Minimum-wage workers falling further behind

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The federal minimum wage has not been raised since July 2009. Since then, overall hourly wages have risen more than 25%, and inflation has risen by nearly 20%. Wages of minimum-wage workers have clearly fallen further and further behind the wages of other workers and have not kept pace with inflation.

Despite these facts, Congress and the president have time and again failed to approve legislation to increase the minimum wage.

The minimum wage has become a partisan campaign issue. Within the last two weeks, the House passed the Raise the Wage Act of 2019 on a largely party-line vote. Only three Republicans voted for the act, including Reps. Brian Fitzpatrick of Pennsylvania, Will Hurd of Texas and Christopher H. Smith of New Jersey, while only six Democrats voted against it. As expected, Senate Majority Leader McConnell vowed to block the Raise the Wage Act from reaching the floor of the Senate saying, “We are not going to be taking that up in the Senate.”

The Raise the Wage Act would have increased the federal minimum wage from the current $7.25 per hour to $15 by 2025. After that, the minimum wage would have been indexed to the median hourly wage of all workers.

Costs and benefits of raising the minimum wage

Like all economic issues, there are costs and benefits of raising the minimum wage. The Congressional Budget Office’s July 2019 report,

“The Effects on Employment and Family Income of Increasing the Federal Minimum Wage,” noted the economic costs of raising the minimum wage to $15 would be relatively small. The costs would include “slight” declines in national output related to reduced employment and investment in the nation’s stock of capital, and to reduced business income. The report also noted prices might rise “as higher labor costs were absorbed by business owners and then passed on to consumers.”

In contrast to the costs, those who would benefit far outnumber those who might be harmed. According to the CBO, most low-wage workers would benefit from an increase in the minimum wage as “earnings and family income would increase, which would lift some families out of poverty.” CBO estimates show 27.3 million workers would likely see increases in their wages. Another benefit to the overall economy would be increased spending by low-wage families. Citing a study from the Chicago Federal Reserve, the Congressional Education and Labor Committee said, “When we put money in the pockets of workers and their families, they will spend that money in local businesses. Even after a modest minimum wage increase of just $1, spending in households with minimum wage workers increased, on average, at least $700 per quarter.”

Who are minimum-wage workers?

Surprisingly few workers earn the minimum wage. According to the Bureau of Labor Statistics report, “Characteristics of minimum wage workers, 2018,” “The percentage of hourly paid workers earning the prevailing federal minimum wage or less edged down from 2.3% in 2017 to 2.1% in 2018. This remains well below the percentage of 13.4 recorded in 1979, when data were first collected on a regular basis.”

A common myth about minimum-wage workers is teenagers hold most of the minimum-wage jobs. Not true. In 2018, only about 1 of 5 minimum-wage workers were teenagers (those 16 to 19 years old), and more than half were 25 years old and older. By gender, women accounted for more than 6 of 10 minimum-wage workers. By race, whites made up more than 7 of 10 minimum-wage workers, and part-time minimum wage workers outnumbered full-timers. By industry, leisure and hospitality had “the highest percentage of workers earning hourly wages at or below the federal minimum wage.” By state, minimum-wage workers are more prevalent in the South and least prevalent in the West and Midwest. The BLS report noted, “The states with the highest percentages of hourly paid workers earning at or below the minimum wage were in the South: Louisiana (about 5%) and South Carolina (about 4%). In the District of Columbia, about 4% of workers were paid at or below the federal minimum. The states with the lowest percentages of hourly paid workers earning at or below the federal minimum wage were in the West or Midwest: Alaska, Minnesota, Oregon, and Washington (all were less than 1%). It should be noted that more than half of states have minimum wages that exceed the federal minimum.”

Falling behind

Despite numerous statistics and studies, the economic effects of raising the minimum wage are still unclear. According to the CBO, “findings in the research literature about how changes in the federal minimum wage affect employment vary widely. Many studies have found little or no effect of minimum wages on employment, but many others have found substantial reductions in employment.”

As clearly shown in the accompanying chart, though, an unmistakable fact is the wages of minimum-wage workers continue to fall further and further behind the wages of other workers.

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