By Sophia Christensen
When it comes to wages, stagnation serves as an ongoing setback. Inflation is the measurement of the price increasing across various common products and services, typically referenced as an annual percentage. The annual inflation in the US is usually in the 2% – 3% range. That may not sound like much, but over time interest accumulates. You’ll know this if you ever had an investment that increased by a good percentage year over year. The value of your investment will grow exponentially each year, this is referred to as compounding or accumulating interest.
Since the minimum wage was last raised to $7.25 per hour in 2009, the federal minimum has lost 9.6% to inflation. Not only has the minimum wage failed to keep up with inflation, but it also fails to keep low-minimum wage workers up with the incomes of the top 1% and CEO’s. Since the minimum wage has not kept pace with productivity increase, workers are not benefiting from America’s economic growth. With huge progressive patterns in the U.S. economy, The Economist stated America would be expected to pay $12 per hour as minimum wage, and that was back in 2015. According to the Center for Economic and Policy Research, the average pay gap between CEOs and workers grew from 59:1 to 361:1 in just 30 years. With a regulated minimum wage, more than a quarter of America’s workforce would see a raise in wages and greatly benefit from it.
In response to the low minimum wage, organized labor, anti-poverty groups, and a vast majority of Americans continue to push for $15 as the set minimum wage. In a Pew Research Center survey, about 52% of the voters were in favor of increasing the federal minimum to $15 an hour which greatly differed in terms of their political stance and although the push for raising the minimum wage is widely popular in America, the survey found racial differences in support. Large majorities of blacks (89%) and Hispanics (71%) favor a $15 federal minimum wage, while 54% of whites oppose it. If the minimum wage was raised to $15 an hour, then, in 2024, in almost every state in America, roughly 56% of African Americans, 57% of Latinos, 43% of Asian Americans, and about 30% of whites, would greatly benefit.
So what happens to minimum wage when it is not indexed or adjusted to account for inflation? Price increases of common products and services compound each year; thus, naturally, if the minimum wage is not in some way adjusted regularly, it will fall behind significantly in real value over just a few years. If the gap continues to increase between workers and CEOs, low-minimum wage workers will continue to not benefit from America’s increased productivity and economic growth.
The depiction below is a great visual to understand how inflation impacts a fixed minimum and the other chart demonstrates the groups in favor of adjusting minimum wage.