Benchmarking the Minimum Wage

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Written by Colin Gordon and John Schmitt   
Thursday, 28 February 2013 12:10

In his State of the Union address, President Obama heartened many progressives with a call for raising the minimum wage to $9.00 (from its current $7.25), and then pegging its value to increases in the cost of living. This would be a bold move, and it raises an important question: What should the minimum wage be? What is the appropriate floor for the labor market?

Every legislative battle over the minimum wage has been marked by grave concerns about interfering with markets or freedom of contract, and by dire predictions that each increase would drive businesses into bankruptcy and workers into the soup lines. In the absence of a professional wage commission (common in other countries, including the United Kingdom), every increase had to run the gauntlet of Congress. As a result, the American minimum wage hits a lower target, and covers a smaller share of its workforce, than those in most of its peer countries. Of the subset of thirteen rich OECD democracies with comparable data, all but two (Spain and Portugal) have higher minimum-wage rates (calculated at either the exchange rate or the purchasing power parity of the U.S. dollar) than the United States. On the ratio of minimum-wage rates to the median earnings of full-time workers in each country, the United States ranks dead last.

Read the entire article at Dissent.

Tags: cost of living | inequality | minimum wage