Raising the Minimum Wage

President Obama announced in his State of the Union address that he would increase the minimum wage for federal government contract workers to $10.10 and hour.  He has also proposed that congress should raise the federal minimum wage for all workers to the same level by 2015 and then index it to inflation (meaning the minimum wage would increase each year with inflation).  There has been a lot of talk from both Democrats and Republicans about whether this is a good thing, so let’s break down the numbers:

1.) The current federal minimum wage is $7.25 an hour and has not changed since 2009.  That is just over $15,000 a year before taxes assuming a 40 hour work week.  To see if you could live on your states minimum wage (some are higher than the federal currently), check out this calculator.

2.) A single person is at 133% of the federal poverty line at $15,521.  A family of two is at 100% of the FPL at $15,730.

3.) If the minimum wage were $10.10 a worker would make just over $21,000 a year pre-tax if they worked 40 hours a week which would keep a family of up to 3 people above the poverty line.  It would also keep a family of up to 2 people above 130% of the FPL.

4.) To receive SNAP benefits (food stamps) a family must be at or below 130% of the poverty line.  

5.) In 2012, 15% of Americans (46.5 million) lived in poverty.  As of January of this year, the unemployment rate was 6.6% (10.2 million Americans).

6.) Income inequality has been increasing since 1979.  From 1979 to 2011 the income of the top 1% rose 128.9% while the income of the bottom 99% increased 2.5%.  Between 2009 and 2011 alone, the income of the top 1% increased by 11.5% while the income of the bottom 99% decreased by 0.7%.

What do the Experts Say Will Happen?

The CBO recently released a report that estimated that the $10.10 minimum wage would reduce employment by 0.3% or 500,000 workers though they say the range could be between a very slight decrease to 1 million workers.  However, they also estimate that 900,000 people would be lifted out of poverty and 16.5 million low wage workers would see income increases.  Finally, it would mean $5 billion more a year for families in poverty and $12 billion more a year for families between 100 and 300% of the poverty line.

Though many economists and conservative lawmakers still stick to the idea that increasing the minimum wage will increase unemployment, the research does not support this.  Check out Business for A Fair Minimum Wage’s summary of the research done on this topic.  Lawrence Katz of Harvard University even said that if the CBO had focused on higher quality studies, it would have estimated a smaller job loss.  Many argue that, even with some job losses, increasing the minimum wage would provide net benefits for the economy by increasing personal spending which would in turn potentially increase employment.

A recent study out of the The Equal Opportunity Project has shown that income mobility in the United States has not improved in the last century.  Moreover, it found that “areas with greater mobility tend to have five characteristics: less segregation, less income inequality, better schools, greater social capital, and more stable families.”  So by increasing the minimum wage and thus raising some families out of poverty now, we may decrease the chances that those children will live in poverty throughout their lives.  For more check out this great summary The “Ripple Effect” of a Minimum Wage Increase on American Workers.

How Would Raising the Minimum Wage Affect Health

Economic research has started to reveal that raising the minimum wage can improve public health to the extent that it might reduce the costs of medical care in this country.  Some research shows that low wages predict higher rates of obesity, hypertension (high blood pressure), diabetes, heart disease, arthritis and premature mortality - all of which adversely affect the lives of individuals and cost society money.

In Conclusion

Although raising the minimum wage may lead to a slight decrease in jobs (though that is not for sure), even if the worst case scenario for job losses occurs, I believe that the benefits far outweigh the costs.  I especially support the idea that the minimum wage should be indexed to inflation.  Otherwise, minimum wage workers earn less real dollars each year.