Inflation makes proposed minimum wage increases more modest than they appear

This November, voters in several states will consider ballot measures to raise their state minimum wages. Because all of the proposals would incrementally phase in the higher minimum wages over a period of several years, it is important to look beyond the headline dollar amounts proposed, and consider what the new minimum wages would equal for someone in today’s economy. In other words, voters should evaluate proposed minimum wages after accounting for the inflation that will likely occur as the increases are gradually implemented.

Of course, it’s impossible to know what future inflation is going to be, but a variety of forecasters in both the public and private sector do make an attempt. The table at the bottom of this post shows the schedule of proposed minimum wage changes in California (under two possible ballot initiatives), Colorado, the District of Columbia, Maine, and Washington. It also shows the value of each proposed minimum wage in constant 2016 dollars1 using three different forecasts for consumer inflation—projections for the Consumer Price Index (CPI-U) from the Office of Management and Budget (OMB), the Congressional Budget Office (CBO), and Moody’s Analytics.2

As the table shows, a $12 minimum wage in 2020—proposed in Colorado and Maine—would have a current dollar value between roughly $11 and $10.75, depending on whose projections for inflation you believe. In Colorado, where the minimum wage is currently $8.31, this amounts to a real (inflation-adjusted) increase of between 29 and 32.5 percent over the current minimum. In Maine, where the minimum wage is currently $7.50, the proposed hike amounts to an increase of roughly 43 to 47 percent after inflation.

A minimum wage of $13.50 in 2020, as is proposed for Washington, equals between $12.07 and $12.39 in 2016 dollars, depending on the inflation forecast. This represents a real increase of 27.4 to 30.8 percent over the state’s current $9.47 minimum wage.

The two proposals for California would both bring the state’s minimum wage to $15 an hour, but one would reach $15 by 2020, while the other would not reach $15 until 2021. A minimum wage of $15 an hour in 2020 is the equivalent of between $13.41 and $13.76 in today’s dollars, depending on the inflation forecast. This would be a real increase of between 34.1 and 37.6 percent over the current $10 minimum wage in California. Taking an extra year to reach $15 brings the final purchasing power of the minimum wage down to between $13.11 and $13.45, and lowers the cumulative percentage change to between 31.1 and 34.5 percent.

All of these forecasts show that while these ballot measures are proposing significant increases in state minimum wages, when factoring likely inflation, they are not as large as they initially appear. In fact, when compared to the last federal minimum wage increase from 2007 to 2009, some of the proposals are smaller in percentage terms than the most recent federal hike, while most of the others are only modestly larger.

The one proposed increase that is noticeably larger than the federal hike of 2007 to 2009 is in Maine, where the measure would raise the state minimum wage from its current $7.50 per hour to $12 in 2020. Still, the size of this increase is less a reflection of the boldness of the ballot proposal, and more an indication of how low Maine’s minimum wage currently stands. Although it is higher than the current federal minimum wage, at $7.50, Maine’s minimum wage is still worth more than 20 percent less than the federal minimum wage was worth (adjusted for inflation) at its high point in 1968. Moreover, the Maine initiative proposes increases at a year-over-year pace that is perfectly consistent with past minimum wage increases. The 2007 to 2009 federal increase raised the minimum wage by an average of 9.8 percent, in inflation-adjusted terms, per year. The proposed Maine increases would raise the state minimum wage at an average pace of between 9.4 and 10.2 percent per year depending on the inflation forecast—right in line with the 2007-2009 federal increase.

Finally, it is important to recognize that U.S. labor productivity will likely continue to grow for the foreseeable future, as it has for the past 70-plus years. Rising productivity means that, on average, workers can produce more goods and services (i.e., income) from each hour that they work. In doing so, these improvements expand state economies’ ability to absorb higher wage floors. Indeed, rising productivity represents the economy’s capacity to broadly improve living standards for Americans, but only if those productivity gains translate into higher wages for American workers. Neglect of the federal minimum wage over the past 45 years is one reason why productivity gains since the 1970s have not benefited the majority of U.S. workers—making these proposals all the more imperative.

Table 1

2016 minimum wage ballot proposals in today’s dollars.

