PROBLEMS ADDRESSED: Poverty, Income & Wealth Inequality

SOLUTION: Raise the Minimum Wage

Related Solutions: Expand Adoption of ESOPsExpand the EITC, Increase Taxes on the Wealthy, Limit Executive Compensation

Last updated: Feb. 8, 2017

As business owners and executives, we support gradually raising the federal minimum wage to at least $12 by 2020. It’s good for business, customers and our economy.

–from the home page of Business for a Fair Minimum Wage, a national network of business owners and executives who believe a fair minimum wage makes good business sense

Introduction

Raising the minimum wage to at least $12 an hour would reduce the number of families living below the poverty line and it would also be an important step in closing the income gap. Currently, someone who earns the minimum wage and works 40 hours per week, 52 weeks a year with no days off for being sick or for vacation or holidays will earn just $15,080, a number that falls well below the poverty line for a family of four, and that still falls short of the poverty line for a family of two.

DecliningValueWhile executive compensation has soared since 1980, average worker compensation has stagnated, and the incomes of those making the minimum wage have actually decreased in value . From 1978 to 2014, CEO compensation increased 997%, yet annual worker compensation increased just 11%. For those making the federal minimum, the news is worse as the value of their hourly wage actually has dropped $1.38, or about 16%, since 1980. Total income for a single mother or father who earns $7.25 an hour, the federal minimum wage, and who works 40 hours per week will fall below the poverty line.

An increase to the minimum wage is a simple and direct means of lifting many people out of poverty and correcting an imbalance in income that has grown since 1980. It also makes good economic sense for several reasons:

  1. Since consumer spending is what drives our economy, it makes sense to put more money into the pockets of a larger numbers of workers, so that they can be more active consumers.
  2. The current minimum wage places many workers below the poverty line, entitling them to receive financial support from the government. Such support serves as taxpayer subsidies to those companies that do not pay a living wage.
  3. Increasing income for the lowest wage earners, if substantial enough, will enable them to begin saving some percentage of their earnings and building wealth to further reduce long-term costs of government support.

WagePoverty

Progress Updates

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Incomes Surge, Poverty Down Slightly

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Right Finds Common Ground with EITC Proposal

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Learning Gap Is Closing Despite Income, Wealth Inequalities

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Alternative Views

Limited Impact on Inequality

Research appearing in the American Economic Journal (AEJ), the journal of the American Economic Association, suggests that raising the minimum wage will reduce inequality among the poorest of wage earners but the reduction will not be as dramatic as some supporters believe. It is worth noting that regardless of how much it narrows the income gap, raising the minimum wage to $12 or $15 an hour will still lift many working families out of poverty.

Increased Minimum Wage Eliminates Jobs, Hurts Small Businesses

One of the most common concerns about raising the minimum wage, especially the current proposal to more than double the current minimum to $15, is that it will eliminate jobs that employers will no longer be able to afford. This is a heavily debated topic with no clear consensus, but perspectives on either side suggest that, nationally, the impact will not be significantly positive or negative. Regionally, however, the impact will vary depending on a range of factors, including size of the increase to the minimum wage, type of business, and the health of the regional economy. In urban areas with a diverse economy, it is more likely that an increase to $15 per hour could be absorbed with no loss of jobs. Indeed, studies where cities have raised their minimums appear to support this conclusion. Rural economies, where people are typically more dependent on one or two industries, it is fair to assume that losses would be greater. In both areas, small businesses would be hardest hit.

Still Not a Living Wage

The minimum wage is an hourly earnings rate set by the federal government, and supplemented by some state governments, as the lowest acceptable wage that all businesses must pay to their workers. As noted, even the minimum wage can leave a family in poverty, or just barely beyond. A living wage is an hourly rate that is calculated by using local cost data for basic necessities like food, housing, clothing, transportation, and healthcare to determine the wage that will enable workers and their families to achieve economic independence.

The Massachusetts Institute of Technology publishes a Living Wage Calculator that compares the living wage in counties and large cities with the minimum wage. The table below includes the current state minimum wage with the livable wage in several sample locations. Note that in these samples, the living wage ranges from as little as $9.26 in Topeka, Kansas to $13.96 in San Francisco, California, suggesting that a regional approach to setting a minimum or living wage might have the greatest net benefit.

The Living Wage Calculator includes data for all localities in the US.

Mechanisms for Getting Something Done

A number of mechanisms have been suggested for increasing taxes on the wealthy. Each is briefly summarized below. We invite you to review each one. Please feel free to suggest another mechanism that we have not yet covered. In time, we will offer an option for you to tell us which options make the most sense to you.

