Table of Contents
The Chart That Lied to Me
My journey into the heart of the minimum wage debate began with a chart.
As a young PhD student in economics, I spent hours staring at a simple line graph showing the history of the U.S. federal minimum wage.
It was a picture of undeniable, if sporadic, progress.
The line started at the bottom left, at a mere $0.25 per hour in 1938, and climbed steadily upward in a series of legislative steps, reaching $7.25 by 2009.1
The visual message was clear: we were consistently giving America’s lowest-paid workers a raise.
But this clean, upward-sloping line felt like a lie.
It stood in stark, jarring contrast to the stories I was reading—and the lived realities I was beginning to study.
I read about Melissa Fonseca, who, despite working full-time for 17 years, lived paycheck to paycheck, trapped in a cycle of high-interest loans and unable to save even $20 because unexpected expenses always arose.3
I learned about David, a man who, after getting a job and a promotion, was denied a raise from his $7.25 an hour wage and ended up homeless once again.4
How could this be? If the wage was always going up, why were so many people falling further behind? The standard tools of my field felt inadequate.
The chart showed a rising number, but the data on poverty and economic precarity told a story of decline.
It was my first great intellectual failure: the inability to reconcile the official story of progress with the painful narrative of struggle.
I realized the problem wasn’t just in the numbers, but in the story we were telling with them.
The chart wasn’t lying about the data, but it was telling a dangerously incomplete truth.
The Epiphany: A Paycheck Isn’t One Engine, It’s Two
The breakthrough didn’t come from a more complex regression model.
It came when I stepped outside the static world of economic charts and into the more fluid domain of systems dynamics.
I began to see that a worker’s paycheck isn’t a single number; it’s a dynamic system.
It’s like a boat trying to make its way across an ocean.
For that boat to move forward, it needs more than just a powerful engine; it needs a sound hull.
This led me to the “Two-Engine Boat” paradigm, a new way to see the problem that finally made sense of the paradox.
- Engine #1: The Nominal Wage. This is the number on your paycheck, the raw dollar amount an employer pays you for an hour of work—$7.25, $15, $20.2 This is the boat’s main engine, providing the raw thrust. The chart that had initially confused me was only showing the history of this engine’s power settings.
- Engine #2: Real Purchasing Power. This is what those dollars can actually buy. It’s a measure of the boat’s forward momentum, which depends not just on the engine’s thrust but also on the integrity of the hull and the resistance of the water. The primary force working against the boat is the current of inflation—the rising cost of goods and services that constantly erodes the value of a dollar.5 If the hull is leaky and taking on water (i.e., if inflation is high), the boat slows down, or even moves backward, no matter how hard the nominal engine roars.
The lie of that first chart was that it only showed me Engine #1.
It celebrated the roar of the engine without ever checking to see if the boat was sinking.
To understand the journey of the American worker, you have to watch both engines at once.
The public debate is so often dysfunctional because one side is demanding more power for the nominal engine, while the other is warning that the extra thrust will only spring new leaks in the hull.
The truth is, you have to manage both.
Pillar 1: The Nominal Engine – A Story of Pushing the Throttle
The history of the federal minimum wage is the story of America’s sporadic attempts to push the throttle on the nominal engine.
It’s a tale not of smooth acceleration, but of political battles, legislative bursts, and long, quiet stalls.
The Beginning and the Great Expansion (1938-1968)
The journey began with the Fair Labor Standards Act (FLSA) of 1938, which established the first national minimum wage at $0.25 per hour.1
This was a landmark piece of New Deal legislation, but its reach was limited.
It primarily covered workers in interstate commerce, leaving out vast swaths of the labor force, particularly in agriculture and domestic service—sectors that disproportionately employed women and African Americans.1
Throughout the 1940s and 1950s, Congress gave the engine a few pushes, raising the wage to $0.75 in 1950 and then to $1.00 in 1956.2
The most significant changes, however, came during the 1960s.
