Blog of the Century

Graph: How Inflation Erodes the Minimum Wage (And Why It’s Time to Raise It, Permanently)

Blog Post by: Benjamin Landy, on February 14, 2013

A minimum wage of twenty-five cents was first introduced in the United States in 1933, as part of the New Deal-era National Industrial Recovery Act. Although that legislation was ruled unconstitutional in 1935 (for more information, I direct you to the infamous "sick chicken case"), the minimum wage was soon reinstated under the Fair Labor Standards Act of 1938. Low-wage workers in America have enjoyed a federally-mandated minimum wage ever since.

Except, the minimum wage was never indexed to inflation. Every time prices increased, the minimum wage lost some of its value, depriving the poorest and most vulnerable Americans of much-needed purchasing power. And although Congress has periodically raised the nominal value of the minimum wage, each time has been marked by bitter political arguments over the law's effectiveness, stalling new legislation for months or even years.

The liberal climate of the 1960s allowed the minimum wage to peak in 1968 at around $10.50 in today's dollars, and remained high through 1979, thanks to a series of increases during the Ford and Carter administrations that renewed its value to around $9 from 1976 to 1979. But attitudes in Washington changed during the Reagan years of the 1980s. The minimum wage stuck at $3.35 from 1981 until 1990, during which time it fell in value from $8.64 in today's dollars to just $5.89. And while a few adjustments bumped the minimum wage back into the $6-$7 range for most of the 1990s, its nominal value held fast at $5.15 for a full decade—only increasing incrementally to $7.25 in 2010.

The $9/hour minimum wage proposed by President Obama in his State of the Union address this week would bring its value back in line with late 1970s-era purchasing power—a significant pay raise for America's working poor. His plan would also index the minimum wage to inflation, so that its value would rise each year in tandem with prices.

As the president said, no one who works full-time should have to live in poverty. Raising the minimum wage to $9.00 an hour by 2015 would allow a full-time worker making the minimum wage to earn $18,720 a year—hardly a fortune, but enough to support a family of three, according to federal poverty guidelines. With this wage tied to inflation, we can finally ensure that no hard-working American should fear sliding into poverty.