David Neumark is professor of economics and director of the Center for Economics and Public Policy at the University of California, Irvine.
Proponents of raising the minimum wage often point out that the real minimum wage is lower now than it was decades ago. But the federal policy aimed at low-wage work and low-income families has shifted — wisely — away from reliance on the minimum wage and toward a generous earned-income tax credit, which is better focused on poor families. There is nothing wrong with reducing our reliance on a less effective policy when we have adopted a more effective one. In fact, we should hope that research on public policy leads to exactly this kind of outcome.
The decline in the real value of the minimum wage is indisputable. As shown in the chart below, the real value of the federal minimum declined sharply over the 1980s, and then further in the mid-2000s, before partly recovering with the fairly steep increases in the minimum wage in 2007-9. But despite those increases and low inflation in recent years, it still remains well below its real value in the 1970s.
There has been a significant policy shift, however, in how to guarantee a minimally acceptable income to families with low-wage workers. In particular, the earned-income tax credit was instituted in 1976, and its generosity has since been expanded considerably.