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Should Minimum Wage Workers Get a Raise?

minimum wageIn Obama’s 2013 State of the Union address, the president joined a rising number of people calling for a boost to the federal minimum wage. In the wake of that call, Senator Tom Harkin and Representative George Miller put forward the Fair Minimum Wage Act, which proposes to increase the federal minimum wage in three stages of 95 cents each, raising it from its present level of $7.25 to $10.10 by 2015. Moreover the rate would be adjusted every year thereafter to keep pace with increases in the cost of living. The measure would also boost the federal minimum wage for those who work for tips, which has plateaued at $2.13 for over 20 years. If the changes went into effect, the new rate would be 70% of the federal minimum wage.

Yet numbers are not the same as people, and the debate doesn’t takes on real faces until we consider the actual workers effected by these policies. So who would receive a raise if the minimum wage were increased to $10.10 by 2015?  This would primarily affect adults working a large number of hours in the labor market. In fact, only 11% of those who would get a raise are younger than age 20, and only 14% work less than 20 hours per week. Furthermore, many of those minimum wage workers are parents; this means that if the minimum wage in the U.S. increased to $10.10, nearly one quarter (23.3%) of all American kids would see at least one parent get a raise. Under this policy, millions of working families could earn bigger paychecks.

Yet we should also note that the proposed increase would support not just low but also moderate income households. Over half of the workers who would receive a bump already live in households that earn less than $50,000, and more than 25% live in families with an income over $50,000 but still less than $75,000. Such findings highlight the fact that the minimum wage touches on basic labor standards, and aims to fairly compensate work while ensuring that economic growth is broadly shared throughout the workforce. If allowed to continue eroding, as the minimum wage has for the last 40 years, it will also continue to harm the standard of living for both low and moderate income families.

Opponents of an increased minimum wage warn that it would trigger job loss among low-wage earners; yet this claim is not supported by the facts. Research shows that minimum wage increases have no measurable effect on employment. If increasing the minimum wage compromised the goal of broadly shared prosperity, workers’ advocates, labor lawyers and employment attorneys wouldn’t support it. Yet all sound evidence indicates that minimum wage increases that have been implemented over the years have improved the status of low wage-workers without negative effects.

Wage and Hour Violations

Opponents also commonly argue that instead of a minimum wage increase, we should augment the Earned Income Tax Credit (EITC). Yet this misses a key point: the minimum wage and the EITC are not competing policies. Rather, they work in tandem, and the EITC thrives on a strong minimum wage. Why is this? Because the EITC significantly boosts the after-tax earning of workers who may apply for it. In the process, it can actually help lower pre-tax wages provided by employers, since workers who qualify for the EITC may conceded to somewhat lower wages understanding that they will receive EITC benefits. This means that low-wage employers actually gain a significant part of the total expenditures on EITC. A more robust minimum wage would place a stronger foundation under the income that low-wage employers can pay and thereby curtain their ability to grab a big chunk of EITC expenditures.

In conclusion, we should remember that if the minimum wage had kept pace with increased productivity over the last 45 years, it would currently be $19 per hour. This sounds quite high; and indeed, it’s significantly higher than the median wage, which is about $16.30 per hour. Yet we should note why a $19 minimum wage sounds outrageous: it is simply because the median wage is so low. Over the past 40 years, the majority of workers have not reaped the benefits of productivity growth—rather, these went to those who were already affluent. A $19 minimum wage strikes us as unreasonable high because the wealthiest Americans have captured all the growth in the last 40 years — not because our economy hasn’t undergone the kind of growth that makes such a minimum wage possible. Now to clarify, no one is suggesting a minimum wage anywhere close to $19. But that number does highlight the fact that a minimum wage of $10.10 is really quite a modest proposal. And it is one thing our nation can do to help elevate the declining living standards of low- and modest- income families while counteracting some of the most pronounced forms of inequality that have developed over the past four decades.

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Emery Reddy