One of the most popular Democratic talking points this campaign season has been to call for an increase in the minimum wage. A social-media meme that’s been circulating recently provides a justification for hiking the minimum wage -- namely that the minimum wage in the United States falls well below that of other advanced industrialized nations.
Here’s the text on the meme, which Sen. Bernie Sanders, I-Vt., among others, put on his Facebook feed:
"Minimum wages around the world in U.S. dollars: Denmark $21/hr., Australia $15.81/hr., Germany $11/hr., France $12.35/hr. United States $7.25/hr. Share if you agree we should catch up with the rest of the world."
We wondered how accurate the meme was, so we took a look.
Using foreign-exchange rates
There are two major methods for comparing minimum wages between countries. The meme uses the most basic way -- using exchange rates to convert the wage amount from the foreign country’s currency to U.S. dollars. Using this method, the meme isn’t perfect, but it’s pretty close.
Australia’s minimum wage was recently raised to 16.87 per hour in Australian dollars. At current exchange rates, that’s $14.81 in U.S. dollars -- a little lower than the $15.81 cited in the meme, but still well above the United States’ rate of $7.25 an hour.
Germany recently established a national minimum wage for the first time, at 8.5 Euros per hour. (Previously, Germany had a patchwork of different rates.) That works out to $10.79 in U.S. dollars, not far from the $11 cited in the meme, and still quite a bit higher than the minimum wage in the United States.
In France, the minimum wage is currently 9.53 Euros, which works out to $12.10. That’s pretty close to the $12.35 in the meme, and it’s well above the U.S. minimum wage.
Of the four countries cited in the meme, the description of Denmark is the least accurate. There is actually no minimum wage in Denmark, according to a summary published by the U.S. State Department. According to that summary, "unions and employer associations negotiate minimum wages. The average minimum wage for all private and public sector collective bargaining agreements was approximately DKK 110 ($20) per hour, exclusive of pension benefits."
In other words, the Danish "minimum wage" of $20 or $21 is actually an average of all minimum wages across a variety of sectors. That means many Danish workers will be working in companies or industries that have a "minimum wage" lower than $20 or $21. And that undercuts the notion of a "minimum wage," which is supposed to be a floor for wages.
So, using foreign-exchange rates, the meme is pretty close for Australia, France and Germany, and somewhat misleading on Denmark.
But that’s not the only method you can use.
Using purchasing power parity
Taking exchange rates into account takes care of one problem related to comparing one country’s minimum wage to another. Untouched, though, is the difference in the cost of living between one country and the other.
This difference can be handled by using what’s called "purchasing power parity," or "PPP." If there’s a higher wage but also a higher cost of living in a given country, factoring in purchasing power parity will adjust for that.
In two of the four countries -- Australia and France -- factoring in purchasing power parity reduces the gap between the United States’ minimum wage and that of the other country. (We could not find equivalent data for Denmark or Germany.) The data comes from the Organization for Economic Cooperation and Development, a research group for advanced industrialized countries.
OECD reports that in Australia, the PPP-adjusted minimum wage is $10.20, rather than the $15.81 shown in the meme. Meanwhile, France’s PPP-adjusted minimum wage works out to $10.60, rather than $12.35 as in the meme. That’s a 36 percent reduction in the figure for Australia and a 14 percent reduction for France.
Gary Burtless, an economist with the Brookings Institution, says a PPP-adjusted wage is preferable for this sort of comparison.
"Most economists agree that the PPP exchange rate offers a better measure of the standard-of-living comparison between countries than does the commercial exchange rate," he said. "Also, PPP exchange rates fluctuate less from year to year than commercial exchange rates."
The meme says that countries with a higher minimum wage than the United States’ $7.25 an hour include Denmark at $21, Australia at $15.81, Germany at $11 and France at $12.35.
The figure for Denmark is questionable because the country has no single minimum wage. Meanwhile, the figures for the four other countries have been converted into U.S. dollars, but they do not take into account differences in the cost of living in each country -- in other words, how far that wage would go in purchasing goods and services. Economists tend to favor taking purchasing power into account when doing cross-country comparisons of this sort.
When purchasing power is taken into account, the gap between the other countries and the United States narrows, though it does not disappear. The claim is partially accurate but leaves out important details, so we rate it Half True.