When $15.00 is really $19.03
For more than a decade, workers have asked for a $15 minimum wage. Actually that means they’ve been asking for less every year. This year, we would have to earn $19.03 for the same purchasing power as 2012’s $15.00.
Your spending power also depends on where you work and where you live.
Where You Work
A 2021 survey of 21,000 U.S. service sector workers in 66 companies placed Amazon at the top and McDonald’s at the bottom:
Where You Live
A ballot measure or legislation can change a state’s minimum. So too might an automatic inflation adjustment. Our baseline is the $7.25 federal minimum. However, because of an Executive Order from President Biden, the minimum for all federal contract workers is $15.00.
Looking in the U.S., first, we can identify each state’s minimum. Occupying the top slots at $15.20, $15.00, $14.49, we have Washington D.C., California, and the state of Washington. Then, at the bottom, New Hampshire, Texas, and Tennessee are among the states that retained the federal $7.25 minimum. Also though, since some states like Alabama have no minimum wage, they are bound by the federal floor. So too is Georgia because its minimum at $5.15 is below $7.25.
With dark blue the highest and gray, the lowest, this map displays the U.S. wage landscape:
Our Bottom Line: Wage Floors
The minimum wage is a bit more complicated than it appears to be. We can start with a floor. Below you can see the unemployment message from a traditional price floor that locates the minimum wage. Placed above equilibrium, the horizontal line showing the minimum wage price floor crosses demand to the left of the quantity supplied. The result should be fewer jobs:
But it’s much more complicated.
In Germany, job mobility and productivity changed because of a 2015 hike in the minimum wage to €8.50. Workers moved from smaller to larger establishments, from lower paying to higher paying jobs, and from less productive to more productive companies. The higher minimum wage elevated the skills level and the number of full time jobs while reducing turnover. People who were earning less than the minimum had a 6.7 percent wage boost. The net impact was more productivity and fewer small businesses. Because the smaller enterprises that were less productive could not survive, variety and competition suffered.
Here in the U.S., an increase at McDonald’s also had some surprises. As the minimum wage crept upward, so too did what McDonald’s paid its “basic crew”– the people that earned the least. However, instead of using labor saving technology, you and I paid for the wage hike. The researchers found a correlation between the price of a Big Mac and a rising minimum wage. When one went up so too did the other. As economists, we can say that there was a pass-through of the wage increase to the customer.
So, we just cannot predict what will happen when the minimum wage goes up.
My sources and more: When my Axios newsletter had such a wonderful wage graphic, I wanted to share it with you. From there, a German study, the U.S. Department of Labor, and the Economic Policy Institute had more information. Then, finally, it made sense to look at the federal contractor’s wage and two past econlife posts, here and here. (Please note that today I included several sentences from previous econlife posts.)
Originally published at https://econlife.com on April 20, 2022.