When less is more: Even as wages rise, earning power drops By Paul J. Nyden When people think about their wages, annual salaries and expenses it’s not always easy to compare current costs to past costs and figure out just what has changed financially. The minimum wage, created in 1938, has gone up over the years. But if wage increases are calculated using inflation rates, those increases are often quite small or even non-existent. “Wages are certainly one indicator of how people are doing. “But inflation is something that also should be taken into account when you are trying to understand the context of those wages and how they relate to the costs of living – the costs of things like shelter, food and retail goods,” said Jennifer Shand, director of Marshall University’s Center for Business and Economic Research. “Changes in price levels and in what things cost have an impact on wages. That will determine whether folks are doing better than average or not.” Legislation creating the federal minimum wage was passed in 1938, during the New Deal under President Franklin D. Roosevelt. The federal minimum wage started off at 25 cents an hour in 1938 and reached $7.25 an hour last year. But when increased costs of living are included in the calculation, and minimum wages are adjusted for inflation, the hourly wage in 2013 s would have been $4.13 in 1938, compared to $7.25 an hour in 2013. For every year between 1956 and 1984, the value of the annual minimum wage — adjusted for changes in the cost of living — was higher than today’s minimum wage. Between 1967 and 1969, workers earning the minimum wage got paid between $20,301 and $21,133 a year, when their annual wages are adjusted for inflation, using 2013 dollars. (These annual wages assume an individual was paid for working 40 hours a week, 52 weeks a year.) Since 1984, minimum-wage workers have earned inflation-adjusted salaries ranging between $13,083 and $15,538 a year, with the exceptions of 2009 and 2010, when they earned just over $16,000 a year – still not as high as salaries made between 1967 and 1969. The Consumer Price Index, the most widely used statistic to measure inflation rates, is defined as “a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services.” That consumer group represents about 87 percent of the country’s total population, according to the U.S. Bureau of Labor Statistics. (The bureau has a handy online tool to help people calculate changes in the value of money over the years.) Prices for some consumer products have dropped in recent years, such as prices for computers, large television screens and DVD recordings. But consumer costs increased for most products and services, including: health care, transportation, housing and higher education. Tuition and fees charged to in-state West Virginia University students, for example, rose from $1,260 in 1987 to $6,456 in the 2013-2014 academic year, according to the WVU website. (Tuition that WVU charged out-of-state students reached $19,620 last year.) Price increases were much more dramatic at many private colleges and universities. Tuition costs at WVU will continue to rise dramatically if recent average annual increases of 5.4 percent continue, according to http://www.collegecalc.org — a website that estimates student expenses at colleges and universities across the nation. The CPI calculator can also be used to compare the value of annual salaries in the past and today. To maintain their buying power, workers who earned $20,000 in 1970 would have had to make $42,474 in 1980, $67,371 in 1990, $88,763 in 2000, $112,400 in 2010 and $122,388 today. “It is of vital importance to adjust for inflation,” said John Deskins, director of the Bureau for Business and Economic Research at West Virginia University. “Wages from some sectors have fallen in real terms after you adjust for inflation. In some sense, that is to be expected in a dynamic economy where some industries are successful, while others are declining,” Deskins said. “The median wage in our country has not increased by much recently when you account for inflation. We have seen more growth on the higher end.” In West Virginia, the state’s minimum wage will increase from the current rate of $7.25 an hour to $8 an hour at the end of this year and to $8.75 an hour by Dec. 31, 2015. As of Jan. 1, 29 states and Washington, D.C. will have minimum wages above the national rate of $7.25 an hour, according to the National Conference of State Legislatures. “The essential source of most of our economic problems is the fact that our wages haven’t kept up with our productivity and the nation’s inflation,” said Ted Boettner, director of the West Virginia Center on Budget and Policy. “In the post-World War II period, between the late 1940s and the early 1970s, wages grew together with productivity and grew evenly at the top and the bottom,” Boettner said. But since the late 1970s, wages have stagnated or declined for the majority of workers in West Virginia and around the country. Wages are getting better for workers in some occupations and in some parts of the country. Earlier this year, on Feb. 12, President Barack Obama signed an executive order requiring an increase in the minimum wage to $10.10 an hour for businesses that have new, or renewed, federal contracts. That increase will take effect on Jan. 1. The wage for those contract workers will then be adjusted each year after 2015, based on annual CPI inflation rates. The increase applies to all private companies that have contracts, or subcontracts, to provide services, including construction work, to federal agencies. Officials in Seattle recently voted to increase their city’s minimum wage to $15, according to the News-Tribune in Tacoma. Companies with more than 500 employees must pay the new minimum wage by 2017, while companies with fewer than 500 employees must phase it in by 2019. Today, Washington’s state minimum wage is already $9.32 an hour — the highest of any state. That pays workers $19,386 for a full-time job. Full-time workers earning $15 an hour will make $31,200 annually. But real wages for tens of millions of workers have been dropping. Workers’ productivity has increased by 80 percent in the U.S. since 1974 — but their median compensation, including wages and benefits, rose by only 11 percent, Harold Meyerson wrote in The American Prospect in November 2013. Meyerson believes “an epochal turn” took place in 1974. “The age of economic security ended. The age of anxiety began.” In “The State of Working West Virginia 2013: From Weirton Steel to Wal-Mart,” Boettner and Sean O’Leary, policy analyst at the West Virginia Center on Budget and Policy, argue that de-industrialization brought major changes to West Virginia during the 1980s. “Perhaps nothing sums up the vast changes in the climate for working people over these years than one stark fact: in 1979, Weirton Steel was West Virginia’s largest employer. At its height, it employed 14,000 workers.” In 1979, Weirton’s union workers earned about $16 an hour, which would be $52.33 an hour today, as well as receiving pension, vacation and sick-day benefits. Wal-Mart’s own website stated that, as of April 30, 2013, the company was paying its “regular, full-time hourly associates in West Virginia $12.60 per hour.” Today, Wal-Mart is the Mountain State’s biggest employer. Wages at Wal-Mart, O’Leary and Boettner write, were “significantly less than union steelworkers earned in Weirton 35 years ago. However, according to a Congressional report, the market research group called IBIS World recently placed the retail giant’s average wage at the even-lower level of $8.81 [an hour].” Many West Virginia families have experienced small growths in their household income during recent decades. “Real [household] median income [adjusted for inflation] grew from $34,727 in 1984 to $41,821 in 2011, an increase of 20.4 percent,” O’Leary and Boettner wrote. But higher wages did not drive that increase. “Nearly all of the gains in annual wages were due to the increase in hours worked, rather than rising wages,” O’Leary and Boettner said. Reach Paul J. Nyden at email@example.com or 304-348-5164.