December 12, 2013
By James Sherk
You would hardly know it from the news coverage, but America has a historically high minimum wage. At the Heritage Foundation we just put out a report looking at how the minimum wage has changed over time. It currently stands at $7.25 an hour, with many states having higher rates. Since 1950, the minimum wage has averaged $6.62 an hour (in 2013 dollars). It peaked in 1968 at $8.28 an hour.
Liberals do not see it this way. They argue the inflation-adjusted minimum wage was above $10 in the late 1960s, and raising it to that level would simply restore it to its previous value. President Obama now supports Senate Democrats’ proposal to hike the minimum wage to $10.10 an hour.
Where does this disagreement over basic facts come from? The government produces several different measures of inflation. Liberals use the Consumer Price Index (CPI) for their calculations and conclude the minimum wage stood at $10.60 an hour in 1968. However, economists have long recognized that the CPI overstates inflation rates. Among other problems, it inadequately accounts for product-quality improvements and changing consumption patterns. In the short term, these errors are small. Compounded over decades, they make a huge difference.
Consequently the CBO and the Federal Reserve prefer a different measure of inflation, the Personal Consumption Expenditures (PCE) deflator. The PCE better accounts for changing consumption patterns (as does a variant of the CPI, the chained CPI). While the PCE also overstates inflation, it is much more accurate than the CPI. The better measure shows the minimum wage has never hit the levels President Obama proposes:
The last minimum-wage increase occurred just four years ago, and America now has a historically high federal minimum wage. Raising the minimum wage to an unprecedented level in a weak economy with high youth unemployment is questionable at best.
- James Sherk is a senior policy analyst in labor economics at the Heritage Foundation.
Originally appeared in the National Review Online
Senior Policy Analyst in Labor Economics
Read More >>
Request an interview >>
Please complete the following form to request an interview with a Heritage expert.
Please note that all fields must be completed.
Heritage's daily Morning Bell e-mail keeps you updated on the ongoing policy battles in Washington and around the country.
The subscription is free and delivers you the latest conservative policy perspectives on the news each weekday--straight from Heritage experts.
The Morning Bell is your daily wake-up call offering a fresh, conservative analysis of the news.
More than 450,000 Americans rely on Heritage's Morning Bell to stay up to date on the policy battles that affect them.
Rush Limbaugh says "The Heritage Foundation's Morning Bell is just terrific!"
Rep. Peter Roskam (R-IL) says it's "a great way to start the day for any conservative who wants to get America back on track."
Sign up to start your free subscription today!
The Heritage Foundation is the nation’s most broadly supported public policy research institute, with hundreds of thousands of individual, foundation and corporate donors. Heritage, founded in February 1973, has a staff of 275 and an annual expense budget of $82.4 million.
Our mission is to formulate and promote conservative public policies based on the principles of free enterprise, limited government, individual freedom, traditional American values, and a strong national defense. Read More
© 2015, The Heritage Foundation Conservative policy research since 1973