The Minimum Wage Debate
Dear Rich Lifer,
President Joe Biden has proposed raising the federal minimum wage from $7.25 an hour to $15 an hour, claiming it will allow many low-wage workers to rise out of poverty levels.
The minimum wage has not been raised since 2009 despite across the board inflation affecting everything from rent to medical costs.
Biden’s plan calls for gradually raising the minimum wage over a four year time period, so the change would not be immediate, but it would eventually allow a family of four to support themselves without living in poverty.
Several states, including California, Florida and Massachusetts, were already on the path to reach a $15 minimum wage in the coming years.
However, Bharat Ramamurti, deputy director of Mr. Biden’s National Economic Council, states, “No matter where you work in America, if you work full time or 40 hours a week, you should not live in poverty. A $15 minimum wage accomplishes that.”
Businesses and economists are torn when it comes to raising the minimum wage, with some fearing it will cost jobs, especially in states with a relatively low cost of living.
Today we will look at both sides of the debate and explore how this policy change could affect you.
The Argument Against Raising the Federal Minimum Wage
Many opponents of a $15 minimum wage point to rural states with lower costs of living to show the potential negative effects.
In states like Mississippi, half of all workers earn $15 or less, according to the Labor Department. In other states like Arkansas, West Virginia and Louisiana, almost half of all workers make less than $15. These types of employees include dishwashers, cashiers, firefighters, and construction workers.
The Labor Department reports that 37% of workers who earned the federal minimum wage in 2019 were employed in restaurants, hotels and other parts of the hospitality sector. 23% of minimum-wage earners worked in retail. And 14% were education and health employees.
Opponents look at these numbers and say job losses would be the result of raising the pay for low-wage workers in many of these industries. The leisure and hospitality sectors have already lost 3.8 million jobs in the last year due to the pandemic.
The nonpartisan Congressional Budget Office (CBO) found in a 2019 study that raising the federal minimum wage to $15 an hour by 2025 could cost 1.3 million Americans their jobs.
Kevin Hassett, former President Donald Trump’s top economic adviser, said raising the minimum wage would be “a potentially catastrophic policy error” because it would cut into the profits of many businesses already on the brink of bankruptcy due to coronavirus. Instead, Hassett suggests more direct payments to low-wage workers.
The Argument For Raising the Federal Minimum Wage
The very same CBO report we cited above also shows that a higher minimum wage could boost the pay of about 27 million workers and lift 1.3 million Americans out of poverty.
Right now, in many large cities with higher costs of living, such as Atlanta, Houston and Philadelphia, workers can still be paid as little as $7.25 because their states follow the federal rate. Worker advocates maintain that many workers who earn the current minimum wage struggle to pay for basic needs such as rent and electricity, even while working 40-60 hour weeks.
Arindrajit Dube, an economist at the University of Massachusetts-Amherst, discovered only a slight impact on employment in his study of minimum-wage increases, however, he did see clear poverty-fighting benefits.
Additionally, The Economic Policy Institute (EPI) said a $15 minimum wage would help decrease spending on public-assistance programs by between $13.4 billion and $31 billion annually, in the form of fewer tax credits and less nutrition assistance.
The EPI also states that the increase would boost income for people of color, who make up a disproportionate share of low-wage workers.
Michael Reich, Co-Chair of the Center on Wage and Employment Dynamics at the Institute for Research on Labor and Employment (IRLE), says that higher wages will also increase consumer spending and bring in more taxes to federal programs like Medicare and Social Security.
A Middle Ground?
Many businesses do support raising the minimum wage, but do not support a hike to $15. Joshua Bolten, president of Business Roundtable, says:
While we continue to support an increase in the federal minimum wage, we believe that the increase should be thoughtfully designed to reflect regional differences in wage rates and to ensure that the increase does not undermine small business recovery.
The U.S. Chamber of Commerce and Walmart Chief Executive Doug McMillon have expressed similar sentiments. In fact, Walmart, which is the largest private employer in the nation, starts workers at $11 an hour.
Some other large employers, including Amazon and Target, have raised their starting wages to $15 an hour.
So will employees continue to rely on corporations for a living wage rather than their state or federal government?
The Future of Minimum Wage
It is unlikely that the $15 federal minimum wage increase will be in President Biden’s Covid relief plan. On Sunday, Biden himself stated, “I put it in, but I don’t think it’s going to survive.”
He did add that he would continue to push for a standalone bill, but the timeline on this is unclear.
Many advocacy groups are continuing to push for the $15 minimum wage to be included in Congress’ budget reconciliation process.
David Williams, a Detroit McDonald’s worker and Fight for $15 Leader, stated, “Essential workers who have been risking our lives on the frontlines of the pandemic for nearly a year can’t survive on $7.25. We’re literally dying while politicians are playing political football with our lives.”
Sen. Bernie Sanders, one of the Senate leaders who brought forth the Raise the Wage Act, says he will continue to push for a phased increase and also notes he never intended to raise the minimum wage to $15 during the pandemic.
For now, there is no set plan to enact a gradual raise to a $15 federal minimum wage, but we will continue to bring you the latest on this issue as it develops.
To a Richer Life,
The Rich Life Roadmap Team