certain amount of inflation is beneficial to the wage-earning class, becasue it reduces the real interest rate (nominal rate minus inflation rate). In other words, workers are able to pay off motgages or other longer term loans with cheaper dollars. When my dad bought the family house in 1962, the $260 30-year mortgage payment was tough to pay on a $12,000 salary and 10 mouths to feed. But by the time the house was paid off in 1992, with him now earning a largely inflation-driven salary of $60,000 per year, that mortgage payment was nothing.
Of course, all this only works becasue in an inflationary economy, workers bargaining power and wages go up exactly the same as all other prices.
The policies of the Fed have always been always anti-inflationary until the past couple years when the economy tankd to the point that deflation (a much worse thing) threatened. Indeed, the most damaging policies of the Fed were in the 1990's when Greenspan pursued excessive anti-inflationary policies (through very high interest rates) specifically to lower wages and increase unemployment, which he called "too high".
But now, we live in very anomalous times, where the worker has been so cowed by unemployment that even if inflation were to resume, wages would be stagnant.
rtdrury---Your post is the most humorous and makes the most sense....in my opinion
American, Canadian and European currencies have been devalued underneath people's feet so much that now the lower to middle middle class are sliding into the pit with all of the working poor and destitute who have been quite painfully aware of what is going on for the last twenty years. But no one ould listen to us. The rich also know that now it will cost them $150,000 for that automobile instead of $10,000, so they need to get the extra cash by squeezing it out of workers, keep that minumum wage down and don't hire anymore full time workers, only permanent part time or temps, no benefits. But the bottom line is that the dollar, US and CAD, the Euro and the Pound will not buy bugger all anymore.
With minimum wage so low and job security non existent, many people are forced to stay on welfare to have medical health care. People don't talk about it and the people that do it won't tell others they do it but lots of people do. If you have a child who is seriously ill and you are eligible for welfare, the last thing you want to do is make fifty dollars more then would allow eligibility.
It's a weird control mechanism but it works quite well to give the big box stores people for a slave wage. It essence, welfare and health care rationing serves the rich . We need to put a stop to this , demand single payer, and living wages so people can have lives, not be held in bondage for Walmart..
http://www.youtube.com/watch?v=OP8dxUqzrwU
Add up what it costs for a minimal living and that should be the minimum wage. What does it cost to eat, have a place to live, utilities, transportation, etc? That is what the mimimum wage should be. The Labor Department knows what it takes in each of hundreds of areas because it is absurd to compare New York City to a Tiltonsville, Ohio (for instance). States need to adopt laws that set minimun wages by area of their state and that wage should be what it actually costs to live minimally but decently. In fact, states need to enact labor standards that would put the unions out of business. They are as corrupt and undemocratic as any third world dictatorship.
In Australia you can buy 3.32 Big Macs with an hour of minimum wage payment. (Hopefully the Aussies will spend it on something else.)
In the U.S. you can buy 1.78 Big Macs with an hour of minimum wage payment.
Can there we no greater shame on the world's "greatest democracy"?
(Australia's unemployment rate is currently reported by the Australian Bureau of Statistics as 5.3% and the A$15.51 minimum wage at today's conversion rate - $US15.90)