Restoring value to the minimum wage

In a paper issued today, Heidi Shierholz of the Economic Policy Institute (EPI) finds that the current minimum wage of $7.25 is 20% lower than its real value 40 years ago. To restore its value, she proposes setting the minimum wage at 50% of the previous year's average wage and indexing it annually thereafter. According to her formula, the minimum wage would be $9.80 in 2012, with incremental increases over the next two years.

The paper divides workers who would benefit from the new minimum wage into two groups: those directly affected because they earn less than the new minimum wage, and those who would be indirectly affected because they earn a little above it but "would likely see a wage increase as employers preserve internal wage ladders." In Hawaii, of its total workforce of 557,415 (from EPI analysis of 2008 Current Population Survey data), 55,932 would be directly affected by the new minimum wage and 22,219 would be indirectly affected. Among the paper's conclusions:

(Indexing the minimum wage) will help to reverse the trends toward increasing inequality and to restore income growth for millions of working families. These new steps for the minimum wage are a crucial component in the effort to ensure that the benefits of economic growth are shared broadly across the workforce.

FIX IT AND FORGET IT, Index the Minimum Wage to Growth in Average Wages, Dec. 17, 2009
      Briefing Paper #251 (pdf, 24pp/408kB)
      Press Release