After Taxes, the Minimum Wage Is Higher Than It Was in 1968

by Patrick Brennan

Below, Veronique de Rugy highlighted David Neumark’s online op-ed for the Times about the importance of the earned-income tax credit to the minimum-wage debate — but there’s even more to the story.

While it’s true that the federal minimum wage is lower, adjusted for inflation, than it was in the 1960s and 70s, people earning that wage aren’t making less money. Those eligible for the earned-income tax credit (EITC), a program which refunds the income taxes low-wage workers pay, and then writes them a check on top of the amount, are better off.

Ernie Tedeschi, a former Treasury economist, took this a little further, and the result is even more striking. Here’s the kind of chart you usually see from advocates of increasing the minimum wage:

Tedeschi looked at after-tax income for minimum-wage earners — the differences include the creation and expansion of the EITC, much less taxation of low incomes (thanks, President Reagan!) and other new and more-generous tax credits. It turns out minimum-wage earners with families are much better off than they used to be:

This reflects one of the points Neumark raises about the superiority of the EITC over the minimum wage: The former can be tailored to increase incomes the people who actually need it, i.e., working families (and whose relatively uncommon plight minimum-wage advocates always cite), while the latter risks shutting out less-skilled people (especially teenagers and single minority men) out of the labor market.

Tedeschi did use a different measure of inflation (“PCE”) rather than the Consumer Price Index, which is what the first graph (from the National Employment Law Project) used. PCE is probably superior in this case because over the past 50 years, CPI overstates inflation for a couple reasons, and is less representative of the cost of living for low-income people. Heritage’s minimum-wage analysis uses PCE, too, for that reason — by their calculations, the minimum wage has dropped from $8.28 in 1968 (its peak) to $7.25 today. It’s remained roughly even over the years:

But if you look at the Tedeschi chart, the take-home pay of minimum-wage workers with dependents has actually gotten much more generous — and that’s just based on changes in the tax system, and ignores the plethora of public-benefit programs now available to low-income people, especially families, that weren’t around in the 1960s.