A $12 Minimum Wage Would Bring the United States in Line with International Peers
In We Can Afford a $12 Federal Minimum Wage in 2020, Larry Mishel, John Schmitt, and I explain that raising the federal minimum wage to $12 by 2020 is an eminently achievable and worthwhile goal. As the paper explains, $12 in 2020 would equal a modest 11 percent increase in purchasing power over the 1968 minimum wage, yet would essentially be the same as the 1968 minimum’s value as a percentage of the typical worker’s wage. In other words, raising the minimum wage to $12 by 2020 would simply restore the 1968 relationship between what minimum-wage workers were paid relative to what typical workers were paid—and in doing so, would raise the wages of more than a quarter of all working Americans.
Raising the federal minimum wage to $12 by 2020 would also bring the U.S. minimum wage more in line with the rest of the developed world. This relationship between the minimum wage and the median wage—also known as the “Kaitz index”—is tracked by the Organisation for Economic Co-operation and Development (OECD). As shown in the figure below, according to the OECD, in 2013, the United States had the third-lowest minimum-to-median wage ratio among developed countries—only Mexico and the Czech Republic had lower Kaitz indices. However, if the United States raised its minimum wage to $12, and other countries’ minimum-to-median ratios were to remain unchanged, the United States would move to the eleventh spot. 1
The OECD reports that that U.S. minimum wage equaled 37.4 percent of the median wage in 2013. If the minimum-to-median wage ratio was 0.374 and the minimum wage was $7.25, this implies a U.S. median wage of $19.39 (7.25 / 0.374 = 19.39). Projecting that 2013 median value out to 2020 at the CBO’s projected growth rate for inflation (i.e., making the conservative assumption of no real wage growth at the median), the median wage in 2020 would be $22.34. Thus by the OECD’s measure, a $12 minimum wage in 2020 would equal 53.7 percent of the median wage.2 If wages at the median grew by just 0.5 percent in real terms (i.e., inflation plus 0.5 percentage points) from 2015 to 2020, a $12 minimum wage in 2020 would equal 52.4 percent of the median wage.
Under either scenario, the conclusion is the same: raising the federal minimum wage to $12 by 2020 would put the United States’ wage floor in the middle of the pack among developed countries. In this sense, a $12 minimum wage in 2020 is clearly not an extreme proposal—it is bold, perhaps, compared with the inadequate increases of the past two decades, but well within both the United States’ historical experience, as well as international norms.
2. Note that this is a slightly lower ratio than what Larry Mishel, John Schmitt, and I estimate in the aforementioned paper. As explained in the paper, we use data from the March Current Population Survey so that we can make comparisons to years prior to 1979 when there was limited hourly wage data available. Using that data, we calculate that a $12 minimum wage would equal 54.1 percent of the median wage in 2020, with the same assumption of no real wage growth at the median. The OECD does not publish a methodology for their median wage calculation, but presumably there must be some small differences in how we are measuring median wages. For example, using the March CPS, we calculate the minimum wage in 1968 was equal to 52.1 percent of the national median wage; the OECD reports the U.S. minimum was 55.1 percent of the median wage in 1968.