Federal Minimum Wage Raised to $5.85 on July 24. More to Come.

Federal Minimum Wage Raised to $5.85 on July 24. More to Come.

Effective July 24, 2007, the federal minimum wage for covered non-exempt employees was raised to $5.85 per hour. The minimum wage increases to $6.55 per hour effective July 24, 2008, and to $7.25 per hour effective July 24, 2009. Many states' minimum wage tracks the federal minimum wage. The chart below shows changes in the minimum wage since 1978.

We started 2007 with a minimum wage of $5.15. By this time next year there will be nearly a 25% increase when the $6.55 minimum wage goes into effect. By July 2009, when it goes to $7.25, it'll be up 41% since the start of 2007

Of course, few of us can get the employees we need at minimum wage. The market itself, not the law, dictates what we must pay. On the other hand, some businesses no doubt will be affected by the change. The rise depicted in the above chart does appear alarming. But the real question is whether minimum wage has increased in REAL dollars. The second table shows the increase in NOMINAL dollars. Real dollars are adjusted for inflation. So, to put the new increases in perspective, one important question is whether we really pay more than we did in 1978 in REAL dollars.  The answer to that question is found simply by adjusting the $2.65 minimum wage in 1978 to today's dollars. That is adjusting for inflation. And the answer is that $2.65 in 1978 dollars is equal to $8.35 today. So, in REAL dollars, we actually pay less today than we did in 1978.

The chart above shows the inflation-adjusted value of $2.65 on each date that the minimum wage was increased. By comparing this to the first table, you can see that those making minimum wage have consistently lost ground in the real value of their wages.

A revised federal minimum-wage poster is available from the Department of Labor website at http://www.dol.gov/esa/regs/compliance/posters/flsa.htm.