by Heidi Shierholz
This piece appeared on the Economic Policy Institute site on June 20, 2013.
In his 2013 State of the Union address last month, President Barack Obama joined a growing chorus of voices calling for an increase in the federal minimum wage. Following that call, Senator Tom Harkin (D-IA) and Representative George Miller (D-CA) introduced the Fair Minimum Wage Act of 2013, which would raise the federal minimum wage from $7.25 to $10.10 by 2015 in three steps of 95 cents each, and adjust the minimum wage each year thereafter to keep pace with the rising cost of living. It would also increase the federal minimum wage for tipped workers—which has been stuck at $2.13 for over twenty years—to 70 percent of the federal minimum wage.
Who would see a raise if the minimum wage were increased to $10.10 by 2015? Mainly adults who work many hours in the labor market. In fact, only 11 percent of those who would see a raise are younger than age 20, and only 14 percent work less than 20 hours per week. Many are parents; if the minimum wage were increased to $10.10 by 2015, nearly a quarter (23.3 percent) of all kids in this country would see at least one parent get a raise. Under this proposal, millions of working families would bring home bigger paychecks.
It is also important to note that this increase would help not just low but also moderate income households. More than half of the workers who would see a raise live in households with an income of less than $50,000 and more than a quarter live in households with an income of more than $50,000 but less than $75,000. These findings underscore the fact that the minimum wage is a basic labor standard, specifically intended to play a crucial role in rewarding work and ensuring that growth in the economy is broadly shared across the workforce. If it is allowed to erode, as it has over the last 45 years, it hurts the living standards of both low and moderate income families.
Opponents’ warnings that this increase would cause job loss among low-wage workers are not supported by the facts; the research shows that increases in the minimum wage have no discernible effect on employment. I care deeply about implementing economic policies that lead to solid income growth for households not just at the top of the income distribution, but at the middle and bottom as well, and if increasing the minimum wage hurt the goal of broadly shared prosperity, I wouldn’t support it. But the evidence shows that the minimum wage increases we have seen over the years have increased the wages of low wage workers without harmful effects.
Opponents of the minimum wage will also often suggest that instead of a minimum wage increase, we should increase the Earned Income Tax Credit (EITC). This misses a key point: the minimum wage and the EITC are not competing policies. They work together, and in particular, the EITC needs a strong minimum wage. Why? The EITC substantially raises the after-tax wages of workers who are eligible for it. In so doing, it can actually serve to lower the before-tax wages offered by employers, since workers eligible for the EITC may accept somewhat lower wages, knowing they will receive EITC benefits. This means that low-wage employers actually capture a significant chunk of the total expenditures on EITC. A higher minimum wage would put a stronger floor under the wages that low-wage employers are able to pay and thereby limit their ability to capture a big share of EITC expenditures.
Finally, it’s worth noting that if the minimum wage had kept up with productivity growth over the last 45 years, it would now be around $19 per hour. That sounds outrageously high; it’s higher than the median wage, which is currently around $16.30 per hour. But we should be clear about why a $19 minimum wage sounds outrageous – in particular, why it is higher than the median wage—it is because the median wage is so low. Over the last four decades, mostworkers have not reaped the benefits of productivity growth—over most of that time all of the productivity gains were captured by the already-affluent. A $19 minimum wage sounds outrageously high because the top has captured all the growth in the last 40 years, not because the economy hasn’t seen the kind of productivity growth that would have made that kind of minimum wage possible. Of course, no one is suggesting a minimum wage anything near $19. But this does underscore the fact that a minimum wage of $10.10 in 2015 is a modest proposal indeed. Nevertheless, it is one thing we can do to help raise the lagging living standards of low and moderate income families and reverse some of the dramatic increase in wage inequality of the last four decades.
The views and opinions expressed in this article are those of the author and do not reflect the positions of Oxfam.
Heidi Shierholz is a labor economist with the Economic Policy Institute (EPI) who specializes in low-wage work, the minimum wage, and inequality. She is a co-author of EPI’s “State of Working America.”