The case for raising the U.S. minimum wage
Earlier this week at a town hall meeting in Milwaukee, President Biden expressed his support for an increase in the federal minimum wage from its current level of $7.25 per hour to $15 per hour. Biden said, “No one should work 40 hours a week and live in poverty.” This increase would be phased in over several years.
There are two schools of thought on this issue. Both are armed with data and studies that seem to indicate support for their positions. But there are some things that those studies agree on even when they may not agree on the amount of change a minimum wage increase would have on the number of American workers helped, who would be helped, and the number of Americans harmed, and who would be harmed.
First it is important to hear some facts. (It is refreshing to have policy debates based on facts and not just pure ideology.) In the fourth quarter of 2020, the median earnings for all U.S. men working full-time was $1,069 per week and $896 per week for women. This amounts to approximately $28 per hour for men and $23.89 per hour for women. The weekly earnings for white men averaged $1,058 per week compared to $778, $1,457, and
$769 for Black, Asian and Hispanic men, respectively. White women earned $859 per week compared to $738, $1,008 and
$654 for Black, Asian and Hispanic women, respectively. By comparison, the weekly earnings of a full-time worker at the current federal minimum wage is
$290 per week. An increase to
$15 raises it to $600 per week, still significantly below current average earnings.
We also know that most minimum wage workers today are young. While only one-fifth of workers are under 25, this group of young workers makes up over
50 percent of the approximately 2 million workers making the minimum wage. This informs us that a potential compromise might be a tiered increase in the minimum wage whereby young workers will have a lower minimum than adult workers. But even given the higher concentration of young workers making the minimum, 50 percent of minimum wage workers today are prime-age adults, presumably with adult responsibilities. I do not know how any adult can comfortably and independently survive making less than $1,200 per month anywhere in the United States.
The biggest impact on raising the minimum wage would be on increasing wages for those who are already making more than the minimum wage. Economists think of wages like a structure, with the minimum at the foundation of that structure. When the minimum increases, all other wages are also likely to increase to maintain the relative differences. Workers making $8/hour would also see their wages increase as the new minimum exceeds their wage. Therefore, an increase in the minimum would impact millions more workers than the 2 million currently at the minimum.
And we know that rural and Southern states have more workers working at the minimum wage compared to states with significant urban/suburban populations. The minimum wage in Alabama, Mississippi, Idaho, Iowa, Kansas, Kentucky, Louisiana, New Hampshire, North Carolina, North Dakota, Oklahoma, Utah, Wisconsin, Virginia, and Wyoming are all at the current federal minimum wage of $7.25. A move to raise the federal minimum wage would have no direct impact on Connecticut employers because we are already at $12 per hour and scheduled to reach $15 per hour in 2023, probably long before that rate is reached nationally.
Those who argue against the increase state, with some support from academic studies, that an increase would create more unemployment among low-wage workers. This argument is based on classic economic theory that states that the demand for workers is a function of how much economic value they create for their employer. For example, if a worker can generate $12 of economic value in an hour’s worth of their time for the employer, and the worker’s wage is less than $12, the employer has a profit incentive to hire that worker. Alternatively, if that worker’s wage goes to $15 per hour and nothing changes on how much economic value that worker can create, the employer will let that worker go. Therefore, conservatives argue that raising the minimum wage can harm low-wage workers whose productivity is lower than the new minimum. Secondarily, conservatives argue that small-business owners who are more likely to hire and need low-wage workers would be harmed because of higher costs associated with the higher minimum wage.
For Connecticut businesses and workers, this debate about an increase in the federal minimum wage is a moot point. There is, however, one important impact an increase in the federal minimum wage could have on state businesses. If these other states are forced to raise their wages, almost immediately, Connecticut becomes relatively more attractive to businesses nationwide. Connecticut minimum wage workers are more productive, even considering cost-ofliving calculations, than minimum wage workers in the states at the current minimum.
Even if I lived in one of the low-wage states, I would argue for an increase in the federal minimum wage. I would also argue that, like Social Security payments, there should be built-in cost-of-living increases (or decreases) to the minimum based on changes in inflation. If future increases are automatic, we would eliminate the political problem raising the rate creates.
Even in these low-wage states, we have the income and wealth to share with hard-working Americans. We have seen during this pandemic that we can lift millions of Americans out of poverty by providing them with enhanced unemployment insurance payments. Why not lift millions out of poverty by paying American workers a living wage? They are more than worth it.
Fred McKinney is the Carlton Highsmith Chair for Innovation and Entrepreneurship and director of the Peoples United Center for Innovation and Entrepreneurship at the Quinnipiac University School of Business. He is on social media at @drfredmckinney.