You are toiling at your minimum wage job when you hear your boss talking about making only $5 an hour when he was starting out in 1980. You think to yourself, “Wait a second, I’m not falling for that! I know about inflation.” You quickly search an inflation calculator and see that the same wage today would be $15 per hour. You walk away convinced you deserve $15 per hour. After all, your boss made that much in 1980!
You were smart to consider the effects of inflation, but here there is more than meets the eye.
While the inflation calculator shows there has been inflation, it cannot show you that the value of goods, services, and labor do not necessarily rise at the same rate as inflation. Because of shifts in supply and demand, these values show substantial variability relative to the inflation rate over time. These factors, like costs, efficiency, and subjective value added, mean you can’t simply adjust your boss’s starting wage from 1980 for inflation and claim you are owed the inflation-adjusted amount. If you applied that thinking to the average television set, you would expect to pay over $1,000 for the set today. Instead, the inflation-adjusted price of TVs has drastically fallen since 1980.
In fact, the cost of household goods has fallen by as much as 95 percent during this time. This means that today, you can buy far more goods for fewer hours of work than you could in 1980.
The Costs and Value
You may think the television has nothing to do with stagnant wages, but consider this: the cost of the TV decreased over time, and so did the cost of doing your job.
Think about a simple office internship that hasn’t changed much over the years. “The work is virtually the same,” you think, “and you produce the same product as your boss did when he was an intern.” But tasks that you can do in under a minute today may have taken hours in 1980.
Today, the internet puts virtually all of human knowledge at one’s fingertips for instantaneous answers. In 1980, it took tabbing through file folders, visiting a library, or talking to actual people to find the same information. And producing a document now is hardly a task, whereas dealing with a typewriter or early word processor required more focus and time to manage the content and formatting. Both the effort and the cost to produce the same outcome today are far lower than they were in 1980.
Ben Dierker, Constitutional and Legal Affairs Associate