The Shocking Decline of America's Real Minimum Wage in 9 Charts

Watch stocks you care about

The single, easiest way to keep track of all the stocks that matter...

Your own personalized stock watchlist!

It's a 100% FREE Motley Fool service...

Click Here Now

The minimum wage is back in the news lately after President Obama pledged to raise it to $10.10 an hour for federal contractors in his 2014 State of the Union address, and it's become yet another political lightning rod for polarized Washington. One side of the aisle demands more support for workers on the lowest rung, while the other side warns that jobs will be lost if wages spike. What's often obscured in this debate is a simple question: What is the minimum wage really worth?

We know how the minimum wage has changed over time, and it's easy to see these changes on both a nominal and a real basis with a little legwork. But even when we contemplate the "real" value of the minimum wage after adjusting for inflation, we often forget that both nominal and real prices of essential goods and services have changed quite a bit over time. One way to better understand the value of the minimum wage is to find out what it could really purchase.

First, here's a quick historical chart of the minimum wage since its inception in 1938, so you can see how today's rate stacks up against earlier times:

Source: U.S. Department of Labor. Adjusted with Consumer Price Index for Purchasing Power.

Today's minimum wage earners are making less than their parents (or grandparents) might have made on an adjusted basis -- the current nominal $7.25 hourly rate has not been matched in real terms since the early '80s. But it's possible that today's minimum-wage earners can support themselves just as well, if the price of essential commodities has fallen relative to that wage. Has it? Let's take a look at the historical price of a gallon of gasoline and a gallon of oil in minimum-wage terms now:

Sources: U.S. Department of Energy and U.S. Bureau of Labor Statistics.

Sources: U.S. Census Bureau, U.S. Department of Labor Statistics, and the University of Illinois.

Milk costs have been in long-term decline relative to the minimum wage, but the spike in gas prices over the past decade has made it harder for minimum-wage earners to fill up their tanks than it's been in almost 70 years. But can minimum-wage earners afford a car in the first place? Not really:

Sources: The Cost of Living and U.S. Bureau of Economic Analysis.

If you think it would be tough working for nearly two years (and somehow managing to not spend a dime on anything else) to buy a new car, you probably won't want to see how far out of reach the average home is for a minimum-wage earner today:

Sources: The Cost of Living and St. Louis Fed.

Even after the housing bubble, minimum-wage earners are further away from their housing dreams than they've been in decades. The 1960s must have been an amazing time. It took only about 13,800 hours of minimum-wage work to buy an average house at the end of that decade, compared with about 37,500 hours today. There are a few reasons for that. One reason is that the minimum wage continues to fall further away from the average household wage with every passing year, notwithstanding the occasional bump to the nominal hourly minimum:

Source: U.S. Census Bureau.

Recent wage hikes have brought the minimum wage up to roughly a quarter of the value of the average household hourly wage (assuming a 40-hour week for 50 weeks per year), but that still hasn't been particularly helpful in terms of making the minimum wage livable. Minimum-wage workers would still need to put in almost 700 hours a month today to earn what the average household makes in a month.

The costs of other basic necessities show that the minimum wage isn't really keeping pace in a number of ways. The time it takes for a minimum-wage earner to pay for a long-distance phone call has plunged, but average monthly phone bills continue to soar. And while clothing costs have been in a long-term decline (compared to overall purchasing power, but not to the minimum wage), household food expenses are pricier for minimum-wage earners than they've been since the end of World War II:

Source: Federal Communications Commission.

Sources: St. Louis Fed and the U.S. Department of Agriculture.

When you add it all up, it seems quite clear that minimum wage simply isn't what it used to be, and it certainly can't buy what it used to, either -- unless you really like milk or need to have a good wardrobe.

One thing has changed more than ever, though. The gap between America's highest earners and its lowest earners spiked to all-time highs just before the financial crisis, and while it's yet to recover to that peak, it does seem likely that America's top 1% -- and more particularly, its top 0.01% -- will recover better than minimum-wage earners could hope to, especially considering how adamant many of them are about maintaining, reducing, or even eliminating the minimum wage.

Source: The World Top Incomes Database.

What is the future of America's minimum wage? Can it ever again give the lowest-earning Americans a shot at a decent life, or has it become too toxic a subject in Washington to ever regain real purchasing power? Let the world know what you think about these trends by leaving a comment below.

