Inflation vs the ‘Fight for 15’

This week, Minnesota Daily reported:

The University of Minnesota announced Wednesday via a systemwide email it will increase the student minimum wage to $15 per hour. The change will take effect in the fall, starting with the Sept. 26 pay period and reflected in the Oct. 19 paycheck. 

Before the increase, the University held the state’s minimum wage, $10.33. 

This caused some excitement, even being described as “An unbelievably exciting victory.“

But, of course, one of the big stories at present is inflation. This rise in prices erodes the purchasing power of money so that a nominal wage might rise from $10.33 to $15 an hour, but the real wage — what it actually buys you — rises by less. Indeed, real wages have actually fallen over the last year.

Imagine you were one of these student workers earning $10.33 last June. By June this year, inflation had eroded that by 8.3%, to the extent that your $10.33 only had the same purchasing power as $9.27 in June 2021. Now, if inflation carries on at the average rate of the last year, 0.7% a month – a big assumption – then, when the minimum wage goes up to $15 in October, tit will actually only have the purchasing power that $13.37 had in June 2021.

Obviously any raise is a good thing and it would be churlish to pretend otherwise. But inflation is going to get to work on that pay hike the second you get it. In November the purchasing power of that hourly wage in June 2021 dollars will be less than $13.37, in December it will be less again, and on and on (periods of deflation are relatively few). You might be getting $15 an hour in nominal terms, but, thanks to inflation, in real terms you never got there.