At the start of 2013, ten states raised their minimum wage rates: Arizona, Colorado, Florida, Missouri, Montana, Ohio, Oregon, Rhode Island, Vermont, and Washington. These ten states did so because each has a law requiring that it maintain the purchasing power of the state wage floor with an annual inflation adjustment, also called a “cost-of-living adjustment (COLA)” or “inflation-indexing.”

This flurry of activity sparked, yet again, a political fight over the merits of this century-old labor standard. One issue that comes up is whether minimum wage hikes will trigger inflation, i.e., cause an overall rise in prices.

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Media attention is finally focusing on the fact that low-wage work constitutes a major share of the jobs produced by the U.S. economy (for example, see this NYT article by Catherine Rampell, this NYT Op-Ed by Peter Edelmen, and this Huffington Post article by Dan Froomkin).

Politicians seem to universally prescribe the same remedy for low-wage workers’ economic hardships: to raise their living standards, they need better skills, more education.

Take for example, Obama’s speech at the Democratic National Convention in September 2012. In the same speech that President Obama poked fun at Republicans for having a knee-jerk “tax cut” cure all for what ails the U.S. economy, he offered up an even more ubiquitous bipartisan prescription of “get more skills” for all that ails U.S. workers: “You can choose a future where more Americans have the chance to gain the skills they need to compete, no matter how old they are or how much money they have. Education was the gateway to opportunity for me. It was the gateway for Michelle. And now more than ever, it is the gateway to a middle-class life.”

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This past July marked the 3^rd anniversary of the last federal minimum wage hike. This matters because each year the minimum wage does not go up, its inflation-adjusted value (i.e., its real purchasing power) goes down. The minimum wage last increased in 2009 to $7.25. Since then inflation has reduced its real value by 6 percent. More dramatic is how the federal minimum has lost about 40 percent of its real value since its peak in 1968 (just over $10.00 in today’s dollars). California Representative George Miller and Iowa Senator Tom Harkin have each proposed a bill to make up some of this lost ground by raising the federal minimum in three steps to $9.80 by 2015.

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