For many minimum wage workers at Principia, President Obama’s promise in his most recent State of the Union address to “raise the federal minimum wage to $9 an hour” was welcome news. A pay increase close to 10 percent is nothing to sneeze at. But before everyone heads out to spend their newly enlarged paychecks, let’s take some time to look at how the minimum wage works and the likelihood of an increase.
There are two levels of minimum wage in America: that set by individual states and that set by the federal government. This is because the federal government can set minimum wage for the country as a whole, but states reserve the right to set their own.
The current federal minimum wage is $7.25 for most workers. Twenty-one states have minimum wages higher than the federal minimum. Washington has the nation’s highest minimum wage, $9.32 an hour. On the other side of the spectrum, Arkansas set its minimum wage at $6.25, while Wyoming has it at $5.15. Arkansas and Wyoming are the only states with minimums below the federal limit.
Employers are responsible for paying the highest minimum wage applicable in their state. This means employers in Arkansas must pay workers at least $7.25 an hour while Washington employers must pay workers at least $9.32 an hour.
Recently, Obama and congressional Democrats have proposed raising the minimum wage to $10.10 an hour by 2016. This would mean all minimum wage workers, with a few exceptions, would make $10.10 an hour. Such an increase would compensate for inflation and then some. It is currently being considered in the Senate.
Advocates for raising the minimum wage argue that paying Americans more would boost the economy and combat poverty. A widely cited 2013 study by UMass economics professor Arindrajit Dube, called “Minimum Wages and the Distribution of Family Incomes,” claims that an hourly minimum wage of $10.10 would reduce the number of people living in poverty by 4.6 million, without forcing the government to spend a cent.
Those opposed to raising the minimum wage are concerned that a higher minimum wage would result in greater unemployment. They point to the recent Congressional Budget Office study which states that increasing minimum wage to $10.10 could cost the United States 500,000 jobs.
Pro-increase advocates wrote a letter to Obama and congressional leaders. It was signed by over 600 economists, including several Nobel laureates and past presidents of the American Economic Association. The letter states that increasing the minimum wage would not hurt employment.
The opposition has numerous economists, including Federal Reserve Chair Janet Yellen, who agreed that raising minimum wage would cost jobs as a CBO report had suggested. For such a carefully studied economic phenomenon, results remain largely inconclusive.
Inflation further complicates the issue. Business Insider pointed out that raising the minimum wage to the initially suggested $9 would put minimum wage on the same purchasing power level it had been for decades in the middle of the twentieth century. Yet wages throughout the U.S. economy have stagnated over the last several years. The New York Times reported that while the average American income today is $20.39 an hour, it would be $36.00 an hour if paychecks had kept pace with productivity gains.
The issue is deeply complicated. In the balance are the millions of Americans at or below the brink of poverty, as well as those who are unemployed. A higher minimum wage will not do much to help those without jobs. Then again, a full time job that doesn’t allow Americans to pull themselves and their children out of poverty isn’t much help either.
Whether Congress can tackle such a contentious and highly partisan issue remains to be seen. A vote in the Senate on raising the minimum wage was supposed to take place in early March, but has since been pushed back several weeks, possibly to early April. Given the recent track record of Congress, it’s likely that a decision could take even longer.
In addition to federal legislation, states have been taking matters into their own hands. Some governors, including Pat Quinn of Illinois, have been heavily advocating for raising their respective states’ minimum wages. Other governors, most notably New Jersey’s Chris Christie, have spoken out against such an increase.
Minimum wage was first established in October of 1938 as part of the New Deal. Initially set at $0.25, it has since been raised 29 times. The most recent changes were a series of hikes from 2007 to 2009, resulting in the current minimum wage.