How the minimum wage lost relevance

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The federal minimum wage is now just 28% of average hourly earnings. This is half its level in 1968, when the ratio was 54%.

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why it matters: The federal minimum is so low – far below living wage In all states – that it has lost much of its power as an anchoring mechanism at this point in time.

how it works: Employers prefer to pay the minimum wage not only because it is the lowest wage they can get away with, but also because it is a wage the government is clearly stating is acceptable.

  • $7.25 per hour is so low, however, to be inconsistent with dignified hiring. Less than 2% of workers now earn minimum wage or less.
  • There is thus a new consensus that $15 is, as in Joe Brusuelas and Tuan Nguyen of RSM. keep this, “Actual Minimum Wage.”
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By numbers: $15 an hour is realistically higher than the actual minimum wage. But at 58% of average hourly earnings, that’s a perfectly reasonable baseline.

Bottom-line: As David Card showed, higher wages do not necessarily mean less employment.

  • As Brusuelas and Nguyen write, while higher wages cause modest price inflation, “it is hard to argue that bringing working families above poverty levels would hurt the economy.”
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