Question

Suppose you knew that there was going to be 25 percent inflation between now and five years from now, and suppose you knew that the current minimum wage of $7.50 was only enough to get a family of three to 70 percent of the poverty line. In order to make the minimum wage earn enough to be at that poverty line in five years, the minimum wage in five years would have to be

Answer 1

Answer:

In order to make the minimum wage earn enough to be at that poverty line in five years, the minimum wage in five years would have to be:

$9.38.

Explanation:

a) Data and Calculations:

Current minimum wage = $7.50

Inflation rate between now and five years from now = 25%

The minimum wage in five years should be $9.38 ($7.50 * 1.25)

b) When the minimum wage increases from $7.50 to $9.38 in five years, it will match the inflation rate between now and give years' time of 25% because the difference in minimum wage of $1.88 (9.38 - $7.50) is equal to 25% ($1.88/$7.50 * 100).  If the minimum wage of $9.38 is earned the wage earner will be able to get a family of three to 70% of the poverty line, just as $7.50 is able to get the family of three to 70% of the poverty line in the current year.