Don't settle for the minimum in your paycheck or your long-term security
Want to figure out how to profit on analysis like this? The key is to learn how to turn economic insights into portfolio gold by taking your first steps as an investor. Those who wait on the sidelines are missing out on huge gains and putting their financial futures in jeopardy. In our brand-new special report, "Your Essential Guide to Start Investing Today," The Motley Fool's personal-finance experts show you what you need to get started, and even give you access to some stocks to buy first. Click here to get your copy today -- it's absolutely free.

Read/Post Comments (22) | Recommend This Article (8)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On February 16, 2014, at 12:31 PM, ThinkMn wrote:

    Nice graphs. I doubt it will sway anyone. I would love to see Minimum wage indexed to inflation but that will be a hard sell just like raising it will be. Unionization seems to be the only way wages will increase.

  • Report this Comment On February 16, 2014, at 2:14 PM, Dave5309 wrote:

    You are aware that .08% of the population of the US actually make minimum wage or below. Seriously, if you are making minimum wage 91 days after you start a job, go find a new job.

  • Report this Comment On February 16, 2014, at 3:02 PM, Individualism wrote:

    Only losers need the government to hold their hands to get a certain salary. Maybe I am not a modern, sympathetic, estrogen-laden metrosexual, but I believe every person should be responsible for his or her own wages. I made minimum wage when I was 16 -- for about one month. Then I got a raise, then another, then a new job. If people can't raise themselves, too bad.

  • Report this Comment On February 16, 2014, at 4:20 PM, Opinion123 wrote:

    It is very hard for some people to empathize or, "put yourself in someone else's shoes." If you are born to uneducated parents, by the time you are 5 you are two full years behind in vocabulary comprehension than your middle class to well-off peers. The gap just keeps getting wider and wider as the years progress. If you do not know how to speak professionally and you don't have any role model to follow then how do you know what to do? There are many people who work very hard. It is not their fault that they were born to uneducated people. It is not their fault that they were never around people who took them under their wing and trained them to be professionals rather than minimum wage workers. In order to negotiate a raise you have to know how to negotiate or even know that a pay raise is possible. There are many people who don't know that their is a way out of poverty... how could they know... who is their example? Your success is closely related to your parents success... or lack of it. Social mobility is possible... but you have to have a guide through the system, and that is only if you are smart. If you aren't intelligent... and just average... your chances of getting out of poverty are slim to none, even with a good role model. If you are of average intelligence, you are born to uneducated parents, and you work hard... I'm not sure why you can't live comfortably off of government assistance.

  • Report this Comment On February 16, 2014, at 5:21 PM, miru wrote:

    My first min. wage job was $1.65/hr

  • Report this Comment On February 16, 2014, at 5:31 PM, BillMarshall995 wrote:

    In 1970 minimum wage bought a rented room I n a basement, goodwill clothes and pizza and beer on payday. It still does. Minimum wage is for minimum workers. If we want to pay a High school graduate with a B average and a good work ethic 10.10 an hour then what do we pay the high school drop out with a felony drug conviction?

    The answer is that the high school graduate will move up the ladder as he makes himself valuable and the ex cons who can't read will dig the ditches as they should.

    They like to trot out the single mom with two kids struggling on minimum wage. well there are already lots of programs to help her get ahead. If we raise the minimum wage then the ditch diggers will get a raise and costs will go up and we will still need these programs. How hard is that to understand?

  • Report this Comment On February 16, 2014, at 10:59 PM, kennyhobo wrote:

    The problem is that the lack of jobs means there is no competition for employees. Companies MUST pay the minimum necessary to retain employees and make payroll because people can afford their product. Double the wage at McDs requires doubling the price. Now more people won't be able to afford McDs and McDs goes out of business. The US needs leadership that creates jobs by making the US employer friendly - low taxes and intelligent regulations. The US has Democrats running the show - high taxes and massive insane regulations. Obama has increase POVERTY. Obama is making more poor people. Obama is increasing energy costs making more poor people. Obama is increasing food costs making more poor people. Yes, Obama has become the Greatest Enemy of the Poor and the Middle Class in world history. Yet, the mainstream news media lets him lie his arse off! So the real problem might be corrupt journalism. Time for tort law against the news media.

