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The real minimum wage

Every few years or so, Congress revisits the federal minimum wage. While most of the discussion is about the nominal wage, the real purchasing power of the minimum wage has some interesting trends of its own. Using series from FRED, we can see these trends in action. The graph features the nominal minimum wage (green line) and the minimum wage adjusted for the price level (blue line). You’ll notice the green line tends to rise in steps, the result of Congress’s periodic decisions to raise the minimum wage. But because the wage is not indexed to inflation—and the past half century has largely been inflationary—occasional increases in the minimum wage tend to be eroded by subsequent increases in the price level. We can see this in the zigzag pattern of the blue line. In fact, although the nominal minimum wage is at a historical high, the real minimum wage today is the same as what it was in 2008, 1999, 1992, 1986, and 1950.

How this graph was created: Using the “Add Data Series” and “Modify Existing Series” options, add “Federal Minimum Wage for Nonfarm Workers” as the first series (“a”) and “Consumer Price Index for All Urban Consumers: All Items” as the second series (“b”) to “Data Series 1.” For both, set “Units” to indices and enter “2015-05-01” for the “Observation Date.” In the “Formula” box under “Create your own data transformation,” enter “100*(a/b).” Next, re-add the first series, but as “Data Series 2.” Finally, create a trend line under “Add Data Series,” set its start date to “1947-01-01,” and set its start and end values to “100.” Change colors as needed to distinguish the three lines.

Suggested by Ian Tarr.

View on FRED, series used in this post: CPIAUCSL, FEDMINNFRWG

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