What Can You Buy with a Minimum Wage Job?

A few years ago, I saw a graphic that claimed that in the 35 years between 1978 and 2013, the “real value” of the federal minimum wage in the U. S. has decreased by 25%, while the cost of going to a four-year college has increased by 1,120%. It’s an interesting comparison, though one immediately jumped on by chart-wielding opponents of any increase to the minimum wage. According to this chart at CNN [1], one said, the “buying power” of the minimum wage in 1978 represented $8.22 in 2013 dollars, and that’s a decrease of “only” 13 percent. No one asked the commenter how he'd feel if his salary were cut by 13%, though...

Of course, the “buying power” of a dollar is based on a market basket comprising many items, from entertainment to housing and everything in between. So what about just the necessities of keeping body and soul together? Well, there’s lots of historical data out there so perhaps a little exercise in number-crunching might bring some clarity to discussions of just what minimum wage will buy. [Note: all numbers herein are based on the references cited using brackets. Projections and estimates are based on simple linear interpolation/extrapolation using an Excel spreadsheet].

First, a couple of numbers: in 1978, the federal minimum wage was $2.60 per hour. In 2013, it was $7.25.We'll start with some common food items:

Cost of Food

Let’s begin with a staple in the American diet, Campbell’s Tomato Soup: [2] In 1977, a 10-ounce can cost 19¢, or about five minutes’ minimum-wage work (1977 minimum wage was $2.30). In 2013, a 10.75-ounce can cost $1.09, or about nine minutes of work at the minimum wage of $7.25 per hour. That represents an 80% increase in cost for a 7.5% increase in product. I have to admit that I’ve never liked tomato soup, so I can’t verify those costs (though I do remember that Campbell’s Chicken Noodle Soup cost about 20¢ per can in the late 1970s).

How about something a little tastier, say for instance a Hershey's chocolate bar? [3] In 1978, a 1.2-ounce Hershey bar would set you back 25¢, or just under 21¢ per ounce – five minutes’ work per ounce at the then-minimum wage. In 2013, the Hershey bar had increased in size to 1.55 ounces and in price to 99¢. That’s 64¢ per ounce of Pennsylvania chocolate, or (still) a hair over 5 minutes’ work per ounce. That’s one product that has been keeping pace with inflation.

You want breakfast with that? Try Kellogg’s Corn Flakes: [4] In 1978, a 24-ounce box cost $1.15, 4.7 cents per ounce – just a hair over one minute’s work per ounce or a bit less than half an hour to buy the whole box. In 2013, a 12-ounce box cost $3.89 – about 32.5¢ per ounce, or 2.5 minutes’ work per ounce – still half an hour to buy the box, which had somehow shrunk to half the size.

Cost of Shelter

The U.S. Bureau of Census tracks the cost of rental housing on a ten-year interval, so data for the years 1978 and 2013 aren’t available – only for 1970 and 2000 (though it is possible to project numbers for 2013). According to their numbers [4], in 1970 the median monthly cost of rental housing was $108/month in 1970 and $602/month in 2000. By combining the data in that chart with the consumer price index calculator [5] of the Bureau of Labor Statistics, it’s possible to project a median rental cost of approximately $929/month for 2013. Similarly, using the two exhibits, it is possible to estimate a median monthly rental of $177 in 1978.

So let’s look at the buying power of the minimum wage over the years. In 1978, it took 68 hours to pay median monthly rental – 40% of a month’s wages at minimum wage. In 2000, it took 116 hours at minimum wage to pay a month’s rental. In 2013, the toll has grown to 128 hours at minimum wage to pay the median monthly rental. Given that a month is approximately 168 working hours, that represents more than three-quarters of a month’s minimum wages needed to pay for shelter.

Look at another way: the cost of one of life’s necessities – shelter – has increased at almost twice the rate of increase of the minimum wage. What took 68 hours’ work to buy in 1978 took 128 hours to buy in 2013.

As for the stated increase in college costs that started this entire conversation? The university where I took classes in 1968 has had a 3,211% increase in tuition between my first semester there (1968) and 2013. The claim of 1120% sounds rather low to me...

References

[1] http://money.cnn.com/interactive/economy/minimum-wage-since-1938/
[2] http://www.foodtimeline.org/foodfaq5.html#campbells
[3] http://www.foodtimeline.org/foodfaq5.html#candybar
[4] https://www.census.gov/hhes/www/housing/census/historic/grossrents.html
[5] http://data.bls.gov/cgi-bin/cpicalc.pl

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