Question

The Supreme Court ruled the federal minimum wage, first proposed in 1933, unconstitutional; however, the Supreme Court later upheld the constitutionality of a minimum wage in 1937. In 1938, the minimum wage was established at $0.25 per hour. In 2015, the federal minimum wage increased to $7.25, where it stands today. In addition, the consumer price index was 14.1 in 1938 and 251.1 in 2018.

a. Adjusted for inflation, what would the minimum wage be worth in 2018? You must support your answer.

b. In 1968, the minimum wage was increased to $1.60. Adjusted for inflation, what would the $1.60 minimum be worth today (hint: the CPI was 34.8 in 1968)? You must support your answer.

c. Has the minimum wage kept up with inflation? Explain.

Answer 1

Part A )

The consumer price index in 1938 = 14.1, the same is 251.1 in 2018.

Suppose a goods was worth $100 in 1938 so it would worth 100 *251.1/14.1 = 1780.85 or we can say that 17.8085 times the price of 1938.

So minimum wage should also increase in this proportion, hence it should be 17.8085 * minimum wage in 1938

Minimum wage in 2018 = 17.8085*0.25 = $4.45

Part B )

The minimum wage in 1968 was $1.60 and the CPI was 34.8 at that time and it is 251.1 now in 2018

Hence this $1.60 will worth equivalent to $1.60 * 251.1 / 34.8 = 1.60* 7.2155 = $11.54

Part C )

If we see the Part A then the minimum wage has been increased to $7.25 while calculated minimum wage is $4.45. So, it can be said that the minimum wage has been increased more than the increase in inflation.