Canada recently announced that they are ceasing production of the penny. The U.S. should follow Canada, Australia, New Zealand and other trading partners and stop production of the penny. There are many arguments in favor of eliminating the penny. First, it costs more than a penny to mint a penny. Moreover, a one cent difference in prices and wages is so negligible that calculating values to the nearest penny is not worth the cost (of handling and producing pennies) for almost any conceivable transaction.
In 1955 the median full-time employee worked about 20 seconds to earn a penny but today earns a penny every 1.9 seconds. In 1955 a penny was about one half of one percent of a typical worker’s hourly wage but today is only about one twentieth of one percent of the median wage.
Workers and consumers, regardless of their income, should support legislation to eliminate the penny despite what some have written. It is counterproductive to produce coins that cost more than they are worth. Consumers should not be concerned that rounding prices to the nearest nickel will result in higher prices, on average. Prices are set by competitive forces. Moreover, retailers effectively round prices by not continuously adjusting prices as cost and demand conditions change from one day to the next. A recent paper by Martin Eichenbaum and co-authors analyzes over twenty years of price changes of individual items and finds that small price changes are relatively rare; the vast majority of price changes are at least 1% in absolute value. Requiring companies to round prices to the nearest nickel is sensible because the penny’s purchasing power has been devalued so much by inflation.