Inflation is a big problem these days. Prices are rising for everything from bacon to rent to hotel rooms. And while the Federal Reserve announced aggressive measures to curb costs last week, not all economists believe this is the best approach for helping working people.
One thing is clear: Rising wages aren’t responsible for recent inflation. In fact, wage growth has actually lagged behind inflation rates, dampening upward pressure on prices. We are also currently on the heels of decades in which worker productivity has increased while pay has failed to keep up. Corporate policies, meanwhile, have played a far greater role than wages in causing today’s inflation: Companies’ profits have soared, raising questions about where profits end and price gouging begins.
Amid this troubling economic scenario, there’s one thing that hasn’t gone up: the federal minimum wage. In terms of what it can buy, it’s actually deflated. The last increase was on July 24, 2009, to the paltry rate of $7.25 per hour.
Democrats have tried, year after year, to raise the wage, but Republicans have repeatedly blocked change. Fortunately, that’s not the case everywhere: 30 states and almost 50 localities have set their own wages higher than the federal minimum, with several set to reach $15 an hour in coming years. But some conservative states have refused to raise state-level wages while also blocking cities from taking local action.
As a result, for millions of workers, the federal rate of $7.25 is all they’ve got. As Economic Policy Institute researchers recently observed, the real “value” of the federal minimum wage is at its lowest point in 66 years, and “a worker paid the current $7.25 federal minimum wage earns 27.4% less in inflation-adjusted terms than what their counterpart was paid in July 2009.”
The bottom line: $7.25 just won’t buy what it used to.
Want to buy a house? The average sales price of U.S. houses was $274,100 in the third quarter of 2009, compared to $507,800 earlier this year.
How about renting? According to data from the U.S. Department of Housing and Urban Development, monthly fair market rents have risen sharply over the past 13 years. For example, rent for a two-bedroom apartment has grown from $787 to $1,372 in Charleston County, South Carolina, during that time, and from $866 to $1,208 in Harris County, Texas, where Houston is located. One study found that housing is unaffordable at the federal minimum wage everywhere in the nation.
What about food? A nifty function on the Bureau of Labor Statistics website lets you compare prices over a given time period. For breakfast, the average price for a dozen eggs was $1.50 in July 2009 and $2.71 last month. Prices also increased for a pound of bacon (from $3.64 to $7.43), a pound of coffee ($3.86 to $5.79), milk ($2.99 to $4.15), and strawberries ($1.64 to $2.32).
But if life gives you lemons, make lemonade, right? Not so fast: The price of lemons has also shot up.
The lingering low federal minimum wage drags down communities where it’s the only pay standard, while in contrast, raising the wage generally has a positive ripple effect, even on workers making more than the minimum rate.
The inflation rate matters, but it isn’t the only factor in whether people can cover the basics. Raising the minimum wage would help people with something essential: affording their lives, to borrow words from Minnesota Attorney General Keith Ellison. But there are unexpected, seemingly unrelated benefits, too, like significantly reduced suicide rates.
Thirteen years is long enough. It’s far past time to raise the federal minimum wage.
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ABOUT THE WRITER
Terri Gerstein is the director of the state and local enforcement project at the Harvard Labor and Worklife Program. She is also a Senior Fellow at the Economic Policy Institute. This column was produced by Progressive Perspectives, which is run by The Progressive magazine and distributed by Tribune News Service.
