People and Their Money - Income: Living On The Minimum Wage

The graphic, above, depicts the minimum wage as income — assuming a work year of 2000 hours. The curve is in inflation-adjusted, constant, 2001 dollars. The line shows the poverty threshold for a family of two people, say a mother and her child, also in 2001 values. This display shows that from 1967 to 1983, the minimum wage was enough to keep this hypothetical family above the poverty line. After 1983, despite three increases in the minimum wage, shown by the bars on the bottom of the chart, the family would have been below the poverty threshold. The minimum wage did not keep up with changes in the cost of living.

The minimum wage now stands at $5.15, with a potential increase by Congress to $6.64. More than 11 million workers fall into the minimum wage category. The vast majority is women over 20 years of age.

From 1950 to 1982, the minimum wage was allowed to fall below 45% of the average hourly wage on only four separate occasions. Since 1982, the minimum wage has never reached 45%, and currently stands at 36% of the average hourly wage.²

The minimum wage has advocates and critics. Advocates suggest that only legislative intervention will force up the lowest wage rates and that, without them, wages might even drop. Critics argue that the minimum wage forces small employers to lay off people they would otherwise employ. No unambiguously persuasive data are available or are likely to be offered on this subject. Poverty is, to some extent, a social/cultural phenomenon of an extremely complex nature.

Data in the last panel suggest both that poverty rates drop when the economy is in a strong expansion (and labor is pulled into the market — where the minimum wage applies to low-end entrants into the labor force) and that declines in the economy cause poverty to expand despite a rising minimum wage. In recent decades expansions have still left 8% of the families in poverty despite the slow up-creep of the minimum wage.

Source: U.S. Department of Labor, "Value of the Federal Minimum Wage, 1938-2000," retrieved December 6, 2001 from http://www.dol.gov.