Issue in Brief
What's going on?
In May, Congress passed a bill bumping the minimum wage up to $7.25 an hour (up from $5.15) over a two year period, ending a year long debate over the measure. Congressional leaders started pushing in '06 to raise the minimum wage, saying $5.15 didn't bring in enough cash for today's poorest workers to make a decent living. Others opposed raising the minimum wage saying it would hurt the poor more than it would help - instead of getting a raise, many would find themselves out of a job after businesses cut costs, which include staff, to meet the new wage standards.
how do you make a living off $5.15?
Advocates of raising the minimum wage say today's federal minimum wage isn't enough for anyone to get by on. Because wages haven't been adjusted with inflation, each year a family living on minimum wage can afford to buy less and less.
Today, the government's health and human services department sets the poverty line at $20,000/yr for a family of four (HHS). Meanwhile two parents working full-time at minimum wage would only be expected to make $21,424/year total (our math: $5.15x40x52x2).
Advocates for raising the minimum wage, say we should set a "living wage" or a wage that someone could use to support a family. One group, ACORN, puts a "living wage" for a family of four at a little less than $9.00/hr. While no one can agree exactly what a living wage should be, they all agree that whatever it is it is more than what minimum wage workers are getting today.
EPI, a left of center think tank, estimates that raising the minimum wage would affect nearly 14.9 million workers or 11% of the workforce, 26% of which have children under 18. (EPI) As an added plus, a higher minimum wage would also ease up the costs of government assistance programs for the poor like welfare and food stamps, by shifting some of the burden onto businesses that make profits at the expense of their workforce.
Note: Although the federal minimum wage is currently $5.15, the minimum wage varies state by state, who ultimately determine base wages.
higher minimum wage makes for higher unemployment
Those who oppose a higher minimum wage say it sets the price of low-skilled labor too high and so forces employers to hire fewer workers. While some will make higher wages, they argue, many others will be out of a job, pushing more into poverty.
Anti-minimum-wagers believe the best way to benefit the entire economy is too let the free market set wages, not the government. By setting artificial minimums on the price of labor, small businesses that have limited cash to pay their employees will be forced to decide whether to cut employees or go out of business. They also worry that a higher minimum wage will force companies to move their jobs abroad where labor is cheaper.
Additionally, many who oppose lifting the minimum wage point to who actually works at minimum wage. They claim that it is more often high school students than single moms. Pointing to Census Bureau stats from 2000 they believe that 53% of 1.6 million minimum wage workers are under 23 and usually from well off households that don't need the extra income. (H)
Finally, many believe that raising the minimum wage will have other negative effects besides raising unemployment such as raising the price of goods and services that rely on minimum wage labor.
What is the minimum wage in my state?
Not all states have the same minimum wage. As of November 2006, twenty-nine states have raised their minimum wage above the federal level, including six states that okayed ballot initiatives to up their minimum wage in 2007 (Colorado and Ohio to $6.85, Arizona $6.75, Missouri $6.50, Montana $6.15, Nevada $6.15 for workers without health care). Check out the minimum wage in your state at the Department of Labor.
What is going on in Congress?
In May 2007, Congress pulled through with a final minimum wage bill (passed on the coattails of a war funding bill), raising the minimum wage to $7.25 an hour over a two year period and tossing in $4.8 billion in tax breaks for businesses most likely to feel the pain of the wage increase. (HR 2206) (WP).
More about the pros and cons of raising the minimum wage:
Other readings. (Unfortunately, our usual roster of nonpartisan dependables don't have have recent analyses on the minimum wage.)
A UC professor and Federal Reserve Board member do a cross-country analysis of minimum wage studies.
The Wall Street Journal has a pretty balanced article on the question of the economics of a minimum wage (you need to be a subscriber.
A CBO minimum wage analysis from 1986.
CRS charts compare minimum wage earnings to poverty thresholds from 1959 to 2005. (pdf)
Updated May 29, 2007
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