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Snapshot for February 17, 2006.

Inequality widens as real value of minimum wage falls

As a recent Economic Policy Institute and Center on Budget and Policy Priorities report details, the incomes of the rich have skyrocketed over the past 20 years, while the rest of America has experienced only marginal gains.  The divide between middle- and low-wage workers has also increased. 

One way the United States addresses inequality is through the federal minimum wage.  In 2005, minimum wage workers earned only 32% of the average hourly wage.  Barring a minimum wage increase, we are poised to break a record in 2006 for the greatest inequality between minimum wage and average wage workers since the end of World War II. 

As shown in the Figure below, the minimum wage reached a peak of 56% of the average wage in 1950 and remained near 50% throughout the 1950s and 1960s.  The decline in the minimum wage relative to the average wage since 1969 has resulted from continuous increases in average wages while Congress has raised the minimum wage only modestly and sporadically.  In January 2006, the average hourly wage was $16.41.  To reach 50% of the average wage—the level experienced in the 1950s and 1960s—the minimum wage (currently at $5.15) would need to be raised to $8.20.

The federal minimum wage needs to be increased to improve the relative purchasing power of low-wage workers.  In addition, once the minimum wage has been raised to a reasonable level, it should be annually adjusted to prevent future erosion.  These measures would help curb rising inequality in the United States and provide a more adequate floor for low-wage workers.

For more minimum wage facts, see EPI’s Minimum Wage Issue Guide.

This week’s Snapshot was written by EPI policy analyst Liana Fox.