The Minimum Wage Fairness Act, S. 1713.
Heritage Foundation calculations using historical minimum wage data from the Department of Labor and inflation adjusted using the PCE deflator.
The minimum wage rose from $1.40 per hour to $1.60 per hour in February 1968. It averaged $1.58 per hour across that whole year. Inflation-adjusted with the PCE deflator, this equates to $8.28 per hour in 2013 dollars. Note that the Bureau of Economic Analysis published revisions to the historical PCE deflator in mid-2013 as part of the updates to the National Income and Products Accounts. Consequently, inflation adjustments made with the current PCE deflator differ slightly from those made with the previously published figures.
A $10.10 minimum wage in 2016 equates to $9.52 in 2013 dollars, 15 percent higher than the historical peak value of $8.28 per hour in 1968.
See Arindrajit Dube, “Keeping up with a Changing Economy: Indexing the Minimum Wage,” testimony before the Committee on Health, Education, Labor, and Pensions, U.S. Senate, March 14, 2013, http://www.help.senate.gov/imo/media/doc/Dube1.pdf (accessed December 4, 2013).
For an overview of these problems, see Robert Gordon, “The Boskin Commission Report: A Retrospective One Decade Later,” International Productivity Monitor, Vol. 12 (Spring 2006), pp. 7–22, http://www.csls.ca/ipm/12/IPM-12-Gordon-e.pdf (accessed December 4, 2013). See also Jerry Hausman, “Sources of Bias and Solutions to Bias in the Consumer Price Index,” Journal of Economic Perspectives, Vol. 17, No. 1 (Winter 2003), pp. 23–44.
Gordon, “The Boskin Commission Report,” and Hausman, “Sources of Bias and Solutions to Bias in the Consumer Price Index.”
See Jessie Handbury, Tsutomu Watanabe, and David E. Weinstein, “How Much Do Official Price Indexes Tell Us about Inflation?” National Bureau of Economic Research Working Paper No. 19504, October 2013. The researchers used scanner data with price and quantity data on essentially all grocery store sales in Japan over the past two decades. This enabled them to calculate the true inflation rate using the theoretically correct (but difficult to implement due to data limitations) Tornqvist index. In contrast to this true rate, the methodology employed in the CPI overstated annual inflation rates by an average of 1.1 percentage points per year, while a methodology similar to that employed by the PCE overstated inflation by approximately 0.7 point per year. Note that Handbury et al. found that this bias changed over time—with greater error during periods of low inflation.
See Board of Governors of the Federal Reserve, “What Is Inflation and How Does the Federal Reserve Evaluate Changes in the Rate of Inflation?,” http://www.federalreserve.gov/faqs/economy_14419.htm (accessed December 4, 2013), and Congressional Budget Office, Distribution of Household Income and Federal Taxes, 2008 and 2009, July 10, 2012, http://www.cbo.gov/publication/43373 (accessed December 4, 2013).
David Neumark and William Wascher, Minimum Wages (Cambridge, MA: MIT Press, 2008).
See James Sherk, “What Is the Minimum Wage: Its History and Effects on the Economy,” testimony before the Committee on Health, Education, Labor, and Pensions, U.S. Senate, June 25, 2013, Table 1, http://www.heritage.org/research/testimony/2013/06/what-is-minimum-wage-its-history-and-effects-on-the-economy.
David Macpherson and William Even, “Wage Growth Among Minimum Wage Workers,” Employment Policies Institute, June 2004, pp. 3–5, http://www.epionline.org/studies/macpherson_06-2004.pdf (accessed December 4, 2013).
See, for example, David Cooper and Doug Hall, “Raising the Federal Minimum Wage to $10.10 Would Give Working Families, and the Overall Economy, a Much-Needed Boost,” Economic Policy Institute, March 13, 2013, http://www.epi.org/publication/bp357-federal-minimum-wage-increase/ (accessed December 4, 2013).
There is substitution between labor and capital as the economy adjusts to the higher cost of labor. While total employment declines relative to the baseline by 0.15 percent, real non-residential business investment increases by 0.14 percent relative to the baseline.
See Dube, “Keeping up with a Changing Economy.”
Editorial, “Redefining the Minimum Wage,” The New York Times, November 11, 2013, http://www.nytimes.com/2013/11/12/opinion/redefining-the-minimum-wage.html (accessed December 4, 2013).
Heritage Foundation calculations using data from BLS, “Labor Productivity and Costs: Nonfarm Business Sector,” http://www.bls.gov/lpc/ (accessed December 4, 2013). Inflation adjusted with the implicit output deflator for the nonfarm business sector. Note that much of the remaining gap between compensation and pay is accounted for by (1) greater depreciation, which reduces net earnings but not gross productivity, and (2) measurement errors artificially inflating reported productivity. See James Sherk, “Productivity and Compensation: Growing Together,” Heritage Foundation Backgrounder No. 2825, July 17, 2013, http://www.heritage.org/research/reports/2013/07/productivity-and-compensation-growing-together.
Heritage Foundation calculations using data from BLS, “Labor Productivity and Costs: Accommodation and Food Services, Limited-Service Restaurants,” http://www.bls.gov/lpc/ (accessed December 4, 2013). Inflation adjusted with the implicit output deflator for the limited-service restaurant sector.