Is It Time To Raise The Federal Minimum Wage?

Feb 17, 2013

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Much of President Obama's State of the Union address last Tuesday centered on the theme of boosting America's dwindling middle class.

"It's our generation’s task,” he implored, "to reignite the true engine of America’s economic growth — a rising, thriving middle class.”

Among the more tangible policies mentioned that evening to further that objective, the president proposed raising the federal minimum wage - from $7.25 per hour to $9 by the end of 2015 - and provide for annual cost of living adjustments. (This would apply to most hourly jobs, with some exceptions, including some tip-based work.)

“Let’s declare that in the wealthiest nation on earth, no one who works full time should have to live in poverty,” he said. "Working folks shouldn't have to wait year after year for the minimum wage to go up, while CEO pay has never been higher. So here's an idea that Gov. Romney and I actually agreed on last year: Let's tie the minimum wage to the cost of living, so that it finally becomes a wage you can live on."

How much does a minimum wage worker actually make?

What are the arguments?

When was the minimum wage first established, and how often does it go up?
How do minimum wage laws differ by state?
How does our minimum wage compare to rates in other wealthy nations?
Audio and video resources

How much does a minimum wage worker actually make?

A full-time worker making the federal minimum wage (at $7.25/hour) earns about $14,500 a year, which is slightly above the federal poverty line ($11,490) for a person living alone. But for a single parent with one child, that same wage would be below the poverty line (which is $15,510 for a two-person household). In 2011, roughly 4 million Americans were making at or below the minimum wage, according to the Bureau of Labor Statistics. Over 60 percent of them were women and roughly half were under 25.

What are the arguments?

As with most things in politics, it's one thing to propose something, and quite another to actually make it so. Raising the minimum wage is no exception. Since the U.S.established it's first minimum wage in 1938 (at 25 cents and hour), increasing it has never come without a long hard fight. In fact, when Obama first prepared to take office in 2008, his transition plan included a promise to raise the minimum wage to $9.50 an hour by 2011. And that was the last we heard about that ... up until now.

Raising the wage is strongly opposed by most conservatives who view it as a job killer and a prime example of government overreach into the free market economy.

Pro

"The economy has grown substantially. The economic pie is bigger now. But our lowest wage workers aren't getting a fair share of that increasing pie."

- Sylvia Allegretto, Labor Economist, UC Berkeley

Every full-time worker deserves to earn a living wage and be able to afford basic necessities like food, gas, and health care.
In a time of record corporate profits and widening economic inequality, an increase would help distribute more of the pie to employees.
It would boost economic activity by lifting more people out of poverty, increasing their purchasing power, and reducing dependence on social services.
Fears that anincrease would negatively impact job growth are unfounded.
Minimum wage workers have some of the most difficult, but important jobs in our economy and should be fairly compensated for their hard work.

Con

"it's a classic example of the law of unintended consequences: the very individuals that it intends to help are the one's who are going to be the most hurt."

- John Kabateck, National Fed. of Ind. Business

Raising the minimum wage would hurt already struggling small businesses by increasing their overall costs.
Many businesses would likely respond to a higher minimum wage by cutting workers' hours and reducing the number of employees.
It would encourage more American businesses to outsource jobs to countries where labor is significantly cheaper.
The American economy functions best as a free market system, and undue government interference stifles growth and job creation.
It would further increase the unemployment rate among younger workers, which rose significantly after the last increase five years ago.

When was the minimum wage first established, and how often does it go up?

It's been raised multiple times - and somewhat erratically - since Congress first passed the Fair Labor Standards Act in 1938 as part of New Deal legislation. Referred to by President Franklin D. Roosevelt as "the most far-reaching, farsighted program for the benefit of workers every adopted in this or any other country," the law hinged on the federal government's authority to regulate interstate commerce. It established a 25-cent minimum wage (about $4 today) and marked the first time employers were legally required to pay workers overtime for certain hourly jobs). The minimum wage last went up in 2007 - from $5.15 to $7.25 - the first increase in a decade.

The chart at left, by CNN Money, nicely illustrates the history of the minimum wage in actual dollars (nominal value) vs. today's inflation-adjusted dollars (real value). In 1948, the minimum wage reached its lowest buying power - worth about $3.80 in today's dollars. From there, though, it rose significantly, and by 1968 had reached it's highest buying power, at more than $10.50 in today's dollars. (In other words, the $1.60 rate that minimum wage workers received in 1968 was worth a lot more than the $7.25 they earn now).

Today the minimum wage is about midday between those two extremes, and raising it to $9 would put it back to what itvwas worth in the early 1980s.

How do minimum wage laws differ from state to state?

While $7.25 is the national baseline, individual states can set higher rates. Currently 18 states have minimum wages above $7.25, including California (at $8), where efforts are underway to increase it. At $9.19 an hour, the State of Washington has the nation's highest rate. Four states actually have minimum wages below the national rate, but those rates are essentially defunct since employers must still defer to the higher rate. Click on the map at right to search through a Department of Labor interactive map of individual state rates.

How does our minimum wage compare to rates in other wealthy nations (and what does it tell us about relative income inequality)?

The U.S. trails a number of the world's other wealthy nations, with Australia leading the charge at more than $15 (a number of industrialized countries like Germany don't have a minimum wage). The following map is based on figure from the Organisation for Economic Co-operation and Development (for countries where this data is available). Click on each shaded country to see its minimum wage (in U.S. dollars) as well as that wage as it compares to the median full-time wage of that nation's workforce. The latter figure is one indicator of the gap between a nation's lowest earners and those who earn roughly at the midpoint of the spectrum. Using that measure, the U.S. minimum wage is less than 40 percent of its median full-time wage, showing a significant degree of economic inequality. In other words - the gap between the lowest earners and the middle earners is substantial.

Audio and Video Clips

ABC News explores the issue and its opposing sides

KQED Forum 30 minute segment on the the politics and economics of the proposed minimum wage increases, and the impacts on workers and businesses:

Stephen Colbert on the need for a federal maximum wage:

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