How the U.S. Measures Up Against Minimum Wages Around the World
Increasing the federal minimum wage has taken up a growing center stage in American politics. President Biden campaigned on a $15.00/hour federal minimum, but actually making it happen now that he has taken office hasn’t been so easy. In February, the proposal to change the minimum wage policy was struck down by the Senate parliamentarian, and the change did not make it into the final version of the American Rescue Plan. These efforts will likely be postponed and attempted to be passed separately later in the year.
At $15.00/hour, the proposed minimum wage would be more than double the current rate of $7.25/hour. The update, according to many on the left, is long overdue. The last time the rate was raised was in 2009, when the Obama administration pitched it as part of similar efforts to boost the nation’s struggling economy. Although many efforts have been made since then to pass further increases in both the House and the Senate, the rate has remained the same.
To put this policy into perspective, $7.25/hour lands a worker right at the federal poverty line.* According to the US Bureau of Labor Statistics, 392,000 Americans were working for $7.25/hour, and 1.2 million were working below the federal minimum (mostly tipped employees). As of 2019, one out of every ten Americans lives in poverty.
To help with this and accommodate for the lack of minimum wage increases at the federal level, many states have taken matters into their own hands. 28 states and territories have raised their local minimum wages, with Washington DC leading at $15.00, California at $14.00, and Massachusetts at $13.50.
In fact, after including minimum wage rates at the city level, nine out of every ten American workers making minimum wage are actually earning more than $7.25/hour. As of May 2019, legislation that individual states and cities have passed to raise the minimum wage means that the effective average minimum wage in the United States is actually $11.80/hour.
Under Biden’s proposal, the minimum wage would be set at $9.50/hour and then steadily increased over the next four years to $15.00/hour. This means that for a large proportion of minimum wage workers in the US the immediate effects of the policy would be minimal until the federal levels catch up to local standards. The US federal government, having failed to act, has effectively relinquished its responsibility and allowed wage disparities to grow across different states.
The gap is also widening between the US and its counterparts across the world. In order to dig deeper into the comparison between different countries, we leveraged data from the Organisation for Economic Co-operation and Development, or OECD. The OECD compiles a useful dataset containing the history of almost every country’s federal minimum wage policies over time. Policy structures can vary widely—Canada, for example, eliminated a federal minimum wage in 1996, handing over its authority to set policies to the provinces. Some countries, such as India, have wages set per day instead of per hour. And some countries, such as Austria, have no federal policy at all, opting to set wage requirements through a complex negotiation process that varies by industry. The OECD calculates an average federal minimum wage based on these factors, and adjusts the wage based on purchasing power parity (PPP) using 2017 as the base year. The minimum wage in PPP USD used in the analysis below can be interpreted as how much as the wage a worker would earn in USD, adjusted for the cost of living in the United States in 2017.
We combined this with data from the World Bank to identify factors correlated with minimum wage. Unsurprisingly, developing countries (those with high GDP growth or higher wealth disparities) were more likely to have lower wage rates. By contrast, countries with high urban populations high ease of business scores, and high CO2 emissions also had higher wages.
The OECD data also shows us, unequivocally, that the U.S. is falling behind in paying its workers. In 2018, U.S. ranked 16th out of 72 countries with a listed minimum wage.
Just eight years earlier, in 2010, the US ranked 8th on the same list. But while the US federal minimum wage remained unchanged, 42 countries out of 63 listed have increased their effective minimum wage when adjusting for PPP.
When looking at just the G20, every country has raised its minimum wage over the last decade except for the US. The most drastic changes have happened for developing countries. Take Brazil, for example. In 2010, Brazil’s monthly minimum wage was 510 Brazilian reals/month, or $319.28/month in PPP USD. By 2018, that rate was raised to $405.07—a full 27% increase in the minimum wage over eight years. With its rapidly growing economy, China went even further; over that same period, China almost doubled its minimum wage rate from $265.67/month to $513.10/month.
Of course, this change isn’t just happening in developing countries. Every single G7 country has increased its federal minimum wage, often overtaking the US in the process. In the United Kingdom, the OECD estimated that the UK federal minimum wage for 2010 was £956.00/month, or $1,228.39/month in PPP USD (adjusted for currency exchange and cost of living), just below the US rate of $1,256.67/month. By 2019, that number was $1,736.13/month, a full 41% increase in eight years, and 38% higher than the US’s current minimum. If there were two workers making minimum wage, one in the UK, and one in the US, the worker in the UK would come home every month with an extra $500 to spend on gas, groceries, and rent.
The UK in particular is a helpful benchmark for comparison. Having just completed its separation from the European Union, it is not subject to as many strict regulations and is generally considered to be more fiscally conservative compared to other G20 states such as Germany and France. Biden’s proposal to lift the minimum wage to $9.50 in 2021, would put the US into the ballpark of the UK at $1,650/month, still about $100 less per month, but a much more comparable rate.
The likelihood of such a policy getting passed through Congress this year is questionable. Despite a number of Democrats asking for a greater increase, the majority of senators and representatives still consider the bill to be too drastic to pass in such an uncertain time. However, even Republicans are becoming more open to the idea of making some change to the policy. Senators Tom Cotton and Mitt Romney introduced legislation modifying Biden’s plan to a more modest increase to $10/hour by 2025. Cotton’s own state, Arkansas, with a minimum wage of $11.00/hour, would be unaffected by these changes.
These changes reflect the shifting opinion of the greater American population. A recent Reuters/Ipsos poll estimated that 59% (+/- 3% margin) of Americans support an increase to $15.00/hour. While the patchwork of individual state policy addresses some of these constituents, it is clear it is time for US federal policy to catch up to the demands of its citizens. As both developing and peer countries alike continue to pass federal minimum wage increases, the US falls further and further behind.
*Assuming a worker works 40 hours per week, 52 weeks a year, they would be earning an annual income of $15,000. A single person would be slightly above their designated FPL limit of $12,880, but a two-person household would qualify, earning less than the designated $17,420.
Code and methodology used to analyze the data for this piece can be accessed here.