Prosperity Watch Issue 43, No. 2: Voters approve minimum wage increases in response to its eroding value

Last week, voters in four states and one municipality approved minimum wage increases bringing the total number of states that will see minimum wage levels higher than the federal level of $7.25 rise to 29 states. It turns out voters are in tune with a clear data trend: erosion in the value of the minimum wage.  This erosion means that it is more difficult for workers to maintain their purchasing power in an economy where the distribution of wages has kept the median wage low and the distance between the top and bottom great.  For every hour of work, a North Carolina worker is able to purchase fewer goods and services under these conditions.

The minimum wage to median wage ratio provides a measure of the strength of the minimum wage in a given labor market. In 1979, the minimum to median wage ratio for the country was 51 percent.  By 2013, the ratio had fallen to a minimum wage that was 39 percent of the median wage in the country.  For North Carolina the decline in the value of the minimum wage was even more dramatic.  In 1979, the minimum wage was 64.4 percent of the state’s median wage and today it is 41.2 percent.  This past week, Arkansas was one of the four states to pass a minimum wage increase at the ballot box.  Arkansas had a similar experience to North Carolina in terms of the decline in the value of its minimum wage;  a fall from 67.1 percent in 1979 to 45.3 percent in 2013.


 
A minimum wage that is better aligned to the labor market is essential to building an economy that works for all.  Economists such as Arindjiat Dube from the University of Massachusets at Amherst suggest that a potential minimum wage target could be 50 percent of the median wage.  For North Carolina that would require the minimum wage to rise to $8.80.  This would go some way to correcting the challenges that face workers in the bottom of the wage distribution, a group that has seen their wages actually fall over the past decade.  However, research shows that for North Carolina workers to actually meet basic needs, their wages must be approximately $16.21 for one worker with one child. The approved ballot measure in Arkansas means that workers in that state will now have a minimum wage of $8.50 or 188 percent of that state’s median wage.

The growing disconnect between wage levels, productivity and the costs of basic goods and services only serves to grow economic insecurity.  A minimum wage that reflects both local labor markets and what workers need to make ends meet is a public policy whose time has come in North Carolina.
 

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