John Schmitt, Janelle Jones, Center for Economic and Policy Research, April 2012

Relative to any of the most common benchmarks–the cost of living, the wages of the average worker, or average productivity levels–the current federal minimum wage of $7.25 per hour is well below its historical value. These usual reference points, however, understate the true erosion in the minimum wage in recent decades because the average low-wage worker today is both older and much better educated than the average low-wage worker was in the past.

All else equal, older and better-educated workers earn more than younger and less-educated workers. More education–a completed high school degree, an associate’s degree from a two-year college, a bachelor’s degree from a four-year college, or an advanced degree–all add to a worker’s skills. An extra year of work also increases skills through a combination of on-the-job training and accumulated work experience. The labor market consistently rewards these education- and experience-related skills with higher pay, but the federal minimum wage has not recognized these improvements in the skill level of low-wage workers.

Even if there had been no change in the cost of living over the last 30 years, we would have expected the earnings of low-wage workers to rise simply because low-wage workers today, on average, are older and much better educated than they were in 1979, when wage inequality began to rise sharply in the United States.

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