Is a $15 per Hour Minimum Wage An Insane Increase?

Recently, The New York Times ran a front page story highlighting demonstrations that are being held for an increase in the minimum wage to $15 per hour. Currently, the Federal minimum wage is $7.25 per hour, which means more than doubling the pay of low-wage workers. Is there any precedent for a $7.75 absolute increase, which is a 107% relative increase?

My goal is not to get into the political arguments over whether boosting the minimum wage is fair — or is not fair — to low-wage workers or the economy. Nor do I want to argue whether an increasing minimum helps or hurts low-wage and poor individuals. Instead, I want to focus on understanding if a $15 per hour request has any precedent in the history of U.S. labor.

The call for an increase in the minimum wage is not unexpected. The graph below shows the history of the minimum wage when it was introduced in 1938 at twenty-five cents per hour. Since then, the minimum has been increased 22 times, about once every 3.5 years. Given that the minimum has been set at $7.25 per hour since 2009, it is over-due for an increase based simply on how often Congress has revised the minimum wage in the past.

 

US Minimum Wage Since 1938

US Minimum Wage Since 1938

While it is hard to see in the above chart, the relative increase demanded today of 107% is not wholly unprecedented. In 1949, the minimum wage was forty cents per hour. This was increased to seventy-five cents per hour in 1950, an 88% jump. The 1949-50 change means that once before in history there was a very large percentage jump in the minimum that was roughly equivalent to the 107% being asked for today.

Using the above chart to understand the history of the minimum wage, however, provides a misleading picture, because yearly inflation has varied tremendously since the minimum wage was first set. Without adjusting for inflation, the minimum in the first graph looks as if it is steadily increasing in value.

The chart below this paragraph shows that, after adjusting for inflation, wage has followed roughly an inverted V shape over time, instead of rising steadily. The minimum reached a peak value in the late 1960s when it was worth slightly more than $10.50 in today’s dollars.

 

US Minimum Wage Adjusted For Inflation

US Minimum Wage Adjusted For Inflation

This second graph means that, in absolute terms, there has not been any historical precedent for raising the minimum to $15 per hour. An increase to $15 would be $4.50 more than the highest value ever achieved by the minimum wage.

Is a $15 per hour minimum wage insane? The data provide a mixed picture. As we noted, the first chart shows that one other exceptionally large percentage increase occurred in 1949. This percentage increase is of a similar magnitude to what low-wage workers want today. However, that increase occurred at a time when the minimum wage was very low, with and without adjusting for inflation.

The second chart shows that, in inflation-adjusted dollars, the highest the minimum wage has been since 1938 has only been $10.50. This figure is well below the amount being demanded today.

My opinion is that $15 per hour is a smart negotiating tactic. The minimum needs to be periodically adjusted simply to keep up with inflation. By asking for a very high value, the terms of the debate are anchored towards an increase. This increases the likelihood that the minimum can be boosted to the $10.50 or $11 range. People who don’t want the minimum to rise can claim they successfully fought and defeated a $15 per hour rate. People who want the minimum to rise can claim they boosted the earnings of poor workers. Both sides can potentially claim victory in a divisive area by starting with a very high initial value.

 

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