Inflation and the Real Minimum Wage: Fact Sheet

Inflation and the Real Minimum Wage: Fact Sheet

Order Code RS20040
Updated January 24, 2005
CRS Report for Congress
Received through the CRS Web
Inflation and the Real Minimum Wage:
Fact Sheet
Brian W. Cashell
Specialist in Quantitative Economics
Government and Finance Division
Summary
The Fair Labor Standards Act of 1938 established the hourly minimum wage rate
at 25 cents for covered workers. Since then it has been raised 19 separate times, in part
to keep up with rising prices. Most recently, in September 1997, it was increased to
$5.15. Because there have been some extended periods between these adjustments,
there has been substantial variation in the real value of the minimum wage. This report
will be updated periodically. For more information on the minimum wage, see CRS
Report RS21481.
The Real Minimum Wage
Because the minimum wage is not indexed to the price level, it has been legislatively
increased from time to time to make up for the loss in its real value due to inflation. In
nominal terms, the minimum wage has risen steadily since 1938 from 25 cents an hour
to $5.15 where it now stands. But the legislated adjustments to the minimum wage have
occurred at irregular intervals. As a result, because of inflation, there has been significant
variation in the purchasing power of the minimum wage.
Table 1 presents the effective dates and levels of the statutory minimum wage. The
table shows, for each time the minimum wage was changed, its nominal value ($), as well
as the equivalent amount in terms of the purchasing power of the December 2004 dollar.
Selected data for average hourly earnings are also shown. The inflation adjustment is
made using the Consumer Price Index for Wage Earners and Clerical Workers (CPI-W).
All real values are expressed in terms of December 2004 dollars.
The peak level of the minimum wage, in real terms as well as relative to average
hourly wages, was reached in 1968. In December 2004, it would need to have been
increased to $8.68 to equal the purchasing power of the statutory minimum wage in
February 1968. Since 1968, despite the legislated adjustments, the minimum wage has
not risen as fast as have overall prices.
Congressional Research Service ˜ The Library of Congress

CRS-2
Table 1. The Statutory Minimum Wage, Hourly Earnings and Inflation

Average Hourly Earnings of Production Workers
Statutory Minimum Wage
CPI-W
Effective
Total Private
Manufacturing
(1982-84=100)
Date
December
December
December
$
2004$
$
2004$
$
2004$
Oct. 1938
0.25
3.30

14.1
Oct. 1939
0.30
3.96
0.50
6.60
14.1
Oct. 1945
0.40
4.09
0.85
8.69
18.2
Jan. 1950
0.75
5.89

1.27
9.97
23.7
Mar. 1956
1.00
6.89

1.81
12.47
27.0
Sept. 1961
1.15
7.08

2.20
13.55
30.2
Sept. 1963
1.25
7.52

2.35
14.15
30.9
Feb. 1967
1.40
7.87
2.81
15.79
2.67
15.00
33.1
Feb. 1968
1.60
8.68
2.95
16.00
2.82
15.29
34.3
May 1974
2.00
7.62
4.39
16.73
4.24
16.16
48.8
Jan. 1975
2.10
7.45
4.61
16.36
4.56
16.19
52.4
Jan. 1976
2.30
7.64
4.91
16.31
4.92
16.34
56.0
Jan. 1978
2.65
7.85
5.67
16.79
5.85
17.33
62.8
Jan. 1979
2.90
7.85
6.15
16.65
6.38
17.27
68.7
Jan. 1980
3.10
7.36
6.60
15.68
6.84
16.25
78.3
Jan. 1981
3.35
7.12
7.20
15.31
7.61
16.18
87.5
Apr. 1990
3.80
5.55
10.14
14.82
10.68
15.60
127.3
Apr. 1991
4.25
5.93
10.46
14.60
11.05
15.42
133.3
Oct. 1996
4.75
5.68
12.16
14.55
12.81
15.32
155.5
Sept. 1997
5.15
6.05
12.62
14.83
13.20
15.51
158.3
Dec. 2004
5.15
5.15
15.89
15.89
16.47
16.47
186.0
Source: Department of Labor.