Amendments in 1961 and 1966 dramatically expanded the FLSA’s coverage, bringing in millions of workers in retail, restaurants, hotels, and agriculture for the first time.7
These expansions were a crucial, if often overlooked, victory of the Civil Rights era, directly boosting incomes and reducing racial earnings gaps.8
By 1968, a series of increases had brought the nominal wage to $1.60 per hour.1
The Catch-Up Era and the Great Stall (1970s-Present)
The 1970s were characterized by high inflation, forcing Congress to play catch-up.
A series of aggressive increases pushed the wage to $2.00 in 1974 and all the way to $3.35 by 1981.2
But then, the engine stalled.
For nearly a decade, the wage remained frozen at $3.35, until increases resumed in 1990.
Another series of pushes brought it to $5.15 per hour in 1997.2
The most recent federal action was the Fair Minimum Wage Act of 2007, which implemented a three-step increase from $5.15 to the current $7.25 per hour, finalized on July 24, 2009.1
Since that day, the federal nominal engine has not been touched.
This marks the longest period without an increase in the history of the minimum wage.8
This legislative neglect—a failure to even touch the throttle—has left the boat at the mercy of the currents.
Pillar 2: The Power Engine Failure – The Unseen Drag of Inflation
Now, let’s look at the chart that tells the truth.
This chart adjusts the nominal wage for inflation, revealing the real purchasing power of workers over time.
It shows what happened to the boat’s actual progress while we were busy tinkering with the engine.
The picture it paints is not one of progress, but of a golden age followed by a half-century of decline.
The erosion of value is caused by inflation, measured by the Consumer Price Index (CPI).
The CPI tracks the average change in prices paid by urban consumers for a “market basket” of goods and services, including food, housing, clothing, transportation, and medical care.5
When the CPI goes up, it means your dollar buys less than it did before.
For example, the Bureau of Labor Statistics reported that over the 12 months ending in June 2025, the all-items index increased 2.7%, meaning the purchasing power of a static wage fell by that amount.10
When we apply this concept to the minimum wage, the results are stunning.
The Peak and the Fall
The real value of the minimum wage—its purchasing power in today’s dollars—hit its all-time peak in 1968.
That year, a worker earning the nominal wage of $1.60 an hour had the buying power of approximately $14.47 in 2024 dollars.1
That was the moment our boat was moving fastest and highest in the water.
Since then, it has been a story of relentless decline.
The series of nominal raises in the 1970s failed to keep up with the high inflation of that era.
The long freezes in the 1980s and 2000s allowed inflation to silently eat away at the wage’s value.
According to an analysis by the Economic Policy Institute, the current federal minimum wage of $7.25 is worth less than at any point since February 1956 and has lost over 40% of its peak value from 1968.8
The table below lays out this stark divergence, telling the tale of two wages.
It is the mathematical proof of our system’s failure: a nominal engine that gets more powerful on paper, while the boat itself sinks lower and lower.
Table 1: The Tale of Two Wages – Nominal vs. Real Value of the Federal Minimum Wage
| Year | Nominal Minimum Wage | Real Minimum Wage (in constant 2024 dollars) |
| 1938 | $0.25 | ~$5.58 |
| 1956 | $1.00 | ~$11.20 |
| 1968 | $1.60 | ~$14.47 |
| 1981 | $3.35 | ~$11.20 |
| 1997 | $5.15 | ~$9.80 |
| 2009 | $7.25 | ~$10.30 |
| 2024 | $7.25 | $7.25 |
Note: Real values are approximate, calculated based on historical CPI data and figures provided in sources.1
The widening chasm between the nominal value and the real value is the story of the last 50 years.
It explains the paradox that I first encountered as a student.
It is the reason why a worker earning $7.25 today has significantly less economic power than a worker who earned $1.60 in 1968.
Pillar 3: Passengers on the Boat – The Human Toll of a Stalled Journey
This half-century of eroding purchasing power is not an abstract economic phenomenon.
It has inflicted a heavy toll on the millions of Americans who are passengers on this boat.
