The new year brought a new, and higher, state minimum wage in 19 states due to the inaction of the Federal government to raise the federal minimum wage. The last time the federal minimum wage changed was in 2009, when it climbed from $6.60 to $7.25 an hour. More recently, the debate for another increase has escalated in response to rising income-inequality and poverty. Adjustment of the minimum wage – naturally an economic issue – has become rather politicized. Nonetheless, the potential economic stimulus that an increase could provide has influenced the proletariat to advocate for a federal minimum wage varying from $9, to $10, to even $15 an hour.
Raising the minimum wage, principally, increases economic activity and facilitates job growth. Simply, providing more money to minimum-wage workers would increase aggregate household spending and stabilize demand, thus boosting GDP and creating more jobs in higher spending sectors. According to The Economic Policy Institute, “an increase in the federal minimum wage from $7.25 to $10.10 an hour would inject $22.1 billion net into the economy and create approximately 85,000 new jobs over a three-year phase-in period.”
Advocates argue that increasing the minimum wage would have adverse effects, that an increase would force businesses to lay off employees; raising unemployment levels. In addition, that minimum wage earners who retained their jobs would experience reduced employment hours; offsetting the gains on income, and businesses would ultimately hire fewer workers. The Congressional Budget Office projected that an increase from $7.25 to $10.10 an hour would result in a loss of 500,000 jobs.
However, a study, conducted by economists Hristos Doucouliagos, PhD, and T. D. Stanley, PhD, reviewing 64 different minimum wage cases concluded that “there is little or no evidence of a negative association between minimum wages and employment.”
Raising the minimum wage would also narrow the income-inequality gap which persists due to the disproportionately rising levels of productivity and incomes among top-income earners. Since the rising levels of inflation are not indexed with the current federal minimum wage, the productivity has suppressed the purchasing power of federal minimum wage earners. Per the US Department of Labor, “the minimum wage in 1968 was $1.60, which is equivalent to $11.16 in Jan. 2016 dollars and which is 53.9% higher than today’s $7.25 federal minimum wage.”
Although a higher minimum wage reduces wage inequality among workers, the claim that it reduces poverty is a completely different, and heavily debated, argument. One the one hand, economists like David Neumark argue that “minimum wages target individual workers with low wages, rather than families with low incomes. As a result, a large share of the higher income from minimum wages flows to higher-income families.”
On the other hand, the long-term effects of an increase in the federal minimum wage could reverberate benefits across the impoverished class. A sounder prerogative is that a higher minimum wage would, at the very least, restore some fairness to the U.S. labor market. A study by University of Massachusetts at Amherst economist Arindrajit Dube estimated that an increase of the federal minimum wage to $10.10 would “reduce the number of non-elderly living in poverty by around 4.6 million, or by 6.8 million when longer term effects are accounted for.”
A vast and rising majority of the public favor an increase in the federal minimum wage to at least $9 an hour. The standing minimum wage is too low to make a living in 2017, even in low-cost of living areas like Beattyville, Kentucky. A CNN article covering Melissa Allen, a resident of Beattyville, states that “despite working two jobs — over 50 hours a week — she still qualifies for about $100 a month in food stamps because her take-home pay is so low.”
It is difficult to guess what action the new administration will take regarding the federal minimum wage. Mainly because President Trump has taken different stances in his time since campaigning. At one point, he claimed he would like to raise it to $10 an hour; at another, that it was too high; and at another, that the minimum wage should be up to the states.
Regardless, Americans now live in a capitally driven economy, versus an economy driven by labor. As Nobel Prize-winning Economist Angus Deaton inquired, the income-inequality gap will widen if top income earners continue to inherit capital which gives them the ability to bare greater risk in equity. This, coupled with Donald Trump’s deregulation in the higher earning sectors, bodes poorly for minimum wage earners and those who do not inherit similar opportunities. Thus, we must restore the fairness of the crony labor market structure which persists today, starting with an increase in the federal minimum wage.