Thursday, January 29, 2015

Federal Minimum Wage Would Be $25 Per Hour

... if it had kept pace with inflation and productivity since 1968.  The income of the inherited rich, of course, has increase several orders of magnitude more than that.

Erik Loomis at LGM:

Of course it (McDonald's) could pay $15 an hour. It just prefers its workers living in poverty. At least it provides helpful advice on how to live on the minimum wage. From the report:
This paper considers the extent to which U.S. fast-food businesses could adjust to an increase in the federal minimum wage from its current level of $7.25 per hour to $15 an hour without having to resort to reducing their workforces. We consider this issue through a set of simple illustrative exercises, whereby the U.S. raises the federal minimum wage in two steps over four years, first to $10.50 within one year, then to $15 after three more years. We conclude that the fast-food industry could absorb the increase in its overall wage bill without resorting to cuts in their employment levels at any point over this four-year adjustment period. Rather, we find that the fast-food industry could fully absorb these wage bill increases through a combination of turnover reductions; trend increases in sales growth; and modest annual price increases over the four-year period. Working from the relevant existing literature, our results are based on a set of reasonable assumptions on fast-food turnover rates; the price elasticity of demand within the fast -food industry; and the underlying trend for sales growth in the industry. We also show that fast-food firms would not need to lower their average profit rate during this adjustment period. Nor would the fast-food firms need to reallocate funds generated by revenues away from any other area of their overall operations, such as marketing.
I also found this amazing:
This is true, despite the fact that, after correcting for inflation, today’s $7.25 federal minimum is about 33 percent lower than the $10.85 figure as of 1968—46 years ago. This long-term deterioration in the real value of the minimum wage is even more dramatic after we recognize that average labor productivity has risen by roughly 135 percent since 1968. This means that, if the federal minimum wage had risen in step with both inflation and average labor productivity since 1968, the federal minimum today would be $25.50 an hour.

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