Federally-Mandated Minimum Wage

There has been a growing and increasingly vocal push for the federal government to raise the minimum wage to $15 per hour, more than double the current $7.25 per hour. Raising the minimum wage to $15 over a period of years would be a first and fundamental step towards equalizing the reinvestment of business profit in the labor market. Including a provision that automatically increases the minimum wage to keep up with inflation would also make sense given that the current minimum wage of $7.25 is actually worth almost 33% less than its inflation-adjusted value of $9.54.

State and Local Mandates

In 2016, seven states and 18 cities and counties approved measures to increase the minimum wage, reflecting the increasing influence of the Fight for $15 that was started in 2012 by fast food and other low-wage workers. The states – Arizona, California, Colorado, Maine, New York, Oregon and Washington – approved increases between $12 and $15 per hour. In particular, the increase in Maine is the most dramatic, rising from the previous $7.50 an hour (just 25¢ above the current federal minimum). Increases in the 18 localities ranges from $10.10 to $15 per hour. Washington, DC led the way, approving an increase to $15 to be phased in by 2020 and adding automatic cost of living increases beginning in 2021.

Five of these measures resulted from ballot initiatives while the remainder were passed into law by the respective state or local legislative body.

Raise the Minimum Wage, a project of the National Employment Law Project (NELP), offers several resources for tracking and learning about what’s happening on this issue at the federal, state, and local levels. NELP estimates that, since the launch of the Fight for $15, low-wage workers have received more than $59 billion in annual raises resulting from increases to state and local minimum wages.

Business Policy

The National Employment Law Project has identified 57 companies that had raised their minimum wage to $10 or more since the Fight for $15 began. Of these, 42 companies set their minimum between $15 and $18 an hour. These changes came about either through a change in company policy or as the result of a collective bargaining agreement.

The resources below can help you become a more informed and engaged citizen, shareholder, business person, voter – and maybe even an American leader. Our list is not comprehensive, so if you know of another resource that belongs here, please let us know.

Track and support proposed legislation

Several proposals were made in the 114th session of Congress to raise the minimum wage. These are listed in the table below. None were passed into law. By clicking the links, you will open a page in GovTrack where you can learn more about each bill and contact your senators and representative to express your views. We will update this page as new proposals are made in the current session of Congress.

Efforts to increase the federal minimum wage

S. = “Senate Bill” | H.R. = “House of Representatives Bill”

Name Status Sponsor Purpose
S. 1150:
Raise the Wage Act

H.R. 2150:
Raise the Wage Act

In committee; GovTrack gives it no chance of being enacted

Sen. Patty Murray

Rep. Robert C. “Bobby” Scott

Raise min. to $12 by 2020;

Index to median wage after 2020

 

S. 1832:
Pay Workers a Living Wage Act

In committee;

GovTrack gives it a 2% chance of being enacted

Sen. Bernie SandersRaise min. to $15 by 2020; phase out tipped sub-min. wage; adjust annuallyH.R. 4508:
Fair Wage ActIn committee; GovTrack gives it a 1% chance of being enactedRep. Donald Norcross

 

Other Resources for Action

Raise the Minimum Wage. See what’s happening at the state level around the country. You’ll also be able to see what’s happening at the federal and local levels too.

Minimum Wage Tracker. The Economic Policy Institute offers this interactive map for identifying the minimum wage and tipped minimum on a state-by-state basis. It also offers other useful information, such as when increases are expected and whether the state minimum wage is adjusted annually for inflation.

Business for a Fair Minimum Wage. This large group of business owners and executives supports gradually raising the federal minimum wage to at least $12 by 2020. They believe that a higher wage will strengthen buying power and consumer spending, which is “at the heart of the economy”. In other words, they believe it is good for business.

Living Wage Calculator. The Living Wage Calculator published by MIT provides a market-based approximation of how much is required to take care of a family’s basic needs, including food, housing, clothing, healthcare, transportation, child care, and more. The calculator uses county-wide and city-specific cost data to determine the living wage for a single adult and households with one or more adults and children.

Open States. Open States is a collection of tools that make it possible for citizens to track what is happening in their state’s capitol by aggregating information from all 50 states, Washington, D.C., and Puerto Rico.

GovTrack.us. Learn about and track legislation proposed in Congress, and follow the steps to let your US senators and representative know how you feel about the bills that interest you.

VoteSmart.org. Founded in 1988, Project VoteSmart provides free, factual, unbiased information on candidates and elected officials to all Americans. It aims to give you the information you need to … well … vote smart.

Elected officials on USA.gov. This website provides links so you can call or email your federal, state, and local elected leaders. Let them know what you think, and find out their position on increasing taxes so you can make a more informed vote.

Sources

Center on Budget and Policy Priorities, “Income Gains Widely Shared in Early Postwar Decades – But Not Since Then” (based on US CensusBureau data), http://www.cbpp.org/income-gains-widely-shared-in-early-postwar-decades-but-not-since-then-0. Accessed April 1, 2016.

