Question

This is a study on minimum wage and poverty thresholds.  I have included the procedure for one year, 2009, below.  You will calculate all variables for all years 1968 – 2013.  You will have three graphs.  Check the attached excel data sheet to see what info. you already have.  You will need to calculate a few variables for each year.  Use the excel data sheet to do quick and easy cut and paste formulas.  If you need help, or are hyperventilating now, just drop me a line or come by the office.     JB

Step 1. Start off by using the 2009 and 2010 data.  You have this data on the excel data sheet:

1. Minimum wage/Nominal minimum wage (NMW)
2. Consumer Price Index (CPI) Use CPI-U for Urban Consumer, annual average
3. Poverty level income threshold for a household of 2 (H2)
4. Poverty level income threshold for a household of 4 (H4)

(NMW, H2 and H4 are nominal variables)

5. You must calculate this one.  CPI in hundredths = CPI/100. Divide all nominal values by CPI in hundredths to convert nominal values to real values.

Step 2. Convert nominal minimum wage (NMW) to real minimum wage (RMW).  

Minimum wage (NMW) from data source in 2009 = $______, the CPI for 2009 = ______

Formula 1:  RMW= NMW/CPI in hundredths

                                _____________ for 2009

Step 3. Calculate yearly percent change in RMW (PP). % chg PP represents annual percent change in purchasing power.

Formula 2: % chg PP from 2009 to 2010:

= (RMW in 2010–RMW in 2009)/RMW in 2009) x 100, = _____________________; an       (increase or decrease) in purchasing power.

Step 4. Calculate the yearly percentage change in the CPI (INFLT). INFLT represents annual percent change in inflation.

Formula 3: INFLT from 2009 to 2010:

                      = (CPI₂₀₁₀ – CPI₂₀₀₉/ CPI₂₀₀₉ x 100;       

                      = (CPIY₂₀₁₁ – CPI₂₀₁₀)/ CPI₂₀₁₀ x 100;     

                        = __________________, an (increase or decrease) in inflation from 2009 to 2010

Step 5. Graph 1. For every year, graph % chg in PP and Inflation (INFLT) on the same graph. Title of graph should be Trend in Purchasing Power and Inflation for Selected Years    

Step 6. Calculate real annual income 1(INC1):  RMW x 40 hours per week x 50 weeks per year.

Formula 4:    INC1 for 2009 = ______________, H2 =________ , this is a nominal value

Formula 5:   Convert to real value (RH2) = h2/CPI (2009) in hundredths = _______________

Year	NMW	CPI-U	H2	H4	CPI/100	RMW	% chg pp	inflation rate	INC1	rh2	INC1PCTRH2	INC1PCTR4	rh4	INC2PCTRH2	INC2PCTRH4
1968	1.6	34.8	2262	3553
1970	1.6	38.8	2525	3968
1972	1.6	41.8	2724	4275
1976	2.3	56.9	3711	5815
1979	2.9	72.6	4725	7412
1980	3.1	82.4	5363	8414
1981	3.35	90.9	5917	9287
1988	3.35	118.3	7704	12092
1991	3.8	136.2	8865	13924
1992	4.25	140.3	9137	14335
1994	4.25	148.2	9661	15141
1996	4.25	156.9	10233	16036
1997	4.75	160.5	10473	16400
1998	5.15	163	10634	16660
2000	5.15	172.2	11239	17603
2001	5.15	177.1	11569	18104
2002	5.15	179.9	11756	18392
2003	5.15	184	12015	18810
2004	5.15	188.9	12334	19307
2005	5.15	195.3	12755	19971
2006	5.15	201.6	13167	20614
2007	5.15	207.3	13540	21203
2008	5.85	215.3	14051	22025
2009	6.55	214.5	13991	21954
2010	7.25	218.1	14218	22314
2011	7.25	224.9	14657	23021
2012	7.25	229.6	14937	23492
2013	7.25	233	15156	23836

Answer 1

Step 1. Start off by using the 2009 and 2010 data. You have this data on the excel data sheet:

Minimum wage/Nominal minimum wage (NMW)

Consumer Price Index (CPI) Use CPI-U for Urban Consumer, annual average

Poverty level income threshold for a household of 2 (H2)

Poverty level income threshold for a household of 4 (H4)

(NMW, H2 and H4 are nominal variables)

You must calculate this one. CPI in hundredths = CPI/100. Divide all nominal values by CPI in hundredths to convert nominal values to real values.

Step 2. Convert nominal minimum wage (NMW) to real minimum wage (RMW).

Minimum wage (NMW) from data source in 2009 = $6.55, the CPI for 2009 = 214.5

Formula 1: RMW= NMW/CPI in hundredths 3.054 for 2009 (up to 3 decimal points)

Step 3. Calculate yearly percent change in RMW (PP). % chg PP represents annual percent change in purchasing power.

Formula 2: % chg PP from 2009 to 2010:= (RMW in 2010–RMW in 2009)/RMW in 2009) x 100, = + 8.86; an increase in purchasing power.

Step 4. Calculate the yearly percentage change in the CPI (INFLT). INFLT represents annual percent change in inflation. Formula 3: INFLT from 2009 to 2010:

                      = (CPI2010 – CPI2009/ CPI2009 x 100;      

                      = (CPIY2011 – CPI2010)/ CPI2010 x 100;    

                      = 1.68, an increase in inflation from 2009 to 2010

Step 5. Graph 1. For every year, graph % chg in PP and Inflation (INFLT) on the same graph. Title of graph should be Trend in Purchasing Power and Inflation for Selected Years   

Step 6. Calculate real annual income 1(INC1): RMW x 40 hours per week x 50 weeks per year.

Formula 4:    INC1 for 2009 = 6107.23, H2 =13991, this is a nominal value

Formula 5:   Convert to real value (RH2) = h2/CPI (2009) in hundredths = 6522.611