Should We Increase Minimum Wage?

Updated: Jul 30

A common argument against increasing minimum wage is the fact that it will cause inflation. If companies are forced to increase the salaries of their minimum wage employees, they'll have to increase the salaries of everyone correspondingly, which means prices of goods will jump (this is known as wage push inflation). Companies that can't maintain higher wages will go out of business, causing job loss. These are all accurate and unfortunate concerns.



A short history lesson:


In 1944, the federal minimum wage was $0.30. In 1945, it jumped to $0.40. In that one year, it increased by 33%. Jumps similar to this were not uncommon from the 40s to the 70s. Skip forward a few decades: the federal minimum wage has been held at exactly $7.25 since 2009. I'm writing this in 2020, so that is twelve years of stagnant minimum wage. And this affects a LOT of people. Twenty states hold minimum wages equal or less than $7.25 as of 2020 (the other states have their own higher minimum wages, with a maximum of $15 in NYC and DC).


If the federal minimum wage were increased to $15, it would increase the salary of 40 million Americans (more than 1/4 of the country's employees) and lift 1.3 million Americans out of poverty.


Taking inflation into account, salaries for minimum-wage workers have actually decreased substantially from 1968 to present day. Accounting for inflation, the minimum wage in 1968 would be $11.55 in today's money. So the bottom 10% of Americans have only 63% of the buying power that they did 60 years ago.


Shouldn't minimum wage at least match inflation from year to year? How have we let 12 years pass without an increase? If we take productivity into account compared to the 1950s, the current minimum wage should actually be $20.94, according to EPI (Economic Policy Institute, a nonprofit research organization).



It is unfortunately true that some businesses would be forced to close, even with gradual steps up to a $15 minimum wage. Different studies estimate that up to 1.3 million Americans could lose their jobs. The exact number depends hugely on the source and the study. Similar increases in the past have not been shown to cause substantial job loss.


Okay, you have the facts now. You know both the pros and cons of increasing minimum wage. Here are a few of my opinions.


Job loss is not a reason to prevent the inevitable and wait on improving quality of life for millions of Americans. If anything, we are just postponing the inevitable. The sooner that businesses confront their need to pay employees a livable wage (which rises every year!) the sooner we can all move on with our (significantly improved) lives. As Ron Swanson says: "When a business fails, it dies. And a newer, better business takes its place."


It is also true that if the minimum wage were to double, everyone else's salaries would either have to jump or would consequently be worth less. I am currently making 6.7x the salary of a minimum wage worker (holy cannoli) and if the minimum wage became $15, I would be making "only" 3.2x minimum wage. Sure, it's a loss. But I think it's a sacrifice we can make.



And an additional shout-out to tipped workers, who have been making as little as $2.13/hour since 1991. This means that restaurants, hotels, and more businesses can get away with paying employees almost nothing, as long as they can make the other $5/hour on average from customer tips.


As I've mentioned, cost of living increases every year. Rent, groceries, and gas prices rise. But somehow, income doesn't (for many). According to the EPI, by 2024 a household with two parents earning minimum wage full time will not be able to support two children at any location in the United States. Not Alabama, not Mississippi. Not anywhere. And that "livable income" doesn't even include savings for emergencies, retirement, or a down payment on a house. Multiple income households won't even be able to afford the basics (housing, food, insurance) on minimum wage.


And as for these minimum wage workers, who are they? Teenagers working to put something on their resume for college apps? Engineers working a second job to save up for a vacation home? Nope. 52% of minimum wage workers are the only breadwinner for their family. 91% of them are over the age of 20. They are more likely to be women and/or people of color.


The Raise the Wage Act calls for a minimum wage of $15 by 2025, or a tipped minimum of $11.25. It passed voting in the House in 2019, but Mitch McConnell (Senate Majority Leader) rejected it. It seems unlikely that minimum wages will increase federally anytime soon.



Inflation will happen every year whether we increase salaries or not. Workers are suffering due to the stagnation of their salaries. If you have time to research minimum wage laws (like me) and read this article, you probably are not suffering the consequences of earning $7.25/hour.


After 12 years, I believe it is past time to start increasing the federal minimum wage. It is time to let less profitable companies fail (or succeed with some government support) and for better companies to take their place. European and Asian companies have never allowed this kind of halt in income that widens the wage gap and throws millions of Americans into extreme poverty.


In addition, there are smart and calculated ways to increase the minimum wage gradually, with warning, and with tax and government support to lessen the burden on small businesses. Sure, America is nothing without its businesses (small and large). But it's also nothing without its workers, who can barely afford to survive in 2020, and will only fare worse every year to come.




Resources:

https://www.paycor.com/resource-center/minimum-wage-by-state

https://www.cnn.com/interactive/2019/business/us-minimum-wage-by-year/index.html

https://www.epi.org/publication/minimum-wage-testimony-feb-2019/

https://www.cbo.gov/publication/55681

https://www.thepilot.com/opinion/column-house-efforts-are-dead-upon-arrival-in-senate/article_221dcbd6-c094-11ea-b64d-6b2a4f8d7929.html

https://www.investopedia.com/terms/w/wage-push-inflation.asp



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