History of Minimum Wage
The federal minimum wage, introduced in 1938 during the Great Depression under President Franklin Delano Roosevelt, was initially set at $0.25 per hour. The federal minimum wage has been increased by Congress 22 times, most recently in 2009 from $6.55 to $7.25 an hour. Most states plus DC have a minimum wage higher than the federal minimum wage, though several states do not have minimum wage laws (which means workers in those states default to the federal minimum wage). Read more history…
Pro & Con Arguments
Pro 1
Raising the federal minimum wage would not only allow minimum wage workers to afford basic living expenses, but would also reduce income, gender, and racial inequalities.
The current minimum wage is not high enough to allow people to afford housing. According to the National Low Income Housing Coalition, “In 2022, a full-time worker needs to earn an hourly wage of $25.82 on average to afford a modest, two-bedroom rental home in the U.S. This… is $18.57 higher than the federal minimum wage of $7.25…. A full-time worker needs to earn an hourly wage of $21.25 on average in order to afford a modest one-bedroom rental home in the U.S.” [198]
Further, 35% of families with full-time year-round employment do not earn enough to pay for essentials including food and childcare. 59% of Hispanic families, 52% of Black families, 25% of white families, and 23% of Asian families that work full-time year-round cannot cover basic needs. Overall, families would need to earn $11 more an hour to cover basic costs, with Black and Hispanic families needing $12 more an hour. [199]
Approximately 91% of workers who would benefit from a raised minimum wage are over 20 years old, with 68% over the age of 25. Most are the primary wage earners for their families, averaging about 52% of their family’s income, and most are women and people of color. The current federal minimum wage prevents these individuals and families from meeting basic needs like shelter and food, as well as creating significant obstacles to healthcare, finances for an emergency, and other expenses such as car upkeep. [201]
Thus, the unaffordability of basic needs drives income, gender, and racial inequality. Workers who have to pinch pennies do not have the money, time, or other resources to invest in more education or job training for themselves and their families, meaning they remain stuck in low-paying jobs with few to no benefits such as sick days, health insurance, or retirement plans. Minimum wage workers are then also subjected to irregular schedules that can make the rest of life, such as picking up kids from school, difficult or impossible. [199] [200] [201] [205]
Increasing the minimum wage would not only bring relief to workers struggling to make ends meet, it would also raise the incomes of people who make slightly more than minimum wage. The Brookings Institution found that increasing the minimum wage would result in higher wages for the 3.7 million people earning minimum wage and up to 35 million workers who make up to 150% of the federal minimum wage. [28]
The White House Council of Economic Advisors (CEA) found that an increase to just $10.10 an hour would raise wages for 28 million Americans–about nine million of those due to the ripple effect. [29]
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Pro 2
Raising the minimum wage to match inflation and productivity would benefit the economy by increasing consumer activity and spurring job growth while lowering the federal deficit.
