http://www.homefair.com/homefair/calc/salcalc.html?type=to
Now, back to our class objective: We are interested in the economy as a whole and how we can adjust dollar values for the economy as a whole for inflation (rather than from state to state…)
For example, back in 1938 the Federal Government established the minimum wage at $.25 an hour, and today the federal minimum wage is $5.15.
My question to you is: has the minimum wage kept pace with inflation?
We can answer this question by figuring out one of two …show more content…
Here are the rules:
1) What $.25 is worth today? .25*(185/14) = $3.30
So what does this mean? It means that if minimum wage rose just to keep up with the cost of living, it would be at $3.30 today. Since it is actually at $5.15, minimum wage has increased by more than the rate of inflation.
2) What is $5.15 worth back then? 5.15*(14/185) = $.39. So, once again, we see that today’s minimum wage is higher in REAL terms than the minimum wage back in 1938.
An Interesting Example:
For you movie buffs – what is the top grossing movie of all time? This is a misleading question because a ticket at a theater today costs $7.50 whereas back in the 50’s it was less than a dollar. That is, to make the comparisons meaningful, we need to control for inflation.
There is a website that does just that – it looks at the top grossing films of all time NOT adjusted for inflation, and then adjusted for inflation. The differences really highlight how important it is to adjust dollar figures for inflation when doing comparisons over time. Here is the website: