Until 1968, the minimum wage not only kept pace with inflation, it rose in step with productivity growth. The logic is straightforward; we expect that wages in general will rise in step with productivity growth. For workers at the bottom to share in the overall improvement in society’s living standards, the minimum wage should also rise with productivity.

The distinction between inflation and productivity is an important one. If the minimum wage rises in step with inflation, we are effectively ensuring that it will allow minimum-wage earners to buy the same amount of goods and services through time, protecting them against higher prices. However, if it rises with productivity that means that as workers are able to produce more goods and services per hour, on average, minimum-wage earners will be able to buy more goods and services through time.

While the national minimum wage did rise roughly in step with productivity growth from its inception in 1938 until 1968, in the more than five decades since then, it has not even kept pace with inflation. However, if the minimum wage did rise in step with productivity growth since 1968 it would be over $24 an hour today, as shown in the Figure below.