Because the federal minimum wage is not indexed for inflation, its purchasing power (the number of goods that can be bought with a unit of currency) has dropped considerably, hitting the lowest mark since 1956. [14] [15] [16] [204]
As journalist Megan Cerullo summarizes, “The federal minimum wage of $7.25 buys less today than it has at any point over the past 66 years…. The current value of the minimum wage in real dollars is at its lowest level since February 1956, when the lowest U.S. wage was 75 cents — the equivalent of $7.19 in June 2022 dollars.” Raising the minimum wage and indexing it to inflation would ensure that low-wage workers could adopt a standard of living commensurate with the current economy. [204]
Further, while the estimates of how much the minimum wage should be increased vary, many economists agree that if the wage had kept pace with rising productivity and incomes, it would be higher than the current $7.25 an hour. [14] [17] [18] [14] [17] [18]
If the minimum wage matched inflation as well as worker productivity and other incomes, worker productivity would increase while employee turnover decreased. Alan Manning, Professor of Economics at the London School of Economics, explains, “As the minimum wage rises and work becomes more attractive, labor turnover rates and absenteeism tend to decline.” [30] [31] [32] [33]
In turn, economic activity would increase, spurring job growth. The Economic Policy Institute stated that a minimum wage increase from the current rate of $7.25 an hour to $10.10 would inject $22.1 billion net into the economy and create about 85,000 new jobs over a three-year phase-in period. And economists from the Federal Reserve Bank of Chicago predicted that a $1.75 rise in the federal minimum wage would increase aggregate household spending by $48 billion the following year, thus boosting GDP and leading to job growth. [1] [2]
With an economic boom and more securely employed workers, the federal deficit would decrease. According to James K. Galbraith, Professor of Government at the University of Texas in Austin, “[b]ecause payroll- and income-tax revenues would rise [as a result of an increase in the minimum wage], the federal deficit would come down.” [43]
Further, raising the minimum wage would help reduce the federal budget deficit “by lowering spending on public assistance programs and increasing tax revenue. Since firms are allowed to pay poverty-level wages to 3.6 million people — 5 percent of the workforce — these workers must rely on Federal income support programs. This means that taxpayers have been subsidizing businesses, whose profits have risen to record levels over the past 30 years,” according to Aaron Pacitti, Associate Professor of Economics at Siena College. [42]
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Pro 3
Increasing the minimum wage would have numerous social benefits including reducing poverty and crime, and increasing school attendance and the healthy population.
A 2022 Urban Institute study found that “[i]ncreasing the federal minimum wage to $15 an hour would lift 7.6 million people in the United States out of poverty.” A higher minimum wage would also reduce government welfare spending. If low-income workers earned more money, their dependence on, and eligibility for, government benefits would decrease. The Economic Policy Institute determined that by increasing the minimum wage to $10.10, more than 1.7 million Americans would no longer be dependent on government assistance programs. They report the increase would shave $7.6 billion off annual government spending on income-support programs. [10] [206]
Raising the minimum wage also lifts children out of poverty, increasing their school attendance and decreasing dropout rates. One study found that raising the California minimum wage to $13 an hour would increase the incomes of 7.5 million families, meaning fewer would live in poverty. Teens who live in poverty are twice as likely to miss three or more days of school per month. The study found that “recent experimental studies show that increasing income can improve school performance.” Increasing the minimum wage would also allow teens to work fewer hours for the same amount of pay, giving them more time to study and reducing the likelihood that they would drop out of high school. Alex Smith, Assistant Professor of Economics at the United States Military Academy at West Point, found that “an increase in the minimum wage from $7.25 to $10.10 (39%)… would lead to a 2-4 percentage point decrease in the likelihood that a low-SES [socio-economic status] teen will drop out.” [38] [41]
Raising the minimum wage would lead to a healthier population and prevent premature deaths. California study found that those earning a higher minimum wage would have enough to eat, be more likely to exercise, less likely to smoke, suffer from fewer emotional and psychological problems, and even prevent 389 premature deaths a year. [38] Because minimum wage workers are more likely to report poor health, suffer from chronic diseases, and be unable to afford balanced meals, “policies that reduce poverty and raise the wages of low-income people can be expected to significantly improve overall health and reduce health inequities.” [38] [39]
A society with less poverty, fewer school attendance and health issues, and a higher minimum wage correlates to lower crime rates. According to one study, “higher wages for low-income individuals reduce crime by providing viable and sustainable employment… raising the minimum wage to $12 by 2020 would result in a 3 to 5 percent crime decrease (250,000 to 540,000 crimes) and a societal benefit of $8 to $17 billion dollars.” A study of crime rates and the minimum wage in New York City over a 25-year period found that “[i]ncreases in the real minimum wage are found to significantly reduce robberies and murders… a 10 percent increase in the real minimum wage results in a 6.3 to 6.9 percent decrease in murders” and a 3.4 to 3.7 percent decrease in robberies. [179] [181]
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Con 1
Raising the minimum wage would increase housing and consumer goods costs for everyone and greatly disadvantage minimum wage workers.
