Content of the material
- A History of Minimum Wage Growth in the U.S
- The Effects of Raising the Minimum Wage
- Raising Minimum Wage Will Kill Jobs and Increase Prices of Goods and Services
- Arguments for Raising Minimum Wage: It Will Benefit Millions, Lift Struggling Workers Out of Poverty
- Future Minimum Wage
- MYTH: Raising the wage will blow a hole in the federal budget and increase government debt
- MYTH: If you raise the minimum wage, the cost of groceries and burgers will skyrocket
- Stagnation in the 1980s
- The Future of the Federal Minimum Wage
A History of Minimum Wage Growth in the U.S
In 1938, the minimum wage was originally set at $0.25 an hour under the Fair Labor Standards Act (FLSA). The country was recovering from the Great Depression, so in order to curb what he called “starvation wages,” President Franklin D. Roosevelt fought the Supreme Court and Congress repeatedly until the act passed.
The purpose of minimum wage was to create a base level to protect the health and well-being of employees, though some have argued that it was designed to protect the lowest-paid employees who have no bargaining power.
Until 1968, the minimum wage kept up with inflation and productivity growth. Since then, the minimum wage has not kept pace. The minimum wage has increased irregularly since 1938, usually after Congress chooses a new minimum and amends the FLSA.
Since 2009, the federal minimum wage has remained at $7.25.
The Department of Labor has provided a chart to track the history of minimum wage rates. See below:
The Effects of Raising the Minimum Wage
There are multiple ways researchers model the effect of a minimum wage increase, along with different variables that researchers focus on, such as industry or the age of people affected. As a result, there is debate on exactly how raising the minimum wage would affect employment, small businesses and the federal deficit. Here are common arguments for and against raising the minimum wage.
Raising Minimum Wage Will Kill Jobs and Increase Prices of Goods and Services
Many arguing against raising the minimum wage point to potential job losses that will result from businesses absorbing the costs of having to pay employees more. However, different analysts may come to very different conclusions about potential job losses, based on what model that they use. A recent report from the Congressional Budget Office (CBO) estimated 1.4 million jobs would be lost (0.9 percent of employment) by the time the federal minimum wage reaches $15 in 2025 and would increase the federal deficit by $54 billion over the next 10 years due to increased spending on federal programs, such as Medicaid.
Arindrajit Dube, a professor of economics at the University of Massachusetts and a research associate at the National Bureau of Economic Research argues that the CBO’s estimates are wrong due to its methodology, and the overall research that a minimum wage hike’s effects on employment are difficult to accurately pin down. He estimates that a national minimum wage increase to $15 per hour, using the CBO report’s evidence, would lead to just under 500,000 lost jobs.
“…The report’s assumptions about job losses are problematic — significantly out of step with modern research on the subject,” Dube writes in a recent op-ed for the Washington Post. He claims the report only looks at a select sample of studies to draw its conclusions and is inconsistent with the formula it uses to calculate its estimates.
Daniel Kuehn, research associate at The Urban Institute, says the overall consensus of the effects of minimum wage are that yes, it will result in jobs lost—but the number of jobs it removes from the economy aren’t statistically significant (although they come at a human cost that’s harder to quantify). Employers could also absorb the wage hike costs in other ways, such as reducing fringe benefits (such as free meals for restaurant servers or employee discounts for retail servers).
But what about those memes of a minimum wage hike turning your $7 Big Mac meal into a $20 splurge? Is that true? According to Kuehn, it’s also unlikely to happen.
$15 minimum wage? congrats your taco bell order just became sit-down restaurant price
— ?????? ?????? (@yeahrightgirlhg) January 15, 2021
“A wage hike might raise prices of goods and services, but the increases will be spread out among many consumers,” Kuehn says. Prices may increase, but not enough for consumers to really feel a burn in their wallet.
Arguments for Raising Minimum Wage: It Will Benefit Millions, Lift Struggling Workers Out of Poverty
The CBO report does have some silver linings: It estimates a federal minimum wage hike to $15 per hour would lift nearly one million people out of poverty and nearly 27 million workers would be affected by the increase.
Though the benefits of a minimum wage increase are positive in terms of the overall economy, it’s important to note that effects can vary by location. Since some states have higher standards of living than others, the effects of a high $15 federal minimum wage could affect states like Kentucky or Alabama in much more consequential ways than states like California or New York, where prices and wages are already higher.
Kentucky and Alabama’s current state minimum wages are the federal minimum, where California’s is $13 or $14 an hour depending on the number of the company’s employees, and New York’s is $15 per hour. More than doubling the minimum wages for states like Kentucky and Alabama would likely be a shock for their small businesses, since the cost of living is already low, and therefore their revenues are likely smaller compared to companies where the cost of living is higher.
Twenty-one states and Washington D.C. currently have minimum wages above the federal minimum wage. The proposed increase to $15 per hour would happen in stages over a period of four years to give employers time to figure out how to balance the costs.
Future Minimum Wage
Starting in Sept. 2020, L&I will make a cost-of-living adjustment to the minimum wage based on the federal Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). This new minimum wage will be announced on Sept. 30, and take effect Jan 1, 2021, and yearly thereafter.
MYTH: Raising the wage will blow a hole in the federal budget and increase government debt
This question is based on the same trickle-down assumption that raising wages kills jobs that we debunked in the first question. The claim is that once the wage goes up, those droves of newly unemployed people will require government benefits to survive, thereby increasing government expenditures and lowering the number of working people paying taxes into the system.
On the contrary, a brand-new paper out this month by UC Berkeley economist Michael Reich projects that if the Raise the Wage Act is fully implemented in 2025, it “would have a positive effect on the federal budget of $65.4 billion per year,” largely through payroll taxes, FICA , and other sources. The math here is simple: When more people make money, they pay more in taxes — generating roughly $650 billion in government revenue over the course of a decade.
But raising the wage doesn’t just increase tax revenue — it also elevates workers out of poverty, getting them off government assistance. Another study released earlier this month projects that if the Raise the Wage Act is implemented by 2025, “annual government expenditures on major public assistance programs would fall by between $13.4 billion and $31.0 billion.”
Many millions of workers in the United States are paid so little that they need the Supplemental Nutrition Assistance Program, aka “food stamps,” to get enough food on the table to survive. Moving the federal minimum wage to $15 would annually save somewhere between $3.3 and $5.4 billion in SNAP funds alone.
Taxpayer money that right now subsidizes low-wage employers through government assistance programs could instead be put toward infrastructure, education, or other pursuits.
MYTH: If you raise the minimum wage, the cost of groceries and burgers will skyrocket
There’s zero evidence that this is true. Here in Seattle, a 2017 University of Washington study kept tabs on the prices of 106 items across six different grocery chains in the city, before and after the wage went up. They found that the wage increase “did not affect the price of food at supermarkets.”
A study by the Upjohn Institute also found that price increases were “much smaller than what the canonical literature has found,” and that those small increases in costs were restricted to the month that the wage went into effect, meaning that costs don’t creep up in the years and months after a wage is passed.
And anecdotally, customers in high-wage cities like Seattle and Los Angeles can confirm that you can still get a double cheeseburger for $5 or less at your favorite fast-food chain.
Stagnation in the 1980s
Since 1938, the federal minimum wage went up bit by bit every few years. However, the increase stopped in the 1980s, mostly under the Reagan administration. At the time, America ushered in a wave of conservative thinking that bolstered the idea of the free market. The argument against increasing minimum wage is that it would result in a decrease in jobs, because businesses would be less inclined to hire more workers.
“The minimum wage has caused more misery and unemployment than anything since the Great Depression,” Ronald Reagan said in 1980 about the Fair Labor Standards Act.
Reagan also suggested that employers should be able to pay young people at a rate lower than the federal minimum wage. He said that teenaged workers tend to be unskilled and a lower-than-minimum wage would help relieve the high youth employment rate, which was more than 18% in 1980.
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The Future of the Federal Minimum Wage
The Raise the Wage Act of 2021 will have to undergo Congressional review and vote. If it passes, the federal minimum wage will be $15 by 2025. Beyond that, though, there is no mandate assuring that the federal minimum wage will continue to increase. If the act does not pass, the minimum wage will remain $7.25 for the foreseeable future.