States have the right to set their? state-wide minimum wage above the Federal le

Question

States have the right to set their? state-wide minimum wage above the Federal level. The following data were obtained for the state of? Wisconsin: Year Minimum Wage? (non-ag) CPI PCE deflator? (price index) 1977 ?$2.20/hour 61 34 2016 ?$7.25/hour 239 110 According to these data and using the PCE deflator to estimate the cost of? living, someone currently earning the Wisconsin state minimum has? ________ purchasing power compared to the purchasing power of someone earning the minimum wage back in 1977.

Explanation / Answer

1977: Minimum Wage = $2.2 , CPI = 61, PCE Deflator = 34

2016: Minimum Wage = 7.25, CPI = 239, PCE Deflator = 110

Real MinimumWage (1977) using PCE Deflator with respect to 2016:

(2.2 * 110 / 34 ) = 7.118

Purchasing Power Gained

= 7.25 - 7.118 = 0.132

= (0.132 / 7.118) = 1.85%

Purchasing power increased by 1.85%

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