Memories of the 28th Century

While writing my last post, I noticed that there was enough data to create an inflation index. Inflation indices are usually created from the actual costs of something over time, and labor is something; although usually the prices of goods are used. The CPI index is derived from the changes in prices of consumer goods. The index is readjusted from time to time to reflect changes in consumer goods. Wages are simply taken as one factor in final prices, so there is not a generally available specific wage inflation index. To see how well wages fit the CPI and how well the federal minimum wage compares I adjusted the income quintiles by the January CPI index, and I used the same index on the minimum wage to adjust all of them to the present.

I was going to copy in the whole file with the figures since 1947, but that is too long, so I am including a truncated version that includes the first and last year and every fifth year in between Due to the nature of the data, I am pasting in a truncated version of the original, unadjusted quintiles and the inflation adjusted figures to demonstrate the effect of the index and the effect of inflation.
Upper limits of selected quintiles for a selection of years to illustrate wage inflation

dollar amounts of the upper limits of indices derived from dividing the
the quintiles amounts by the 1947 amounts'
Lowest Third..... Fourth.........year.....Second.....Third....... Fourth......CPI
27,794......76,538......119,001 .....2012.....17.5467...22.0825........24.1970.... .10.5426
27,218.......75,000.....115,866.....2011.....17.18 31....21.6388........23.5596.....10.2429
24,000.......62,500......94,150 .....2001.....5.1515 .....18.0323.......19.1440.......8.1442
17,000.......43,000......62,991 .....1991....10.7323.....12.4062.......12.8083.... ...6.2605
11,015.......26,758......37,800 .....1981.....6.9539 ......7.7201.........7.6861........4.0465
.5,211........11,826.....16,218 ......1971.....3.2898......3.4120.........3.2977.. ......1.8512
.2,800.........6,560.......9,035 ......1961.....1.7677......1.8927..........1.8371. .......1.3860
.1,953.........4,212.......5,751 ......1951.....1.2330......1.2152..........1.1694. .......1.1814
.1,584.........3,466.......4,918 ......1947.....1.0000......1.0000..........1.0000. .......1.0000

Please note the numbers in the three columns to the right. Those are 2012 quintile tops divided by the inflation adjusted quintile tops for 1947. You can see that the higher income quintiles had income that increased more than the lower quintiles, showing that the rich get richer. The column labelled CPI shows the CPI indices for those years based on the January index numbers. It is quite clear that the CPI (Consumer Price Index) does not even come close to wage inflation.


I also applied the CPI to the federal minimum wage to adjust past minimum wages to the present.
................min. .............Inflation Adj.
eff. date ......wage .........CPI .......min. wage
7/24/2009 .......$7.25 .........1.09 .........$7.91
7/24/2008 .......$6.55 .........1.09 .........$7.15
7/24/2007 .......$5.85 .........1.14 .........$6.66
9/1/1997 .......$5.15 .........1.45 .........$7.45
10/1/1996 .......$4.75 .........1.49 .........$7.08
4/1/1991 .......$4.25 .........1.71 .........$7.27
4/1/1990 .......$3.80 .........1.81 .........$6.87
1/1/1981 .......$3.35 .........2.65 .........$8.87
1/1/1980 .......$3.10 .........2.96 .........$9.18
1/1/1979 .......$2.90 .........3.37 .........$9.78
1/1/1978 .......$2.65 .........3.68 .........$9.76
1/1/1977 .......$2.30 .........3.94 .........$9.05
1/1/1976 .......$2.30 .........4.14 .........$9.53
1/1/1975 .......$2.10 .........4.42 .........$9.28
5/1/1974 .......$2.00 .........4.94 .........$9.88
2/1/1971 .......$1.60 .........5.79 .........$9.26
2/1/1970 .......$1.45 .........6.09 .........$8.83
2/1/1969 .......$1.30 .........6.47 .........$8.41
2/1/1968 .......$1.60 .........6.75 .......$10.80
2/1/1967 .......$1.40 .........7.00 ........$9.80
9/3/1965 .......$1.25 .........7.38 ........$9.23
9/3/1964 .......$1.15 .........7.45 ........$8.57
9/3/1963 .......$1.25 .........7.58 ........$9.47
9/3/1961 .......$1.15 .........7.73 ........$8.89
3/1/1956 .......$1.00 .........8.59 ........$8.59
1/25/1950 .......$0.75 .........9.80 ........$7.35
10/24/1945.......$0.40 .......12.94 ........$5.17
10/24/1939,,,,,,,$0.30 .......16.45 ........$4.93
10/24/1938.......$0.25 .......16.22 ........$4.05

You can see that there has been variation over the years, but the present minimum wage is in the historic range, and the earliest minimums were relatively low compared with the present minimum wage.

These tables bring out a few questions, and they tie in with an article in The Economist regarding minimum wage laws being immigration policy. It was somewhat odd to a magazine that espouses leftist views pointing out that in the UK raising the minimum wage has led to more illegal immigrants taking sub-minimum wage jobs, which led to there being fewer legitimate jobs available and greater unemployment. Taking that idea together with the fact that the lowest quintile has lost more total pay as the minimum wage has increased suggests that the best minimum wage policy would be to have no (or very low) minimum and to have a very low level of required fringe benefits. People who would be willing to accept $4.00 per hour might fill essential jobs, but few people would be foolish enough to accept a job for that little. It wouldn’t take long for the auction of the labor market to determine how much a minimal job would be worth. And jobs for high school students would open up, as the market determined that some positions are not worth much at all; these jobs would not support an adult, but they would provide a considerable income to a student who could only work a few hours after school.


Please forgive me for the poor column alignment, but this isn't the best site for this, and I hate using tables
.
I am preparing another blog that will compare at least four inflation indices side-by-side. Part of it is here, but the more indices compared, the more interesting it becomes.


Why the minimum wage is immigration policy
http://www.economist.com/blogs/bligh...11/immigration

CPI 1913 to 2013 full table
ftp://ftp.bls.gov/pub/special.requests/cpi/cpiai.txt

Inflation calculator
http://www.bls.gov/data/inflation_calculator.htm