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Comparing the minimum wage with the average wage

Summary:
[embedded content] You’ve likely seen discussions about the minimum wage in the news and in the FRED Blog. We’ve discussed its value across states its inflation-adjusted value its correlation with the shrinking fraction of the labor force earning it the number of workers paid at or below it and minimum-wage workers’ demographic profiles Today, we approach the topic from a different perspective. In the FRED graph above, the blue line tracks the fraction of the average weekly earnings for a person working full-time at the prevailing federal minimum wage. In other words, it shows how the minimum wage compares with the average wage.* The blue line shoots upward every time Congress raises the federal minimum wage. And we have added a dashed custom line (in purple) to represent the

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You’ve likely seen discussions about the minimum wage in the news and in the FRED Blog. We’ve discussed

Today, we approach the topic from a different perspective. In the FRED graph above, the blue line tracks the fraction of the average weekly earnings for a person working full-time at the prevailing federal minimum wage. In other words, it shows how the minimum wage compares with the average wage.*

The blue line shoots upward every time Congress raises the federal minimum wage. And we have added a dashed custom line (in purple) to represent the average value of our calculation between January 1964 and January 2021. With a mean value of 44.45%, the hypothetical minimum-wage weekly earnings hit their high point of 57.39% of the average weekly earnings in February 1968. The low point in the graph was 33.47% in January 2021—the last available data at the time of this writing. For reference, the weekly earnings derived from a $15 per hour minimum wage (currently under discussion by policymakers) would amount to 69% of last month’s average weekly earnings.

*Specifically, the graph compares the average weekly earnings of production and nonsupervisory employees with the earnings of those who  work 40 hours per week at the federal minimum wage. The formula we use is (federal minimum hourly wage x 40 hours / average weekly earnings) x 100. Also keep in mind that minimum wage workers are part of the pool from which the average is taken.

How this graph was created: Search for and select “Federal Minimum Hourly Wage for Nonfarm Workers for the United States.” From the “Edit Graph” panel, use the “Edit Line 1” tab to customize the data by searching for and selecting “Average Weekly Earnings of Production and Nonsupervisory Employees, Total Private.” Next, create a custom formula to combine the series by typing in “((a*40)/b)*100” and clicking “Apply.” Next, use the “Add Line” tab to create a user-defined line. Create a line with start and end values of 44.45. To change the line colors, use the choices in the “Format” tab.

Suggested by Diego Mendez-Carbajo.

About FRED Blog
FRED Blog
The Federal Reserve Bank of St. Louis is the center of the Eighth District of the Federal Reserve System. This District includes Arkansas, eastern Missouri, southern Illinois and Indiana, western Kentucky and Tennessee, and northern Mississippi.

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