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February 22, 2013

How does the U.S. minimum wage compare to those around the world?

WASHINGTON — In his State of the Union address this week, President Barack Obama announced that he would seek to raise the federal minimum wage to $9 an hour, a measure that would form the centerpiece of an agenda aimed at reducing incoming inequality in the United States.

That announcement got us wondering: How does the U.S. minimum wage stack up against the minimum wage in other countries? The answer depends somewhat on how one chooses to measure the minimum wage and the standard against which it is measured.

One handy way of comparing the minimum wage across borders is to measure it relative to median full-time wages, which indicates the gap between the lowest wage earners and the mid-point of the income spectrum. On that measurement, the U.S. minimum wage is about 38 percent of the median, which is indicative of high levels of income inequality in the United States. Countries like Australia, Belgium, France, Ireland and New Zealand have both higher absolute minimum wages and minimum wages that fall closer to median wages. In other words, living on the minimum wage in one of those countries puts an individual much closer to achieving a median income than it would in the United States. Unstated in all of this, of course, is that the United States is significantly wealthier than all of these countries.

If one looks at minimum wage from an hourly perspective, the picture is much the same. Of the 23 countries for which the Organization for Economic Cooperation and Development has data, the United States ranks 10th in hourly income in PPP dollars, a measurement of purchasing power that indicates how much stuff an employee can buy with an hour of work.

All this is to say that, relative to its wealth, the United States underpays its least-skilled workers.

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