Sunday, May 30, 2021

Why the Minimum Wage Should Be $18/Hour

What does it say about our "prosperity" if we can't even afford to equal the purchasing power of the minimum wage paid 50 years ago? It says the 1% got the mine and the bottom 90% got the shaft.

Given the rising prosperity we keep hearing about, shouldn't we be able to provide minimum wage workers the same purchasing power they enjoyed 50 years ago in 1970? This is a very simple proposition: either can provide minimum wage workers the same purchasing power they enjoyed 50 years ago or we can't, and if we can't, then all the claims about "rising prosperity" are revealed as false.

Since I was a minimum wage earner in 1970 at age 16, I have first-hand experience of the purchasing power of minimum wages in the 1970-1974 era. Let's keep it simple: how many hours of minimum wage labor did it take to buy a new economy car, a new house and rent a studio apartment in one of the most expensive cities in the U.S.?

To keep it simple, let's set aside taxes and just use the basic minimum wage, not the net wage.

Never mind all the fancy statistical footwork of hedonics, substitution and weighting that are deployed to arbitrarily lower the rate of consumer price inflation. In the real world, wage earners bought whatever cars and houses were available at the time, and rented whatever apartments were available at the time.

The only accurate way to measure the purchasing power of labor is to ask: how many hours of labor did it require to pay the rent, buy a new car or buy a new house? Any other measure is just sleight of hand intended to obscure the collapse of wages' purchasing power.

In 1970, I earned $1.65 an hour. A new economy car (Ford Maverick or VW beetle) was $2,000, so it took about 1,200 hours of work to buy a new economy car.

A new house cost on average about $26,000 in 1970, so it took 15,750 hours of minimum wage labor to buy a new house.

At today's federal minimum wage of $7.25/hour, it takes 3,000 hours to buy a basic 2021 Honda Civic or equivalent which costs $22,000. To buy a new economy car today with 1,200 hours of minimum wage labor, the minimum wage would need to be $18.30 /hour: 1,200 time $18.30 = $21,960.

At today's federal minimum wage of $7.25/hour, it takes 56,000 hours to buy the average priced house which now costs $408,000. Let's say there are houses available for $300,000, so it takes 41,380 hours of minimum wage labor to buy a house.

To buy a new house for $408,000 with 15,750 hours of labor, the wage would need to be $25.90/hour. To buy a $300,000 home with 15,750 hours of labor, the wage would need to be $19/hour.

Moving forward a few years to 1974, the minimum wage increased to $2/hour, and I rented a small studio apartment in Honolulu, one of the most expensive cities in the U.S. for $120/month. Thus it took 60 hours of minimum wage labor to pay the rent.

Studio apartments in Honolulu are now around $1,100/month rent, so to pay the rent with 60 hours of minimum wage labor, the minimum wage would need to be $18.30/hour.

In 1974, I paid $89.25 in tuition and $27 student fees per semester to attend the University of Hawaii at Manoa. (These numbers stick in your head when you're paying for them in cash earned at low-paying jobs while you're carrying a full five courses a semester.) That's $233 per year. At a wage of $2/hour, it took 116 hours of labor to pay the annual tuition and fees.

The current cost of tuition and fees at the University of Hawaii at Manoa is $12,186 per year. To pay the tuition and fees with 116 hours of work, the hourly wage would need to be $105/hour. If America gets any more "prosperous," I won't know whether to puke or go blind.

To equal the purchasing power of minimum wages in 1970-1074, the minimum wage would have to be at least $18/hour. Anything less does not equal the purchasing power of the minimum wage paid 50 years ago, and no amount of statistical trickery can erase this reality.

What does it say about our "prosperity" if we can't even afford to equal the purchasing power of the minimum wage paid 50 years ago? It says the 1% got the mine and the bottom 90% got the shaft.







sources:

https://www.dol.gov/agencies/whd/minimum-wage/history/chart
https://www.bls.gov/data/inflation_calculator.htm
http://www.1970sflashback.com/1970/economy.asp
http://www.thepeoplehistory.com/70scars.html
https://www.statista.com/statistics/240991/average-sales-prices-of-new-homes-sold-in-the-us/
https://files.eric.ed.gov/fulltext/ED086037.pdf


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