Brief #110 Economic Policy
The Minimum Wage of $7.25 Has Not Been Raised Since 2009
February 15, 2021
The debate regarding the efficacy of a $15 minimum wage is heating up since Biden included it in his Corona virus stimulus package. The bill would have a gradual phasing in of the wage over the next four years. Currently, it would be $9.50 and go to $11, then $12.50, then $14 annually until it reaches $15 in 2025. Future increases would be tied the median wage rate, thereby assuring the consistent value of the minimum wage.
The consequences of the increase are debated and the research demonstrates some mixed outcomes but overwhelmingly it supports the increase. Most show it does not actually decrease jobs. One study shows no impact on jobs in 138 state and local areas, over five years and another shows no impact in thirty years. One analysis of 60 studies of wages and jobs shows no net loss of jobs. Increased wages actually are more likely to increase jobs due to the enhanced purchasing power of the lowest income groups. More money would be spent in local businesses and services, increasing revenue and creating jobs.
In contrast, the Congressional Budget Office estimates a loss of 1.4 million jobs over five years, though other experts contest this asserting if job losses occurred they would be much less. For small businesses, temporary reprieves from the higher wage could be granted in times of economic constriction like recessions and/or subsidies could be made available to help defray costs. The benefits of the rising wage would accrue to 95% of people affected by it. Proponents risk/cost analysis weigh these potential losses against data showing that up to 40 million people would be lifted out of poverty (conservative estimates are closer to 32 million or 21% of the workforce). Women and people of color, who generally comprise a larger portion of low wage workers, would benefit most. Sixty percent of the gains would be to women workers. One third of all African Americans workers and one quarter of Hispanics workers would have increased incomes. One half of workers 25-54 and ten percent of youths also would benefit. Those making slightly above the minimum age would also gain an increase in wages. Twenty percent of the entire workforce would see income gains.
The history of the minimum wage dates to 1968 and had its origin in President Johnson’s War on Poverty. Since then the minimum wage has lost 31% of its buying power. The current federal minimum wage of $7.25 dates back to 2009 and represents the longest stagnation of the wage since its inception. For the wage to remain equivalent in value to the earlier years of the wage, the hourly figure would be over $20. These data give support to the contention that the inequality between low and high wages workers has dramatically increased since the 1980s, indicating serious consequences for the lower wage workers standard of living and their lifelong outcomes.
Some people argue that the higher minimum wage is not necessary outside of high cost areas concentrated in the coastal areas but research shows this is a fallacy and the need extends to the Midwest, South, and Southwest. The annual income $31,200 is a figure estimated to be the minimum to take a single person out of poverty. To take a person out of poverty in high cost areas an hourly wage would need to be in the upper twenties. Currently, one quarter of Americans struggle to make ends meet while a whopping 40% could not cover an emergency bill of $400, as found in amuch cited study.
The probability of passing the legislation is tenuous at best. To pass the bill in Congress would require bipartisan support unlikely to be gained in the Senate. Utilizing the Budget Reconciliation Act would require agreement among all the Democratic senators though two seem to be on the fence. Recent attention has been focused on the increasing gap in low and high wage earners.
This gaping income inequity among workers has occurred in a time of record breaking job creation, prior to the pandemic, and record breaking levels of corporate profits. Workers and their families should be able to live a life secure that they can handle an emergency such as a medical expense, a family crisis, a household or car repair without risking hunger or homelessness, situations which are all too common today. MIT researchers assert that a family of four, with two working parents, needs an hourly wage of $22.52 to get out of poverty.
Many people debate the short term pros and cons of a wage hike but there is ample evidence that the net outcome is beneficial for both individuals/families and the society. Experts who study poverty would point to the long term expenses related to poverty which often do not figure into the debate about increasing wages. Poverty is highly correlated to all types of lifelong measures of well-being which have budgetary consequences. Poverty increases the number of residential changes affecting schooling, family stability, and access to sufficient neighborhood resources such as quality of education, recreation, safety, and livability. The health of people in poverty shows higher levels of diabetes; coronary, stroke, and vascular diseases; depression and other psychiatric syndromes; and obesity. Lower levels of educational attainment in impoverished children result in greater unemployment; lower wages; and erratic work histories, all of which increase societal costs. Low educational attainment and joblessness are also factors increasing the prevalence of incarceration.
Supporting low wage workers would also potentially go a long way in reducing the boiling point of the political animosity currently plaguing the country. Even in the state of Florida, where 51% of voters supported President Trump, 60% of the population supports increasing the minimum wage.
Given the recent public discussion of income inequality and lack of access to resources in society, the evidence supporting a rise in the minimum wages is compelling, especially with regard to the long term costs of failing to do so. The recent pandemic has highlighted the deficiencies of the safety net in the US, including such things as lack of affordable healthcare; high prescription costs; the ability to help care for sick, young, and old; the cost of basic internet access; costs of higher education; and more. The essential question reverts to an old one regarding what kind of society we want to be.