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Minimum Wage

Last Updated:2017-Jan-02
Principal Writer:Rob Dennis and Barry Shatzman

Issue Sections

Understanding The Issue
Issue Status
Analysis and Perspectives
What You Can Do
The Rumor Mill

Reported News

Labor: Conditions

Related Bills

Raise the Wage Act

2015 (S-1150)

Fair Minimum Wage Act

2013 (S-460)

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What is the minimum wage issue about?

When discussing the issue of a national Minimum Wage, it's easy to fall into an argument over who deserves what or whether the government should be telling companies how much they must pay employees. But there are more meaningful ways to discuss it as an issue of public policy.

o Who is affected by our current federal minimum wage of $7.25 per hour (hint... you)

o Who would be helped by an increase in the minimum hourly wage?

o Who would be hurt?

o What policy would benefit an overwhelming majority of Americans?

These are the issues we'll explain.

But first, here's one number. In 2014, more than 16 million workers earned less than $10 per hour, the Congressional Budget Office estimated. Increasing the minimum wage would help almost all of them. But evidence shows that most Americans would be better off as well.

Note that states and localities might enforce a minimum wage that is different than the federal one. In order to have any affect, a state or local minimum wage would need to be higher than the federal one. If lower, employers would be required to adhere to the federal minimum. Unless we explicitly state otherwise, all references to a minimum wage in our discussion apply to the federal minimum wage.

What's the problem?

Working a 40-hour week at the current minimum wage makes you $290 for the week. That would give you about $1,250 to get you through each month.

If you're a single person with no dependents, that puts you over the Federal Poverty Level. But if you are the sole provider for a child (or more), you will be earning less than the what is considered to be the level of poverty.

This chart shows how someone making minimum wage would fare against the poverty level - based on the number of people living in their household...

Even a single parent with one child would not earn enough to live outside of poverty.

Who makes less than $10.10 per hour?

Even earning more than the minimum wage won't necessarily lift you out of poverty. A single mother of two earning $9.50 per hour ($2.25 higher than the minimum wage) would earn $19,760 - still below the poverty level.

Increasing the minimum wage would help everyone earning less than the new minimum. An analysis by the Economic Policy Institute shows that of those 16.5 million workers...

o More than a quarter have children.
o More than 1 out of 3 are at least 40 years old.
o More than 4 out of 10 have college experience.
o More than half work at least 35 hours in a week.

There is a perception that increasing the minimum wage would mostly affect teens. But almost 9 out of every 10 people who earn less than the proposed new minimum of $10.10 are older than 20.

Graphic source: Economic Policy Institute

Click on the above graphic for a more in-depth look at who earns less than the proposed minimum wage.

Most Americans also would benefit

When workers are paid less than what it would cost them to live, they receive help from programs such as Supplemental Nutrition Assistance Program (SNAP), Medicaid, and the Earned Income Tax Credit.

The money that pays for these programs is public money.

Put simply, those who work receive what they need to survive. The only question is how much of that money comes from the company that profits from their labor and how much of it comes from you.

A study conducted by the Center for American Progress concluded that, if the minimum wage is increased to $10.10, 3 million fewer people would require help from SNAP. That would save taxpayers more than $4.5 billion every year.

Would jobs be lost?

One of the most vocal arguments against a minimum-wage increase is that jobs would be lost (see our Rumor Mill section for this issue). However, studies done in the past 15 years have shown almost no evidence of this.

A report by the Center for Economic and Policy Research examined several of these studies, and explains reasons why one would expect little - if any - job loss from a minimum-wage increase.

Employers - especially those in the retail and fast-food industries - likely would see increased demand for their products as workers have more money to spend.

Also, eliminating a job is only one possible way an employer might offset the extra cost of a higher minimum wage.

An employer might reduce workers' hours. "The minimum wage does not raise the cost of hiring workers - it raises the cost of hiring an hour of work performed by those workers," the report explains.

From a worker's point of view, if the reduction in hours were large enough to offset the full cost of the wage difference, then he or show still would have the same income, but would have more time - that could be used to pursue additional income.

Would prices increase?

There are two reasons a company might increase prices in response to a minimum-wage increase.

o To offset the extra wages being paid

o To take advantage of increased demand for their products.

There are, however, forces that would keep prices from rising too high.

o Pricing still would be subject to traditional supply and demand factors in that consumers simply might not pay a price that they feel is too high.

o Competition would tend to keep prices in check.

The question is how would these opposing forces play out. Studies have found, the Center for Economic and Policy Research report states, that a 10 percent minimum-wage increase may increase food prices by no more than 4 percent, but overall prices by no more than half of a percent.

A more accurate assessment may come from a recent study on restaurant pricing. Restaurants have a large share of low-wage workers, and fewer ways to offset higher wages. Yet the study showed that a 10 percent minimum-wage increase would increase prices by less than a percent.

Where did we get our information from

To read the full report by the Center for Economic and Policy Research, explaining the studies that find increasing the minimum wage likely would have a negligible effect on employment, click here.

To read the report from the Congressional Budget Office on possible effects of increasing the minimum wage, click here.

Click here to continue to the next section of this issue...

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