On Raising the Minimum Wage

One of the most extraordinary parts of the United States presidential primaries has been the highlight of economic inequality and the minimum wage as an issue in the race for the Democratic nomination. Slowly but surely, the idea of a $15 minimum wage has gained ground, with self-declared democratic socialist Bernie Sanders, a Vermont Senator with no official party affiliation, making it one of his core campaign promises. Sanders’ rise in the polls in the early states of Iowa and New Hampshire have brought a lot of coverage to the minimum wage as a national issue, especially as there are increasing doubts over whether front-runner Hillary Clinton has the momentum to win the nomination amid the rising popularity of Bernie Sanders. As the United States continues to recover from the Great Recession, the minimum wage is very much an important issue that needs to be addressed.

Because of the United States’ federal structure, the minimum wage can vary wildly across the states. However, the usual base metric for the country’s wages is the federal minimum wage, which applies to any employee of a firm that falls under the jurisdiction of the Fair Labor Standards Act. This generally means any business that makes gross yearly revenues of over $500,000 or engages in interstate commerce, transportation, or communications. There are exemptions to this, primarily for tipped service workers. As of publication of this post, the federal minimum wage is $7.25 an hour. Fourteen states have minimum wages set to equal the federal minimum. Five states, all in the South, have no state minimum wage. Two states, Wyoming and Georgia, have a $5.15 minimum wage, over a dollar an hour less than the federal minimum. The remaining 29 states have minimum wages higher than the federal minimum, in which case the state minimum supersedes the federal minimum. Washington state currently has the highest minimum wage in the United States at $9.47 an hour.

With the wage in many states at $7.25 an hour and the highest at only $9.47, proposals to increase the minimum wage to $15 may seem very drastic at first glance. Even more moderate proposals such as the Raise the Wage Act proposed by Senator Patty Murray and Congressman Robert Scott would raise the wage to $12; still a rather steep raise at face value. This becomes especially apparent when the old argument is brought out that the cost of living ranges so wildly throughout the United States. This is, of course, the reason why the minimum wage, beyond the federal minimum, is devolved entirely to the states and even to local communities within states. Several cities in fact have already voted to eventually bring the minimum wage up to $15 an hour, including Los Angeles, New York City, and Seattle. However, this argument falls apart when it comes under scrutiny.

Firstly and most simply, the federal minimum wage, and even most state minimum wages, are not livable for most people anywhere in the United States. Certainly, in the more expensive cities like San Francisco it isn’t. However, even in the more average areas of the United States, the minimum wage is not close to a living wage, and in a country where more and more people are working into middle age at lower wage jobs, we need to make sure that wages are as close to a livable wage as possible. The best cost of living metric I’ve found is the Living Wage Calculator put together by MIT. It demonstrates that even in the cheaper areas of the United States, a common living wage is going to require a steep jump in the minimum wage. For instance, in Bibb County, Georgia which includes the city of Macon, the living wage for a single adult is $10.01 an hour. This is nearly double Georgia’s minimum wage, and nearly $3 an hour more than the current federal minimum wage. For a family of two adults and a child, even if both parents are working, the living wage is $11.27/hr. That jumps up to $16.51/hr if only one parent is working. That means for a family with one parent working and one parent staying at home with the child, they would need to make over triple Georgia’s minimum wage and over double the current federal minimum wage to afford things like food, rent, medical care, and childcare. In Highland County, Ohio, one of the cheapest counties I could find, the living wage for a single adult is still $8.85 an hour. Two parents and a child are $10.70/hr, jumping up to $14.87/hr if only one parent is working. While Ohio’s minimum wage is at least greater than the federal wage, it is still only $8.10 an hour, not even enough for a single adult to live off of in Highland County. Based on these numbers, it’s pretty clear something needs to be done about the minimum wage.

Secondly, unlike what many people arguing against a wage increase would like you to believe, the increase of the federal minimum wage, to $12 or $15 an hour would not be done all at once. Almost all proposals to increase the minimum wage have a gradual increase, with the full increase being achieved by 2020 at the earliest. Even the Raise the Wage Act I mentioned earlier would only raise the federal minimum by $1 an hour every year until it reached $12/hr by 2020. With a staggered increase, however, claiming the resulting minimum wage will be $12 or $15 an hour is still somewhat misleading because of inflation. If inflation continues steadily over the next five years, as it is likely to do, the $15 minimum wage in 2020 would only be worth $13.75 in today’s dollars. The more realistic $12 minimum wage would be equivalent to just $10.63 in today’s dollars. That’s not very far above the $10.10 that is currently the minimum wage set by President Obama for federal public sector workers. And this still does not take into account any increase in the cost of living index over the rest of the decade.

Even with these figures, many opponents to raising the minimum wage will claim that such an increase is too high for the productivity of lower earning workers, who tend to be less skilled, and that it will hurt businesses and the economy. However, once again the numbers to not lend this argument any weight. The problem with the federal minimum wage since its inception is that because it is only raised in occasional jumps, it is always subject to depreciating value due to inflation. If you take the real value of the federal minimum wage instead of the nominal value, the minimum wage has been roughly stagnant since the late 1980s. In fact, the highest real value of the minimum wage was in 1968. The nominal minimum wage may have only been $1.60 an hour, but the purchasing power of that wage was equivalent to $10.88 an hour in today’s dollars. The worker productivity argument does not hold water either. Since that high mark of 1968, average labor productivity of the American worker has increased by 135 percent. When you take both inflation and worker productivity into account, the federal minimum wage for 2015 should be $25.50 an hour!

Based on all these factors, something clearly needs to be done to rectify the gap between the minimum wage and the living wage throughout the United States. The Raise the Wage Act and proposals of a $15 wage are good first steps, and will certainly help more people toward making a decent living, especially in the more expensive cities in the country. However, it is evident that much more work needs to be done if we are to address the issue of poverty and income inequality in the US to make everyone truly better off. A nationwide or even statewide adoption of a $15 minimum wage will go a long way toward solving the problem, but it is only a partial fix and may not be a long-term solution. Even so, it is good to see the Democratic Party adopt a $15 minimum wage as part of its platform, and hopefully the United States can move toward elevating the wage sooner rather than later.

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