12.23.2009 Policy Points

Fixing the Minimum Wage

In a new briefing paper, economist Heidi Shierholz of the Economic Policy Institute summarizes the existing research about the federal minimum wage and calls for setting the wage equal to half of the previous year’s average wage of production and nonsupervisory workers.

Shierholz argues that such a step would restore the value of the minimum wage, prevent the value of the wage from eroding over time, ensure that workers benefit from productivity gains, offset various types of wage and income inequality, and bring the United States in line with practices in other advanced economies. Additionally, shows Shierholz, this practice would be consistent with those used in other social insurance programs like Social Security, Workers’ Compensation, and Unemployment Insurance and would produce more benefits than costs.

Specifically, the briefing paper calls for the following:

The FLSA should be amended so that on April 1, 2012, the minimum wage is set at 50% of the previous year’s average wage of production and nonsupervisory workers. This formula would likely result in a minimum wage of around $9.80 in 2012 (or around $9.00 in 2009 dollars).

On each April 1 thereafter, the minimum wage should be adjusted by the percent change in the average wage during the preceding year, in other words, indexed to the average wage.

Making the policy change effective in 2012 allows for intermediate steps to increase the wage in 2010 and 2011 as a phase-in period. These near-term wage increases will provide crucial economic stimulus at a time when the economy will likely be in the middle of a rocky recovery.

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