Wages Higher at the Low End

On July 9, 2006, Governor Edward Rendell signed into law the first increase in the Pennsylvania minimum hourly wage in more than a decade. Under the law, the minimum wage increased from $5.15 per hour to $6.25 per hour in January 2007 and then to $7.15 per hour in July.

Examining wage data from July 2006 to June 2007 allows us to take a first look at the impact of the initial Pennsylvania minimum hourly wage increase. We find that, adjusted for inflation, typical low-wage earners (defined as those at the 10th percentile in Figure 1) earned $7.81 per hour in the year ended June 2007, 5.5% more than in the previous 12 months (see also Table 1). (In the previous 12 months, the actual dollar (nominal) wage of these low-wage earners was right around $7.15 per hour.)

This represents the largest wage increase for low-wage earners in a 12-month (July to June) period since at least the late 1970s (the earliest period for which we have data). The next largest increase in wages for these workers coincided with an increase in the federal minimum hourly wage in September of 1997. In the United States as a whole, within which the federal minimum wage remained at $5.15 from July 2006 to June 2007, the hourly earnings of low-wage workers increased by only 2% from the last fiscal year.

Inflation-adjusted earnings at the 20th percentile were $9.48 per hour in 2006–2007, or 2.5% higher than in the previous 12 months, well above the 0.6% increase for the same class of workers nationally. This suggests that workers with hourly earnings up to $1 or $2 above the new minimum wage—a total of about a million workers—also got a raise when the minimum hourly wage in Pennsylvania was increased. Workers paid within a couple of dollars above the new minimum wage are also likely to receive a wage increase even though this is not mandated by law, because their employers want to attract and retain higher-quality workers than employers that pay at or close to the legal minimum.

Wages Still Stagnant Overall

The inflation-adjusted hourly wages of Pennsylvania’s workers in the 30th, 40th, and 50th percentiles (the 50th percentile also known as the “median wage”) also increased (by 1.4 to 2.5%) in the 12 months ending June 2007. However, unlike the increases for the lowest two deciles, these wage gains for Pennsylvania workers were similar to those received by the same groups of U.S. workers.

Inflation-adjusted hourly earnings for workers from the 50th percentile (the median) to the 95th percentile grew faster in the United States than in Pennsylvania over the 12 months ending June 2007.

Overall, the Pennsylvania wage distribution compressed slightly as workers at and below the median gained ground against those in the upper half of the wage distribution. This contrasts with the dominant pattern of wage growth over the past quarter century, during which period workers at or below the median have ordinarily lost ground to workers in the upper half of the wage distribution.

Despite recent growth, inflation-adjusted hourly wages across the entire wage distribution in Pennsylvania remain below their peak levels (reached in most wage percentiles in 2001–2002). At $14.85, today’s median hourly wages are 16¢ lower than their level five years ago (Table 2). (Median wages are up slightly nationally—by 6¢ per hour—over the same period.)

Over the five-year period from 2001–2002 to 2006–2007 (see Table 2), Pennsylvania earnings for these workers were down just 5¢ from their peak of $7.86, coinciding with the recent minimum wage increase. Stunningly, earnings at every point in the wage distribution shown, all the way up to the 95th percentile, are lower now than they were just five years ago, 2001–02. At the 95th percentile in Pennsylvania, inflation-adjusted hourly earnings are down 4¢ over the past five years, to $40.81. Nationally, the wages of workers in the 95th percentile are up by $1.14 to $44.07, from $42.93 per hour in 2001–2002. (As is the case nationally, wages in Pennsylvania may have grown above the 95th percentile, but that can not be reliably estimated with the wage data we have available.)

This page is an on-line summary of a portion of the full State of Working Pennsylvania 2007 report available for download from www.stateofworkingpa.org. © 2007 Keystone Research Center - www.keystoneresearch.org.