Kerry’s proposed $7 minimum wage

John Kerry is proposing setting the minimum wage at $7.

This graph provides a nice time series of the nominal v. real value of the minimum wage over time with real done in terms of 1999$ (this series ends in 2001). With the price level in 2003 being 8% higher than it was in 1999, the real value of the minimum wage had dropped to $4.77, which was almost as low as it had dropped to during the late 1980’s. Assuming we passed Kerry’s idea now and inflation in 2004 is 2%, the real value would be bumped up to around $6.36, which would still be lower than where it was in 1968 ($7.07 in terms of 1999$).

Bush, on the other hand, wants a much more gradual increase over time in the nominal minimum wage. Bush is concerned that increasing the minimum wage will increase costs for small business. How gradual? He did not say but maybe he simply wants the nominal wage to keep pace with inflation so it’s real value stays at $4.77 in real terms.