  • Report this Comment On February 16, 2014, at 11:53 PM, jimmychurch wrote:

    Why Would America Sell Saudi Arabia 15,699 Dangerous Missiles?

  • Report this Comment On February 16, 2014, at 11:57 PM, jlclayton wrote:

    I think it's interesting that many of these charts show that when the minimum wage was first instituted, it paid for less than what it pays for now. No minimum wage job is intended to be a career position or expected to be a living wage that someone can raise a family on. These are entry level positions, and anyone with ambition and a good work ethic will be able to move up into better jobs.

    While I agree that the wage needs to be adjusted upward from time to time due to inflation, raising it almost $3 an hour is too large an increase for businesses to absorb without raising prices and/or cutting employee hours. Those workers now making $10 an hour will expect raises as well, and rightfully so, since their jobs obviously require higher skills and a higher pay, and so on up the wage scale. Many small businesses do not have the kind of margins that will allow for a large increase in their payroll costs.

  • Report this Comment On February 17, 2014, at 4:18 AM, luvcats13 wrote:

    To dave5309 who commented that only .08% of working Americans make minimum wage, thus assuming raising (or not) the minimum wage is irrelevant to most working Americans - this displays lack of understanding about the economy and American workers. First of all, the number earning minimum is actually closer to 1.1% of working Americans. But here's what is ignored when basing an argument on that low %. There are ACTUALLY almost 25% of workers in private sector making $10 per hour or less. EVERY ONE OF THOSE WORKERS WOULD IMMEDIATELY EARN MORE $. Americans earning such a low income would IMMEDIATELY put all those $$ back into the economy, THUS CREATING JOBS with increased demands for goods and services. They would pay additional payroll taxes, sales taxes, etc. which allow local, state and federal governments' budgets. Also, there are many wage contracts where the amount paid to workers is tied to the minimum wage. For instance, welders might have contracts that peg starting pay to minimum wage plus 200%. Those folks would also have more $$ to spend, invest or save. They would be the ones to buy autos, appliances, remodel homes or even buy/build new homes, etc., as well as pay more taxes. The only drawbacks are any businesses operating on such a thin margin that the additional labor costs would drive them into the red and, for whatever reason, their products would not be bought if they raised prices to cover additional wages. It wouldn't be due to competition, because all their competition would have increased labor costs. That absolutely would not be the case for the big employers of minimum wage workers like Walmart, McDonalds who have had BILLION $ RECORD PROFITS in recent years. For contracted wages tied to minimum wage plus a specified % (like the welder example), if those companies would not be profitable with that big of a wage increase (a welder making $14/hr) in line to get a raise to $21/hr) - then the labor negotiations could lay out what kind of raise could be given and still allow company to be profitable, like maybe the welder would make $18/hr. And one additional benefit for government deficit situations in addition to increased tax revenue, less folks would be on food stamp, income assistance and other need-based benefits.

  • Report this Comment On February 17, 2014, at 9:26 AM, VK wrote:

    Inflation what the Feds must control is the real killer of the minimum wage workers. With the middle class shrinking and sliding to a minimum wage household more Tax money or Feds newly created phony money are needed to support many families on min wage. Those policies create much higher rate of inflation and the vicious cycle goes on.

  • Report this Comment On February 17, 2014, at 11:09 AM, sabebrush6 wrote:

    99% of minimum wage earners are not even looking to buying a home. Or a brand new car, for that matter. They are typically just looking to get a new stereo, buy a few clothes, some beers and just have some fun.

    Minimum wage was not and is not meant so support a family.

    Minimum wage was meant to be a starting wage for those just entering the work force requiring lots of training and finding out what working was all about.

    Basically for teens and college students to assist with living expenses. And drifters wanting to work for one days pay and move on.

    You are expected to get training/education for higher paying jobs to elevate your future lifestyle.

    If you plan on raising a family on minimum wage, you're probably not smart enough to handle more money anyway.

  • Report this Comment On February 17, 2014, at 12:52 PM, VegasSmitty wrote:

    So we give the laziest workers on earth a pay raise, that's the Democrats!

