There has been much discussion on the lack of a decent minimum wage for decades. According to most economists, the last time that minimum wage was a ‘livable wage’ was in 1968 when it was $1.60/hr. The last time there was an increase in minimum wage was July 24, 2009 when it was raised to $7.25/hr. That is almost 12 years ago.
Currently, there is a call by many, primarily Democrats but some Republicans, to raise the minimum wage to $15/hr.
Let us see where minimum wage truly needs to be in order to provide a livable wage.
Indexed for Inflation
If we take the July 1968 $1.60/hr. minimum wage and index for inflation to December 2020, it would be $11.94/hr. [U.S. Bureau of Labor Statistics – https://www.bls.gov/data/inflation_calculator.htm]
Indexed inflation of $11.94/hour is one measure and is below the $15/hr. proposed wage.
• The poverty guideline for a family of 4 is $26,200 for 2020. [48 Contiguous States and the District of Columbia – U.S. Department of Health & Human Services [HHS] – https://aspe.hhs.gov/2020-poverty-guidelines.
• The U.S. average family household is 3.22 people, so I will use 4 to ensure above poverty level. (U.S. Census – https://www.census.gov/data/tables/2020/demo/families/cps-2020.html)
• The average weekly paid hours is 34.7 hours. (U.S. Bureau of Labor Statistics – https://www.bls.gov/news.release/empsit.t18.htm)
• Average # of weeks paid – In 2015 (the last year for which this data is available), the average employee put in 38.7 hours a week and worked 46.8 weeks that year, according to a Pew analysis of Labor Department data. All told, this means that the average employed U.S. adult works 1,811.16 hours per year. (Fool.com – https://www.fool.com/careers/2017/12/17/heres-how-many-hours-the-average-american-works-pe.aspx)
If we take the $26,200 poverty guideline and divide by 46.8 week, that is $559.83/wk. If we divide $559.83 by 34.7 average hours worked, that is $16.13/hr.
Poverty Based of $16.13/hour is another measure and is above the $15/hr. proposed wage.
However, raising minimum wage from $7.25/hour to $11.94/hour or $16.13/hour at one time would be devastating to our economy. Small to medium size businesses can’t absorb that much of an increase at one time.
My proposal is to increase minimum wage by $2.25/hour for 5 years and then index for inflation each year thereafter. This will allow a phase period in which it would make it easier for small to medium size businesses to adjust. That would put the minimum wage in 2026 at $18.50 per hour. Indexing is a necessity to ensure that Congress doesn’t have to address this issue every few years
How will $18.50/hour benefit ‘both’ our country and each person being paid in 2026.
If we take the $15/hour minimum wage as suggested in 2021 and index at 2.5% for 5 years, in 2026 that would be a minimum wage of $16.97, so say $17.00 / hour.
Using the Indexed Inflation method on the 1968 $1.60/hour indexed to $11.94/hour, then moving forward to 2026 (2.5% per year for 5 years), the calculated minimum wage would be $13.50/hour.
2026 Indexed inflation of $13.50/hour is one measure and is below the $18.50/hr. proposed wage.
Using the Poverty Based method on the 2020 $26,200 guideline and increasing by 2.5% per year for 5 years, the calculated Poverty Base would be $29,600 (rounded down from $29,642.90 to nearest hundred). Using the same working hours and weeks, that would be $18.22/hour – (($29,600 / 46.8 weeks) / 34.7 hours).
Poverty Based of $18.22/hour is another measure and is below the $18.50/hr. proposed wage.
Moving to $18.50/hour base in 2026 is a smart move as it would be $30,043 that is above the ‘projected’ poverty levels which means it is a livable income for a family of four.
In addition, it will benefit the U.S. Federal Government as it will dramatically reduce the number of people qualifying for various government programs such as EITC, housing assistance, Medicaid, SNAP, SSI, and TANF. This will help reduce the federal deficits and debt (SNAP qualification determinations are made at the state levels).
In 2019, 64.2% of families with children had both parents working. Using the calculations in this report, the 2026 minimum wage of $30,043/year, a married couple would move the family to $60,086/year thus putting that family into middle class. At that point, they would not qualify for SNAP benefits nor any other government benefit programs.
It is long overdue that the lack of an adequate minimum wage be addressed by Congress. Putting it on a livable base and indexing for inflation thereafter will ensure that anyone working can live without relying on government assistance.