The data on declining real wages translates into daily struggles, impossible choices, and cycles of debt that are difficult to escape.
The story of Melissa Fonseca is a case study in these struggles.
Her attempt to buy a car for her family turned into a financial nightmare.
With a low income and poor credit, she was forced into a predatory loan with a $400 monthly payment.
When the car broke down, she couldn’t afford the repairs, and it was repossessed, further damaging her credit.3
This is a classic feedback loop created by wage stagnation: low income leads to poor credit, which leads to high-cost debt, which extracts wealth and ensures income remains low.
Her poignant statement, “I’m making minimum wage.
I can’t really finance anything because my interest rates are going to be high,” is the sound of this trap closing.3
This reality is not confined to big-ticket items.
Former Ohio Governor Ted Strickland took a challenge to live on a minimum-wage budget for a week and found himself skipping meals, walking miles in the heat to save on transportation, and relying on cheap, unhealthy food from the McDonald’s dollar menu because fresh produce was unaffordable.12
These are the daily indignities and health trade-offs forced by a wage that no longer provides for basic needs.
The problem is compounded by a misaligned social safety Net. Melissa Fonseca experienced the “benefits cliff” firsthand: when she started receiving child support, her rent in public housing increased proportionally, leaving her with no net financial gain.3
This cruel paradox can disincentivize work and income growth, trapping families in place.
This crisis isn’t just felt by workers; it also puts immense pressure on small business owners.
When California mandated a $20 minimum wage for fast-food workers, Subway franchisee Marisol Rojas found her dream of business ownership turning into a “nightmare.” She had to lay off half her staff, raise prices, and now works seven days a week, making less than she did as an hourly employee herself.
For her, a sudden, massive push on the nominal engine nearly sank her boat.13
These passengers are not who many assume.
They are not primarily teenagers in summer jobs.
Nearly half of minimum wage workers are over the age of 25, and they are disproportionately women and people of color, often working to support their families.14
Pillar 4: Charting a New Course – The Modern Debate on How to Fix the Engines
Given the clear failure of the current system, the debate now centers on how to repair it.
Using our “Two-Engine Boat” framework, we can analyze the main proposals based on how they address the nominal engine, the leaky hull, and the synchronization between them.
Option 1: A Bigger Nominal Engine (Raising the Federal Wage)
The most prominent proposal is to give the nominal engine a massive push by raising the federal minimum wage to $15 or even $17 per hour.16
Proponents, like the Economic Policy Institute, argue this would lift pay for over 30 million workers, reduce poverty, and help reverse decades of growing inequality.18
The evidence on the consequences of such a large hike is complex and fiercely debated.
Many studies of past, more modest increases find little to no overall effect on employment, suggesting businesses absorb the costs through higher prices, lower profits, and reduced employee turnover.20
However, some case studies of large, rapid increases have shown negative impacts.
An analysis of Seattle’s move to a $13 minimum wage found that while hourly wages for low-wage jobs rose, the number of hours worked fell, resulting in a net monthly earnings loss for some workers.22
The Congressional Budget Office, in a 2021 analysis, projected that a $15 wage could lift 900,000 people out of poverty but could also lead to 1.4 million job losses.1
Business groups and owners like Marisol Rojas fear that such a shock would force them to cut jobs, automate, or close entirely.13
Option 2: Patching the Leaky Hull (Understanding Inflation Effects)
A key concern is the “pass-through” effect: how much of a wage increase gets passed on to consumers through higher prices, effectively creating a new leak in the hull.
Research suggests this effect is generally modest for the overall economy.
One study found that a 10% increase in the minimum wage was associated with just a 0.36% increase in restaurant prices.25
Another found a cumulative increase in the local CPI of about 0.24 percentage points following a 10% wage hike.26
However, the impact can be more concentrated in low-wage sectors.
In California, after the $20 fast-food wage law, prices at quick-service restaurants surged by over 13%, nearly double the rate of the rest of the country.13
The design of the increase matters; studies suggest that small, scheduled, and predictable hikes have a much smaller price effect than large, one-time shocks.25
Option 3: Synchronizing the Engines (Indexing and Local Action)
Perhaps the most systems-aware solutions are those that seek to synchronize the two engines, creating a self-correcting mechanism.