US Department of Labor, Minimum Wage Chart1, https://www.dol.gov/featured/minimum-wage/chart1. Accessed August 19, 2016.

Autor, David H., Alan Manning and Christopher L. Smith. 2016. “The Contribution of the Minimum Wage to US Wage Inequality over Three Decades: A Reassessment”. American Economic Journal: Applied Economics, 8(1):58-99, https://www.aeaweb.org/articles?id=10.1257/app.20140073. Accessed July 18, 2016.

Schmitt, John, “Why Does the Minimum Wage Have No Discernible Effect on Employment?”, Center for Economic and Policy Research, February, 2013, http://cepr.net/documents/publications/min-wage-2013-02.pdf. Accessed July 20, 2016.

Massachusetts Institute of Technology, Living Wage Calculator, http://livingwage.mit.edu. Accessed August 22, 2016.

Cooper, David, Schmitt, John, Mishel, Lawrence, “We Can Afford a $12.00 Federal Minimum Wage in 2020”, Economic Policy Institute, April 30, 2015, http://www.epi.org/publication/we-can-afford-a-12-00-federal-minimum-wage-in-2020/. Accessed July 13, 2016.

Kimball, Will, “14 states raised their minimum wage at the beginning of 2016, lifting the wages of more than 4.6 million working people”, Economic Policy Institute, January 21, 2016, http://www.epi.org/blog/14-states-raised-their-minimum-wage-at-the-beginning-of-2016-lifting-the-wages-of-more-than-4-6-million-working-people/. Accessed July 13, 2016.

Dimon, Jamie, “Why We’re Giving Our Employees a Raise”, NY Times, July 12, 2016, http://www.nytimes.com/2016/07/12/opinion/jamie-dimon-why-were-giving-our-employees-a-raise.html. Accessed July 14, 2016.

National Employment Law Project, “14 Cities & States Approved $15 Minimum Wage in 2015”, December 21, 2015, http://www.nelp.org/content/uploads/PR-Minimum-Wage-Year-End-15.pdf. Accessed September 7, 2016.

Sonn, Paul K., Yannet M. Lathrop, “Raise Wages, Kill Jobs? Seven Decades of Historical Data Find No Correlation Between Minimum Wage Increases and Employment Levels”, National Employment Law Project, May 2016, downloaded February 8, 2017 from http://www.nelp.org/publication/raise-wages-kill-jobs-no-correlation-minimum-wage-increases-employment-levels/.

Wihbey, John, “Minimum wage: Updated research roundup on the effects of increasing pay”, Journalist’s Resource, July 27, 2016, https://journalistsresource.org/studies/economics/inequality/the-effects-of-raising-the-minimum-wage. Accessed February 8, 2017.

Morath, Eric, “Minimum-Wage Increases May Deliver the Best Wage Growth In Eight Years”, Wall Street Journal, February 2, 2017, http://blogs.wsj.com/economics/2017/02/02/minimum-wage-increases-may-deliver-the-best-wage-growth-in-eight-years/. Accessed February 8, 2017.

Hanauer, Nick, “A report that analyzed every minimum-wage hike since 1938 should put a bunch of nonsense ideas to rest”, Business Insider,  May 6, 2016, http://www.businessinsider.com/minimum-wage-effect-on-jobs-2016-5. Accessed February 6, 2017.

Does Raising The Minimum Wage Hurt Jobs?“, WBUR radio program Here & Now interview with Arindrajit Dube and David Neumark, May 5, 2016, http://www.wbur.org/hereandnow/2016/05/05/minimum-wage-jobs. Accessed February 6, 2017.

Neumark, David, “The Evidence Is Piling Up That Higher Minimum Wages Kill Jobs”, Wall Street Journal, December 15, 2015, https://www.wsj.com/articles/the-evidence-is-piling-up-that-higher-minimum-wages-kill-jobs-1450220824. Accessed February 6, 2017.

Brochu, Pierre, David Green, “Minimum wages: the effects on employment and labour-force turnover”, Center for Economic and Policy Research, January 22, 2014, http://voxeu.org/article/minimum-wages-and-jobs-new-evidence. Accessed February 6, 2017.

Bernie Sanders

Sanders’ campaign to be the Democratic Party presidential nominee in 2016 brought renewed focus to the issue of income and wealth inequality, and to the solutions he advocated, including raising the minimum wage to $15 an hour. Learn more …

Danielle Vogel

Although Danielle Vogel started her grocery store to make progress on climate change “one bite at a time”, she and her management team also support the idea of paying a livable wage, in part because it gives them a competitive advantage when hiring. Learn more …