U.S. think tank says America's minimum wage has the lowest real purchasing power in 70 years, has become a "poverty wage"

Source: Global Market Report

The Center for Economic and Policy Research (CEPR), a U.S. think tank, pointed out in a recent report that this July marks the 17th year that the federal minimum wage has remained at $7.25 per hour. Inflation continues to rise while baseline wages remain unchanged, meaning the real purchasing power of the current minimum wage has fallen to a 70-year low, far below the historical peak in 1968.

Senior economist Sylvia Allegretto of the Center for Economic and Policy Research wrote: “Since the establishment of the federal minimum wage system in 1938, we are experiencing the longest period of policy stagnation. In fact, the current federal minimum wage has essentially become a poverty wage.”

In fact, last year the federal minimum wage officially became a “poverty wage,” meaning that a full-time, year-round job at $7.25 per hour yields annual income below the $15,650 poverty line set by the U.S. Department of Health and Human Services.

With inflation exacerbated by tariffs and the Iran conflict, and with housing and childcare costs remaining high, the ongoing affordability crisis has once again brought minimum wage into the national spotlight. According to data from the Atlanta Fed, one of the economic challenges faced by Americans is stagnant wage growth, which has slowed from a peak of 6.7% in July 2022 to 3.6% last month.

According to a 2021 Pew Research Center survey, Americans generally support raising the federal minimum wage, with 62% in favor of a $15 wage floor. The vast majority of those opposing a $15 wage still believe the minimum wage should be higher than $7.25, though not as high as $15.

In addition, the desire for higher wages has always been an issue of concern for U.S. voters. New York City mayoral candidate Zohran Mamdani has proposed setting the minimum wage at $30 as part of his mayoral campaign, planning to increase the city’s wage floor from $16.50 to $30 by 2030.

Problems brought by historically low minimum wage

Senior economist Allegretto from the Center for Economic and Policy Research explained that although the minimum wage in 30 U.S. states and Washington, D.C. is higher than the federal standard, states that abide by $7.25 as their minimum wage are mainly concentrated in the South, where poverty rates are among the highest in the country. In Mississippi, over a quarter of the workforce earn less than $15 per hour, and in Arkansas, Oklahoma, and Alabama, one in five jobs falls into this category.

The relationship between low wages and higher poverty rates has been thoroughly studied: A 1987 study by congressional economists Ralph E. Smith and Bruce Wafricheck found that 20% of hourly workers at the time (earning $3.35 or less) had incomes below the U.S. poverty line. Research from the Center for American Progress, a public policy institute, shows that child poverty reduces about 1.3% of GDP each year, affecting productivity and economic output.

Opponents of raising the minimum wage argue that actual market wages have risen along with inflation and productivity growth. Calculations by the Cato Institute, a think tank, show that as of January, the average effective minimum wage was actually $12.13. Researchers note that raising wages will reduce employment opportunities for low-skilled workers, push up consumer prices, and increase unemployment due to higher labor costs.

These concerns have manifested in California, where Governor Gavin Newsom passed a law in 2024 setting a $20 minimum wage for fast food industry workers. Several studies—including a November 2025 report from the Cato Institute—cite data from the Bureau of Labor Statistics, stating that after the $20 minimum wage law was enacted, the fast food sector had 18,000 fewer jobs compared to other labor markets.

Other economists believe that opposition to these wage increases is overblown. A working paper released earlier this year by UC Berkeley found that the new policy in California increased weekly earnings of eligible workers by about 11% on average without affecting employment. Prices rose about 1.5%, meaning that a $4 item increased by 6 cents.

California’s minimum wage policy may signal that other regions across the country will implement similar measures. A report from the National Employment Law Project found that approximately twenty states will raise their minimum wage standard at some point this year.

“A lot of people are watching what’s happening in California,” said study author Michael Reich, director of the Center on Wage and Employment Dynamics at UC Berkeley. “This might offer a model for other regions across the country.”