  • Report this Comment On February 17, 2014, at 1:08 PM, Utopia wrote:

    The minimum wage is simply a political tool. It actually discourages business to use an individual willing to be hired as an apprentice. Further, it attempts to force a business to hire someone for more than they can contribute to the company. Consequently the potentially overpriced employee will not be hired.

    So Mr. odumba, you continue to depress the economy wile claiming that you are helping the underpaid. More deliberate sabotage!

  • Report this Comment On February 17, 2014, at 1:20 PM, Mathman6577 wrote:

    Low wage (inc. min. wage) jobs were never intended to be used to help someone (or a family) buy a house or even a car. It was intended for help young people get into the workforce and help them learn the needed skills for future success. All the charts are not useful and do not contribute towards any arguments for increasing the min. wage. It will be a moot point anyway --- the GOP will never vote for an increase. There are a lot more important issues that should be written about and discussed -- primarily tax policy and labor market changes. Haven't seen any of that on these pages.

  • Report this Comment On February 17, 2014, at 2:08 PM, ScottPletcher wrote:

    "Decline" of min wage? From the author's own chart, the min wage value looks historically average, about midpoint between its low and high.

    For the tiny % of teenage mothers trying to raise child/children "on min wage", that's just false. Those mothers get **vastly more** than min wage, incl. (but not limited to) Earned Income Tax Credit, food stamps (as it was known), Medicaid, Temporary Assistance for Needy Families, subsidized child care, "free" cell phones and on and on. Their equivalent wage has to be at least $20/hr.

  • Report this Comment On February 17, 2014, at 2:27 PM, Mathman6577 wrote:

    @ScottPletcher: Good point. The "low income" wage earners in the US are well-off compared to a lot of other countries because of transfer payments (inc. food stamps), tax benefits, and not even including any wages earned.

    The min. wage debate, along w/ the income inequality whining now going on, is getting tiresome.

  • Report this Comment On February 17, 2014, at 3:22 PM, Kelly wrote:

    Ah, the liberal media propaganda blitz is on for the liberal position on the minimum wage. Right on schedule, like the yearly hurricanes.

  • Report this Comment On February 17, 2014, at 4:19 PM, fitness wrote:

    Let's see now, we are very concerned about the small number making the minimum wage, but just laugh off the 6 million that lost their insurance due to Obamacare. Don't cry to me about minimum wage until you get rid of the illegals that are competing for these low wage jobs.

  • Report this Comment On February 17, 2014, at 5:25 PM, nmwander wrote:

    As you read this article, remember:

    1. Lies.

    2. Dam Lies.

    3. Statistics.

    If ya cant dazzle'em with brilliance.

    Baffle'em with bulls--t.

  • Report this Comment On February 17, 2014, at 7:20 PM, jhiggins80 wrote:

    I read many of these comments and see a lack of caring for those who for whatever reason can not compete in contemporary society. They need enough to live on or we should let them starve and after they are dead throw them in the street, like Calcutta used to be like, and ship them out to a paupers grave. Another suggestion is wait till they get desperate enough to turn to crime and then machine gun them in the streets and save court costs. Or we could make social programs that will really work and get many of these people to become a productive member of society and gee maybe find some value in life.

  • Report this Comment On February 18, 2014, at 12:09 AM, CrazyDocAl wrote:

    That last chart is pretty interesting. What is shows is that it was Clinton's presidency when the top .01%ers started really making money. That dip at the end of his term is from the recession that met Bush in his first term. That large jump was just a correction from the loss of stock value. No different that that spike in Obama's term.

    So all the noise that the left has been making about pay scale being out of whack is just noise.

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2841263, ~/Articles/ArticleHandler.aspx, 8/28/2015 3:49:53 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Alex Planes

Alex Planes specializes in the deep analysis of tech, energy, and retail companies, with a particular focus on the ways new or proposed technologies can (and will) shape the future. He is also a dedicated student of financial and business history, often drawing on major events from the past to help readers better understand what's happening today and what might happen tomorrow.

Connect with Alex on LinkedIn or Twitter for more news and insight:

View Alex Planes's profile on LinkedIn

Today's Market

updated 6 hours ago Sponsored by:
DOW 16,654.77 369.26 2.27%
S&P 500 1,987.66 47.15 2.43%
NASD 4,812.71 115.17 2.45%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes