Marion Johnson, Think NC First Policy Analyst
On January 1, 3.1 million workers got a pay raise. These workers live and work in the 20 states that increased their minimum wage on New Year’s Day. Now 29 states and the District of Columbia have minimum wages above the federal level.
The federal minimum wage has been stagnating for decades. While average incomes, productivity, and GDP have all grown since 1979, hourly wages have remained flat or, in some cases, actually fallen.[i] And while minimum wage workers keep bringing home the same pay, inflation keeps eating away at the value of their paycheck. Low-wage workers literally can’t afford to buy what they could afford 20 years ago.[ii]
The Congressional Budget Office (CBO) estimated the economic impact of raising the minimum wage. They looked at two specific options: raising the minimum wage to $10.10/hour in three steps, or to $9.00/hour in two steps, by 2016.
A $10.10 minimum would send 16.6 million U.S. workers home with bigger paychecks. It would also pull 900,000 families out of poverty thanks to those increased salaries.[iii]
Raising the minimum wage to $9.00 would have a smaller, but still significant, impact. By 2016, 7.6 million hourly workers would have increased wages, and 300,000 families would no longer live below the poverty line.[iv]
Research has consistently shown that minimum wage laws increase wages for low-wage workers (both for minimum wage workers and for those earning slightly above the minimum wage).[v] They also raise the wage floor relative to the median, which reduces income inequality.[vi]
Now, more recent evidence shows that increasing the minimum wage reduces family poverty rates and dependence on social safety net programs like food stamps.
“A 10 percent increase in the minimum wage reduces food stamp program enrollment by between 2.4 and 3.2 percent, and reduces program expenditures by 1.9 percent.”[vii]
Raising the minimum wage may theoretically risk decreasing employers’ demand for low-wage workers, but that line of thought ignores the substantial body of evidence that raising the minimum wage doesn’t hurt employment, even during a weak economy.[viii]
The CBO predicts that raising the minimum wage to either $9.00 or $10.10 would have a limited impact on overall employment – at most, the country would see a 0.4 percent decrease in employment.[ix] Additionally, recent studies have found no statistically significant negative effects on employment or hours worked in low-wage industries, and “no evidence that employers absorbed minimum wage increases by reducing health benefits or pensions.” Contrary to some ideological arguments, low-wage families only stand to win from a higher minimum wage.
Low-wage workers are still struggling to find financial stability years after the Great Recession. Lawmakers should seriously consider raising the minimum wage to give these workers a stronger economic foothold.
[i] Gould, Elise. (August 27, 2014). Why America’s Workers Need Faster Wage Growth—And What We Can Do About It. Economic Policy Institute. Available at http://www.epi.org/publication/why-americas-workers-need-faster-wage-growth/
[ii] See note i
[iii] Congressional Budget Office. U.S. Congress. (February 2014). The Effects of a Minimum-Wage Increase on Employment and Family Income. Available at http://www.cbo.gov/sites/default/files/cbofiles/attachments/44995-MinimumWage.pdf
[iv] See note iii
[v] Reich, Michael; Jacobs, Ken; and Bernhardt, Annette. (March 2014). Local Minimum Wage Laws: Impacts on Workers, Families and Businesses. IRLE Working Paper No. 104-14. Available at http://www.irle.berkeley.edu/workingpapers/104-14.pdf
[vi] See note v
[vii]West, Rachel and Reich, Mark. (March 5, 2014). “The Effects of Minimum Wages on SNAP Enrollments and Expenditures.” Center for American Progress. Available at https://www.americanprogress.org/issues/economy/report/2014/03/05/85158/the-effects-of-minimum-wages-on-snap-enrollments-and-expenditures/
[viii] Lester, T. William; Madland, David; and Odum, Jackie. (December 3, 2013). “Raising the Minimum Wage Would Help, Not Hurt, Our Economy.” Center for American Progress. Available at https://www.americanprogress.org/issues/labor/news/2013/12/03/80228/raising-the-minimum-wage-would-help-not-hurt-our-economy-2/
[ix] See note v