In 2003 the U.S. Congress was considering a minimum wage increase to $6.65, to be
phased in over two years. Calculate the equivalent of such an increase in real (1982-1984)
dollars. (Hint: Estimate the future CPI using the data from the early 2000s.)
To calculate the equivalent of a minimum wage increase in real (1982-1984) dollars, we need to adjust for inflation using the Consumer Price Index (CPI). The CPI is a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services.
Here's how you can estimate the future CPI using data from the early 2000s:
1. Find the CPI for the year 2003. You can search for this information from reliable sources such as the Bureau of Labor Statistics (BLS). Let's assume it is 185.2.
2. Estimate the average annual CPI increase from the early 2000s to 2003. To do this, calculate the percentage increase by subtracting the initial CPI from the final CPI and then dividing by the initial CPI. Let's assume it is 2.5%.
3. Calculate the equivalent CPI for the desired period (1982-1984) by applying the average annual CPI increase. Start with the base CPI for 1982-1984, which is 100. Add the percentage increase to the base CPI for each year. In this case, there are two years, so you need to add the increase twice (2.5% * 2). The equivalent CPI for 1982-1984 would be 105 (100 + 2.5% + 2.5%).
4. Divide the CPI for 2003 by the equivalent CPI for 1982-1984 to find the inflation factor. In this case, it would be 185.2 / 105 = 1.76.
5. Multiply the proposed minimum wage increase ($6.65) by the inflation factor to get the equivalent in real (1982-1984) dollars. Thus, $6.65 * 1.76 = $11.68.
Therefore, the equivalent of a $6.65 minimum wage increase in real (1982-1984) dollars would be approximately $11.68.