$22 Minimum Wage: How Was It Calculated?

$22 Minimum Wage: How Was It Calculated?

The $22 minimum wage as voiced by Elizabeth Warren was not a serious plan for raising the Federal minimum wage. Despite this fact, Warren’s comment over the $22 minimum wage has sparked furious debate. But how did Elizabeth Warren come up with the $22 minimum wage, anyhow?

As previously reported by The Inquisitr, the $22 minimum wage would not work and would actually hurt the economy. The short version is that national minimum wages work well as long as they are not implemented too high in a relatively short amount of time.

This is what Senator Warren had to say:

“If we started in 1960 and we said that as productivity goes up, that is as workers are producing more, then the minimum wage is going to go up the same. And if that were the case then the minimum wage today would be about $22 an hour. So my question is Mr. Dube, with a minimum wage of $7.25 an hour, what happened to the other $14.75? It sure didn’t go to the worker.”

The $22 minimum wage is actually $21.72, and it comes from an analysis by economist John Schmitt at the Center for Economic and Policy Research:

“By all of these benchmarks, the value of the minimum wage peaked in 1968. If the minimum wage in that year had been indexed to the official Consumer Price Index (CPI-U), the minimum wage in 2012 (using the Congressional Budget Office’s estimates for inflation in 2012) would be at $10.52. Even if we applied the current methodology (CPI-U-RS) for calculating inflation – which generally shows a lower rate of inflation than the older measure – to the whole period since 1968, the 2012 value of the minimum wage would be $9.22. … If the minimum wage were at 50 percent of the production worker wage in 2012 (again, using CBO projections to produce a full-year 2012 estimate), the federal minimum would be $10.01 per hour.”

Those numbers are more in line with what politicians are actually proposing, ranging from Obama’s $9 minimum wage to Nancy Pelosi’s $10. So where did John Schmitt come up with the $22 minimum wage? Schmitt explains:

“A final benchmark for the minimum wage is productivity growth. Figure 2 below compares growth in average labor productivity with the real value of the minimum wage between the late 1940s and the end of the last decade. Between the end of World War II and 1968, the minimum wage tracked average productivity growth fairly closely. Since 1968, however, productivity growth has far outpaced the minimum wage. If the minimum wage had continued to move with average productivity after 1968, it would have reached $21.72 per hour in 2012.”

Much of the disparity in these numbers related to work productivity can be tied to advances in technology. Productivity does not rise at a constant, steady pace. Machines and computers have greatly accelerated the rise of productivity from 1968 to now. This unfortunately makes the premise of the $22 minimum wage fatally flawed.

$22 Minimum Wage Calculated

Economists say the goal with the minimum wage is to raise it more slowly than inflation. The end result is that the poor always stay behind the inflationary line to avoid more inflation. Essentially, you have to raise minimum wage at a level that keeps the poverty line below the cost of living.

The picture becomes even more complicated when you consider the balancing act of minimum wages, cost of living, and taxes. This is why implementation of minimum wages should not be done at the federal, or national, level. Instead, states should control the minimum wage as they have different considerations based upon the localized economy.

So besides a $22 minimum wage, or national minimum wages in general, what are other way to solve the disparity between the rich and poor? A New York Times op-ed by Christina Romer, the former head of Obama’s Council of Economic Advisers, claims that “raising the minimum wage, as President Obama proposed in his State of the Union address, tends to be more popular with the general public than with economists. … A more generous earned-income tax credit would provide more support for the working poor and would be pro-business at the same time.” Of course, critics would point out that this amount to a redistribution of wealth, since the government is essentially taking money from the middle class and rich and giving it to the poor.

What do you think about the $22 minimum wage?