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When Less Really is Less

When Less Really is Less

This is now the longest period in US history without an increase in the federal minimum wage. It stands at $7.25. The last time Congress passed an increase was in 2007 (and it took effect two years later, in 2009).

According to the Economic Policy Institute, “By allowing the minimum wage to languish, Congress is essentially decreasing take-home wages for working families across the country.” It’s the story every earner and purchaser knows all too well – if wages remain unchanged for any length of time, inflation erodes buying power. Unfortunately, this has the greatest repercussions for those at the lowest end of the wage scale.

As the chart above illustrates — over the last decade, as the minimum wage has remained at $7.25 an hour, its purchasing power has declined by 17 percent. The Economic Policy Institute reports that this translates to a loss of more than $3,000 in annual earnings for a full-time, year-round minimum wage worker.

Looking at the wage in terms of purchasing power, when the minimum wage was last raised to $7.25 in 2009, it had a purchasing power equivalent to $8.70 in today’s dollars. Since its historical peak in February 1968, the federal minimum wage has lost 31 percent in purchasing power. This means that (in terms of today’s dollars) full-time, year-round minimum wage workers today earn $6,800 less a year than what their counterparts earned five decades ago.

In Connecticut the story is a little better. The state’s $10.10 minimum wage supersedes the national minimum and works out to about $1,750 in monthly earnings, or $21,000 per year. Now compare this to a Connecticut state resident’s median annual earnings of $70,000 (according the Partnership for Strong Communities). Also compare the $10.10 hourly wage to what the Partnership says is the wage needed to afford an average rental in the state … $24.72.

We’re proud that Connecticut cares about its low-income workers and has taken steps to raise the minimum wage, the 10th highest in the country. The questions are: Is this enough to provide for the basics of life today?, and How soon before inflation once again erodes this bump in purchasing power?

 

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