By Contributor Jacob Jackson
The federal minimum wage has been a thoroughly contentious subject since its initial implementation in 1938. As a part of President Franklin D. Roosevelt’s New Deal, the federal government guaranteed workers a minimum of $0.25 per hour, which would be about $4.56 today. Since then, Congress has successfully voted to raise the federal minimum wage 22 times, resulting in the current rate of $7.25 per hour.
Recently, the conversation around the minimum wage has focused on Fight for Fifteen” a grassroots movement that began in New York City in 2012. It has picked up a considerable amount of support for the Raise the Wage Act of 2019, a bill that would increase the federal minimum wage to $15 per hour. The bill passed in the House of Representatives in July of 2019 but has yet to find success in the Senate.
The case for raising the minimum wage is more complicated than simple dollar amounts. The value of the US standard dollar can fluctuate but has been following a decreasing trend since the Great Depression. Due to price increases and other economic factors, the purchasing power of the dollar has fallen over the past century; $100 today has the same purchasing power as $3.87 in 1913. So, as the purchasing power of the dollar decreases, it would follow that the minimum wage should be increased accordingly to account for rising prices.
The federal minimum wage reached its real value peak in 1968 when it would have been worth about $11.85 today. As of last year, we are now in the longest period without a minimum wage increase since its establishment. In fact, since the minimum wage was raised to $7.25 in 2009, the real value of that amount has already depreciated by 17 percent—$7.25 in 2009 is only worth $8.70 today. From its highest point in 1968, the minimum wage has depreciated in real value by 39%. The 2019 Raise the Wage Act included the most commonly suggested solution to this problem: an automatic adjustment to the minimum wage each year to account for inflation, on the basis that if the dollar should steadily lose purchasing power, then minimum wage should be adjusted often to compensate.
Another factor to consider when examining the minimum wage is worker productivity, or how much value in goods or services a worker is able to produce with their labor. From 1948 to 1979, average worker productivity and average worker hourly compensation rose in close relation to each other: productivity rose by 108.1%, while wages rose by 93.2%. After 1979, however, wage increases began to stagnate. Between 1979 and 2018, productivity increased by another 69.6%, but hourly compensation only increased by 11.6%. The main argument for increasing the federal minimum wage, then, is not rooted in an undeserved hike in wages. In actuality, wages for American workers need to be increased to match the level of productivity growth that we have seen over the past decades.
A common argument against raising the minimum wage is that while it would certainly lift wages for low-earning Americans, its ultimate effect on the economy would be harmful. Critics have asserted that raising the minimum wage also raises prices, hurts small businesses, and increases unemployment. However, there is research to suggest otherwise. On the subject of unemployment, multiple studies, such as a study published in 2015 and an analysis from 2019, have found no significant correlation between growth rates of the minimum wage and unemployment. What they did find, however, were declines in poverty rates, especially in low-income areas. This is not to say that these findings can be directly applied to predictions about raising the minimum wage to $15 per hour by 2024, which would be an unprecedented growth. Still, there is little evidence suggesting that a drastic increase in the real value of the minimum wage would negatively impact employment. Most businesses in the US are benefiting from today’s strong economy, so there is no reason to assume they cannot afford to pay higher labor costs.
When it comes to price increases, research from the Upjohn institute suggests that the effect of raising the minimum wage on prices is much less than previously thought, and favors a gradual approach to a large, one-time increase. This data was gathered from states that have taken it upon themselves to locally increase the minimum wage due to the federal government’s continued inaction. However, that’s not to say that there would be no price increases. In the state of New York, for example, prices demonstrably increased due to 2019 minimum wage legislation. However, there were still noticeably positive trends in the local economy: prices rose, but so did wages, revenue, and employment. Finally, on the topic of small businesses: a large factor contributing to their success is disposable income. Small businesses generally cannot compete with the low prices of large retailers, so low-income consumers are forced to take their business elsewhere. So, while it is true that small businesses would have to pay higher labor costs if the minimum wage were increased, they would also experience higher sales, since low-earning workers would have significantly more disposable income than they previously did.
Perhaps the most important aspect of raising the minimum wage is the effect wage increases have on poverty. According to the Economic Policy Institute, increasing the minimum wage to $15 an hour by 2024 would directly increase pay of 22.5 million workers, as well as indirectly raise the wages of another 19 million, who would “benefit from a spillover effect as employers raise wages of workers making more than $15 in order to attract and retain their workforces.” Together, that totals 41.5 million, almost one-third of the entire workforce. Additionally, low-wage earners spend a majority of their extra earnings, rather than saving them, meaning that much of the wage increases for low-earning workers would go directly back into the economy, stimulating significant growth.
When it comes to US economic policy, it makes perfect sense that the minimum wage is a hotly debated topic. 2019’s Raise the Wage Act marked the closest we’ve been to meaningful wage reform since 2009, and many are still frustrated with stress and poverty endured in the modern American economy. Whether legislation is passed or not, however, it is important to never lose sight of how many people can and will be helped by increasing the minimum wage, and the benefits it will provide to the national economy.