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

The future minimum wage needed to reach the poverty line for a family of three after accounting for 25% inflation over five years would be $13.39 per hour.

Step-by-step explanation:

To calculate the required future minimum wage to keep up with inflation and reach the poverty line, we need to adjust the current minimum wage for the expected inflation rate and consider the poverty threshold. With a current minimum wage of $7.50 falling short of the poverty line for a family of three, being only 70% of the necessary amount, we aim to find the adjusted amount for 100% of the poverty line after five years of inflation.

First, let's find the amount that represents 100% of the poverty line based on the current minimum wage:

• Current minimum wage that brings a family to 70% of the poverty line: $7.50
• To find the full 100%, we divide $7.50 by 70% (or 0.7): $7.50 / 0.7 = $10.71 (rounded to two decimal places)

Now, we have to adjust the $10.71 to account for the 25% inflation over the next five years:

• Adjusted wage = Current full poverty line wage * (1 + inflation rate)
• Adjusted wage = $10.71 * (1 + 0.25)
• Adjusted wage = $10.71 * 1.25
• Adjusted wage = $13.39 (rounded to two decimal places)

Therefore, in five years, with a 25% inflation rate, the minimum wage should be increased to $13.39 per hour to be at the poverty line for a family of three.

Answer 2

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.

Step-by-step 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.