In a study of minimum wage raises from 2000 to 2009, researchers found that three months after a raise, housing rents increased. Lucas Hall, founder of Landlordology.com, explains, “Raising the minimum wage causes a temporary spike in spending power… [but l]andlords raise rents as tenants are willing and able to pay more.” As a result after “rents went up in response to the increase in income, people still had some additional income compared to before. But it wasn’t as big of a surplus as people would like to think raising the minimum wage leads to,” according to Brent Ambrose, Jason and Julie Borrelli Faculty Chair in Real Estate at Pennsylvania State University. [73] [202]
Plus that small surplus may end up covering the increased costs of everyday items instead of going into a savings account or paying for additional education. James Sherk, Research Fellow in Labor Economics at the Heritage Foundation, argues, “Most minimum-wage employees work for small firms in competitive markets. These companies have small profit margins. They can only pay higher wages if they raise prices. Customers—not business owners—pay that cost.” For example, NBC News found that the price of a cup of coffee went up by 10 to 20% in Oakland, California, after a 36% minimum wage hike, while coffee prices in Chicago rose 6.7% after the minimum wage rose to $10. [54] [203]
Raising the minimum wage could decrease employee benefits and increase tax payments, further costing the employees. According to James Sherk, MA, Senior Policy Analyst at the Heritage Foundation, a single mother working full time and earning the federal minimum wage of $7.25 an hour would be over $260 a month worse off if the minimum wage were raised to $10.10: “While her market income rises by $494, she loses $71 in EITC [earned income tax credit] refunds, pays $37 more in payroll taxes and $45 more in state income taxes. She also loses $88 in food stamp benefits and $528 in child-care subsidies.” [77]
Raising the minimum wage also creates more jobs for more skilled workers, disadvantaging teenagers, young adults, and those with less education and experience. If employers have to pay an employee more, they will expect the employee to have a more experienced skill set, essentially removing the job from the tier of jobs available to minimum wage workers. [48]
This dynamic also makes it more difficult for minimum wage workers to gain upward mobility. Don Boudreaux, Adjunct Scholar at the Cato Institute, explains, “the minimum wage cuts off the first rung of the employment ladder, and it’s that first lowest paying rung that provides the skills and experience workers need to reach the next rung and to continue climbing their way to a better life.” Increasing minimum wage decreases entry-level jobs that are the “route to the top” of the job ladder. [66] [166]
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Con 2
Raising the minimum wage, instead of allowing the free market to determine an appropriate rate, will decrease employee compensation, while forcing businesses to close, use automation, or outsource jobs.
Increasing the minimum wage increases costs for businesses. If a business cannot or will not support the increased cost, the first method of cost correction is to cut hours or lay off employees. Researchers found that “For every $1 increase in the minimum wage, …the total number of workers scheduled to work each week increased by 27.7%, while the average number of hours each worker worked per week decreased [sic] by 20.8%. For an average store in California, these changes translated into four extra workers per week and five fewer hours per worker per week — which meant that the total wage compensation of an average minimum wage worker in a California store actually fell by 13.6%.” The decrease in hours also meant erratic schedules that are difficult for employees to maintain and a decrease in eligibility for benefits such as retirement packages and healthcare. [205]
If a business cannot afford to pay an appropriate amount of employees, the business may be forced to close. Jamie Richardson, Vice President of fast food chain White Castle, said that the company would be forced to close almost half its stores and let go thousands of workers if the federal minimum wage were raised to $15. Forbes reported that an increase in the minimum wage has led to the closure of several Wal-Mart stores and the cancellation of promised stores yet to open. [51] [52]
Businesses that cannot or will not pay a higher minimum wage may also turn to more robots and automated processes to replace service employees. Oxford University researchers explain “robots are already performing many simple service tasks such as vacuuming, mopping, lawn mowing, and gutter cleaning” and that “commercial service robots are now able to perform more complex tasks in food preparation, health care, commercial cleaning, and elderly care.” [67]
Or, businesses may choose to outsource jobs to countries where costs would be lower. According to the Statistic Brain Research Institute, 2,382,000 US jobs were outsourced in 2015 with 44% of companies saying they did so to reduce or control costs. A survey of 400 US Chief Financial Officers (CFOs) found that 70% of CFOs would “increase contracting, outsourcing, or moving actual production outside the United States” if the minimum wage were raised to $10 an hour. [78] [84]
To avoid all of those problems, the free market should determine minimum wages, not the federal government. 82% of small businesses agreed that “the government should not be setting wage rates.” According to Mark J. Perry of the American Enterprise Institute, government-mandated minimum wages “are always arbitrary and almost never based on any sound economic/cost-benefit analysis… [I]n contrast market-determined wages reflect supply and demand conditions that are specific to local market conditions and vary widely by geographic region and by industry.” Perry said market-determined wages result in more employment opportunities for unskilled workers, increased profits for companies, and lower prices for the consumer. [74] [76]
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Con 3
Raising the federal minimum wage would exacerbate income disparities and the cycle of poverty.
Cost of living varies wildly in the United States. For example, living in New York, California, and Hawaii costs significantly more than living in Mississippi, Kansas, or Montana. If the federal government raises the minimum wage significantly, the wage will be proportionately much higher in lower income states, meaning employers will not be able to afford the costs of paying employees and residents will not be able to afford the cost of living increases necessary to make up the difference. Small rural communities would especially suffer from the disparity. [70][71]
Further, a study from the Federal Reserve Bank of Cleveland found that although low-income workers see wage increases when the minimum wage is raised, “their hours and employment decline, and the combined effect of these changes is a decline in earned income… minimum wages increase the proportion of families that are poor or near-poor.” [47] [48]
As explained by George Reisman, Professor Emeritus of Economics at Pepperdine University, “The higher wages are, the higher costs of production are. The higher costs of production are, the higher prices are. The higher prices are, the smaller the quantities of goods and services demanded and the number of workers employed in producing them.” Thus, raising the minimum wage would actually increase poverty among minimum wage workers. [47] [48]
The increase in poverty combined with an increase in minimum wages could entice high school students with limited opportunities to drop out of school to begin earning. Students from impoverished backgrounds may also drop out of school in order to increase their family’s income. As Mark J. Perry, of the American Enterprise Institute, explains, the students are then further disadvantaged: “the attraction to higher wages from minimum wage legislation reduces high school completion rates for some students with limited skills, who are then disadvantaged with lower wages and career opportunities over the long-run if they never finish high school.” [80] [81] [82] [83] [80] [81] [82] [83]
Similarly, raising the minimum wage would increase crime. According to a study by Boston College economists, increasing the minimum wage leads to reduced employment which leads to an increase in thefts, drug sales, and violent crime. Their results indicate that “crime will increase by 1.9 percentage points among 14-30 year-olds as the minimum wage increases.” Researchers found that between 1977 and 2012 increases in the minimum wage resulted in “no significant change” in the rates of violent crime or property crime. [182] [183]
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| Did You Know? |
|---|
| 1. America's minimum wage law was signed in 1938. The minimum wage was set at 25 cents, which is equivalent to $5.19 in 2022 dollars. [7] |
| 2. 44% of minimum wage earners are under 25 years old. [197] |
| 3. 30 states and DC have set minimum wages above the federal minimum of $7.25 an hour. As of Jan. 12, 2023, the highest is DC, at $16.50 an hour, followed by Washington state at $15.74 an hour. |
| 4. The federal minimum wage has been increased by Congress 22 times, most recently in 2009 from $6.55 to $7.25 an hour. [7] |
| 5. The first state minimum wage laws, introduced between 1912 and the early 1930s, only covered women and minors. The first to cover men was introduced in 1937 in Oklahoma. [99] |
