In an op-ed in today’s Wall Street Journal, Michael Saltsman exposes the flawed logic of Vice-President Joe Biden’s selection of 1968 as the base year to justify his claim that a hike in the minimum wage is overdue.
According to one news report,
Biden said the real value of the minimum wage is much less then it has been in the past, specifically at its peak in 1968. In 1968, the minimum wage was $1.60 an hour. In 2013, that wage would have the same purchasing power as $10.71. “That’s all they’re asking here, is ‘just pay me minimum wage of what you paid folks in 1968,’ think in those terms. They’re not asking a whole heck of a lot,” Biden said.
Here’s Michael Saltsman:
The logic goes something like this: Had the minimum wage tracked inflation since 1968, it would today be more than $10 an hour, so Congress should seek to bring it up to at least that amount. The federal minimum wage was first set in 1938 at 25 cents an hour. Had it tracked the cost of living since, it would today be $4.07 an hour, based on Labor Department data and the Bureau of Labor Statistics’ inflation calculator (see blue line in the chart above for the year 1938). This is the only logically consistent “historic” value of the minimum wage, and it’s 44% less than the current amount of $7.25.
Advocates of a higher minimum wage arbitrarily selected 1968 as the historical reference point. It’s no wonder: That’s when federal minimum wage hit its inflation-adjusted high point (see chart).
How about picking other arbitrary years to track the minimum wage and inflation? If you used 1948 instead of 1968, the minimum wage’s inflation-adjusted value would only be $3.81 an hour. If you chose 1988, the adjusted minimum wage would be $6.50 an hour.
MP: The chart above shows the history of the nominal and real minimum wage (in constant 2013 dollars) from 1938 to 2013, and reveals why Biden (and other supporters of the minimum wage) would pick the year 1968 to make a case for a higher minimum wage – that year’s inflation-adjusted minimum wage at $10.66 per hour was the highest in the history of the minimum wage back to 1938 when it was first enacted.
But if you pick another year as the base year, like 2007 when the Great Recession started, the case for a minimum wage increase today weakens considerably. In real dollars, today’s minimum wage of $7.25 per hour during the worst jobless recovery in US history is almost 11% higher than it was in 2007 when the recession started. Perhaps that explains why the jobless rate today for teenagers (the group most affected by the minimum wage law) is stubbornly stuck at 24%, more than seven percentage points above the 16.8% rate in December 2007 when the recession started? If Joe Biden really cared about creating jobs for unskilled and low-skilled workers during a sub-par economic recovery, he should use 2007 as his base year, and not 1968, when considering the advisability of raising the minimum wage. Raising the minimum wage today, and increasing the cost of hiring unskilled and low-skilled workers, would be a disaster for the most vulnerable Americans struggling to find a job in a very tough labor market.
As Michael Saltsman concludes, “Entry-level employees can only move up the career ladder if they have experience. To get experience, you need a job in the first place. These jobs will be more difficult to come by if Congress embraces the flawed logic of a 1968 minimum wage.”