In the face of federal inaction, many states and cities have become policy laboratories for this approach.1
As of 2022, 30 states and Washington, d+.C.
had minimum wages higher than the federal level.1
Many have gone a step further.
States like Washington have implemented
indexing, automatically adjusting their minimum wage each year based on changes in the Consumer Price Index.28
This is a direct attempt to link the two engines, ensuring that the purchasing power of the wage is protected from the constant, corrosive current of inflation.
It transforms the wage from a volatile political football into a stable, predictable economic standard.
Furthermore, the rise of city- and county-level minimum wages—from $17.50 in d+.C.
to over $18 in some California cities—reflects a move toward tailoring the wage to local economic conditions and costs of living.1
This approach avoids the one-size-fits-all problem of a single federal number, which may be too high for a rural area and too low for a major city.24
Conclusion: Seeing the Whole Ocean, Not Just a Single Wave
My journey as an economist began with two conflicting stories: the simple, misleading chart of a rising nominal wage, and the complex, painful reality of declining purchasing power.
The “Two-Engine Boat” paradigm was my attempt to reconcile them—to see the whole picture by looking at the engine’s thrust and the hull’s integrity at the same time.
This framework doesn’t offer a single, easy answer, but it provides a better way to ask the questions.
It forces us to move beyond a binary debate of “raise it” versus “don’t raise it.” A healthy economic system for our lowest-paid workers requires both engines to function properly.
We need a nominal wage floor high enough to provide a dignified standard of living, addressing the power of Engine #1.
And we need a robust, automatic mechanism, like indexing to inflation, to protect that wage’s value over time—to constantly patch the leaks in Engine #2.
The most promising path forward lies in the lessons learned from states and cities: that wage policies that are gradual, predictable, and responsive to local conditions are more effective and less disruptive than the sporadic, politically charged battles at the federal level.
By designing a system that is self-adjusting, we can reduce economic uncertainty for both the workers who depend on this wage and the small business owners who must pay it.
It is time to stop arguing about a single number and start designing a smarter, more resilient system.
It is time to move beyond looking at a single wave and learn to read the entire ocean.
Works cited
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- Melissa Fonseca | Stories | FIRSTHAND: Living in Poverty | WTTW …, accessed on August 10, 2025, https://www.wttw.com/firsthand/living-in-poverty/stories/melissa-fonseca
- Real Life Stories – Universal Living Wage, accessed on August 10, 2025, https://universallivingwage.org/real-life-stories/
- Federal Minimum Hourly Wage for Nonfarm Workers for the United States*272.265/Consumer Price Index for All Urban Consumers: All Items in U.S. City Average | FRED | St. Louis Fed, accessed on August 10, 2025, https://fred.stlouisfed.org/graph/?graph_id=529071
- Real Purchasing Power of the Minimum Wage, by Year | RSF – Russell Sage Foundation, accessed on August 10, 2025, https://www.russellsage.org/research/chartbook/real-purchasing-power-minimum-wage-year
- History of Changes to the Minimum Wage Law | U.S. Department of Labor, accessed on August 10, 2025, https://www.dol.gov/agencies/whd/minimum-wage/history
- The value of the federal minimum wage is at its lowest point in 66 …, accessed on August 10, 2025, https://www.epi.org/blog/the-value-of-the-federal-minimum-wage-is-at-its-lowest-point-in-66-years/
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- I Tried to Live on Minimum Wage for a Week – POLITICO Magazine, accessed on August 10, 2025, https://www.politico.com/magazine/story/2014/07/a-mile-in-shoes-of-the-minimum-wage-worker-109418
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- What Difference Does a Minimum Wage Make? | Richmond Fed, accessed on August 10, 2025, https://www.richmondfed.org/publications/research/econ_focus/2021/q2-3/district_digest
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