California – SEIU State Council proposal
Year Nominal Percent Constant 2016$ Real percent increase
(OMB)  (CBO)  (Moody’s) (OMB)  (CBO)  (Moody’s)
2016 – Current $10.00 $10.00 $10.00 $10.00
2017 $12.00 20.0% $11.75 $11.73 $11.64 17.5% 17.3% 16.4%
2018 $13.25 10.4% $12.71 $12.65 $12.48 8.1% 7.8% 7.2%
2019 $14.25 7.5% $13.36 $13.28 $13.05 5.1% 5.0% 4.6%
2020 $15.00 5.3% $13.76 $13.66 $13.41 3.0% 2.8% 2.7%
Total change $5.00 50.0% $3.76 $3.66 $3.41 37.6% 36.6% 34.1%
California – UHW proposal
Year Nominal Percent Constant 2016$ Real percent increase
(OMB)  (CBO)  (Moody’s) (OMB)  (CBO)  (Moody’s)
2016 – Current $10.00 $10.00 $10.00 $10.00
2017 $11.00 10.0% $10.77 $10.75 $10.67 7.7% 7.5% 6.7%
2018 $12.00 9.1% $11.51 $11.46 $11.30 6.8% 6.5% 5.9%
2019 $13.00 8.3% $12.19 $12.12 $11.91 5.9% 5.8% 5.4%
2020 $14.00 7.7% $12.85 $12.75 $12.52 5.4% 5.2% 5.1%
2021 $15.00 7.1% $13.45 $13.34 $13.11 4.7% 4.6% 4.7%
Total change $5.00 50.0% $3.45 $3.34 $3.11 34.5% 33.4% 31.1%
Colorado
Year Nominal Percent Constant 2016$ Real percent increase
(OMB)  (CBO)  (Moody’s) (OMB)  (CBO)  (Moody’s)
2016 – Current $8.31 $8.31 $8.31 $8.31
2017 $9.30 11.9% $9.11 $9.09 $9.02 9.6% 9.4% 8.6%
2018 $10.20 9.7% $9.78 $9.74 $9.61 7.4% 7.1% 6.5%
2019 $11.10 8.8% $10.41 $10.35 $10.17 6.4% 6.3% 5.8%
2020 $12.00 8.1% $11.01 $10.92 $10.73 5.8% 5.6% 5.5%
Total change $3.69 44.4% $2.70 $2.61 $2.42 32.5% 31.5% 29.1%
District of Columbia
Year Nominal Percent Constant 2016$ Real percent increase
(OMB)  (CBO)  (Moody’s) (OMB)  (CBO)  (Moody’s)
2016 – Current $10.50 $10.50 $10.50 $10.50
2017 $12.50 19.0% $12.24 $12.22 $12.13 16.6% 16.4% 15.5%
2018 $13.25 6.0% $12.71 $12.65 $12.48 3.8% 3.5% 2.9%
2019 $14.00 5.7% $13.13 $13.05 $12.82 3.3% 3.2% 2.8%
2020 $15.00 7.1% $13.76 $13.66 $13.41 4.8% 4.6% 4.6%
Total change $4.50 42.9% $3.26 $3.16 $2.91 31.1% 30.1% 27.7%
Maine
Year Nominal Percent Constant 2016$ Real percent increase
(OMB)  (CBO)  (Moody’s) (OMB)  (CBO)  (Moody’s)
2016 – Current $7.50 $7.50 $7.50 $7.50
2017 $9.00 20.0% $8.81 $8.80 $8.73 17.5% 17.3% 16.4%
2018 $10.00 11.1% $9.59 $9.55 $9.42 8.8% 8.5% 7.9%
2019 $11.00 10.0% $10.31 $10.25 $10.08 7.5% 7.4% 7.0%
2020 $12.00 9.1% $11.01 $10.92 $10.73 6.7% 6.5% 6.5%
Total change $4.50 60.0% $3.51 $3.42 $3.23 46.8% 45.7% 43.0%
Washington
Year Nominal Percent Constant 2016$ Real percent increase
(OMB)  (CBO)  (Moody’s) (OMB)  (CBO)  (Moody’s)
2016 – Current $9.47 $9.47 $9.47 $9.47
2017 $11.00 16.2% $10.77 $10.75 $10.67 13.8% 13.5% 12.7%
2018 $11.50 4.5% $11.03 $10.98 $10.83 2.4% 2.1% 1.5%
2019 $12.00 4.3% $11.25 $11.19 $10.99 2.0% 1.9% 1.5%
2020 $13.50 12.5% $12.39 $12.29 $12.07 10.1% 9.9% 9.8%
Total change $4.03 42.6% $2.92 $2.82 $2.60 30.8% 29.8% 27.4%
Benchmark – the 2007 to 2009 federal minimum wage increase
Year Nominal Percent Constant 2016$ Real percent increase
2006 5.15 $6.13
2007 $5.85 13.6% $6.77 10.4%
2008 $6.55 12.0% $7.30 7.8%
2009 $7.25 10.7% $8.11 11.1%
Total change $2.10 40.8% $1.98 32.3%

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1. I’m using the CBO’s inflation projections to establish my 2016 index value, as it’s the middle estimate of the three forecasts.

2. Moody’s projections come from their Economy.com service.