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Figure B2

From the data provided in the preceding paragraphs and for pure fairness to the lowest wage earners in this country, the federal minimum wage should have continued to increase over the last 11 years to a new rate of $9.78 beginning of 2021. By maintaining the rate at a fixed value since July of 2009 it has resulted in more families living in poverty and a widening gap in the wages earned between the average private sector nominal hourly wage worker and those living on minimum wage. The federal government should take prompt action and lay out a solid plan to raise the minimum wage to $13 an hour by 2025.

As previously mentioned, the government should step in and raise the minimum; this is important because having a minimum wage establishes the minimum standard of living. Lustig and McLeod[footnoteRef:3] studied poverty indicators in developing nations in Latin America, Africa, and Asia and determined that higher minimum wages were associated with lower levels of poverty. These results held true across various poverty indicators, such as the headcount ratio and the poverty gap; degree of poverty (extreme versus moderate); and population groups, such as urban versus rural. Critics might argue that higher minimum wages are a sign of a broader attempt by the government to prevent poverty, hence conflating the results of the study; however, the inverse correlation between poverty and minimum wage remained when other government interventions were controlled for. The authors do acknowledge that there is the potential for high minimum wages to lead to unemployment, and other researchers have looked at this possibility. However, many studies have found that minimum wage does not lead to an increase in unemployment. [3: https://www.brookings.edu/wp-content/uploads/2016/06/bdp125.pdf]

Allegretto et al.[footnoteRef:4] for instance, examined the potential impact of minimum wage on unemployment. The authors examined six cities (Chicago, District of Columbia, Oakland, San Francisco, San Jose, and Seattle) who had raised their local minimum wage to $10 or above. The authors focused on the impact of these higher minimum wages on the food service industry, and they found that the raise in the minimum wage led to no significant effect on employment in these cities. Kwak[footnoteRef:5] posits that because low-wage earners spend a relatively large portion of their income, a higher minimum wage could stimulate the economy and actually create more jobs, boosting employment. [4: https://irle.berkeley.edu/files/2018/09/The-New-Wave-of-Local-Minimum-Wage-Policies.pdf] [5: https://www.theatlantic.com/business/archive/2017/01/economism-and-the-minimum-wage/513155/]

Furthermore, Harris and Kearney[footnoteRef:6] have discussed the “ripple effect” of the minimum wage. They find that raising the minimum wage would not only impact those currently earning the minimum wage, but it would benefit people earning low wages just above the minimum wage. In fact, an increase could raise the wages of 29.4% of the workforce as a whole. Moreover, evidence presented in a paper by Autor et al[footnoteRef:7] suggests that the declining real minimum wage has contributed to gender inequality; hence, having a minimum wage in general—preferably a high one—is important for reasons of social justice. Taking all these factors into account, one can see that the minimum wage as a concept establishes the minimum standard of living. [6: https://www.brookings.edu/blog/up-front/2014/01/10/the-ripple-effect-of-a-minimum-wage-increase-on-american-workers/] [7: https://pubs.aeaweb.org/doi/pdfplus/10.1257/app.20140073]

Lastly, a national minimum wage baseline will eliminate potentially harmful decisions made by individual states. Without this federal baseline, the minimum wage set by the states may be set far too low (or too high) and cause unintended consequences. This is an extreme example, but if State A sets a minimum wage at $2 per hour, and the adjacent state, State B, sets it at $20 per hour, it is possible that more harm than good could be caused even to the state with the $20 minimum wage. Certainly people from State A would move to State B if possible, as economic opportunity is anecdotally one of the most important issues for Americans. Would State B flourish with the increased population, or would companies in State B have such a huge pool of applicants from whom to choose that positions would only be filled by the most highly educated and most-experienced candidates, effectively hurting those whom the minimum wage was meant to protect? To conclude, a federal minimum wage, especially one that continues to be adjusted upwards to better align with the cost of inflation, will keep states on a more even keel, but clearly scenarios such as this remind us that “…the ultimate impact of minimum wages will not be settled soon”.8

As our economy progresses and grows, we are seeing a trend in the US that our federal minimum wage is slowly increasing. As inflation continues to increase over time, our different minimum wages per state also continues to grow. Many young Americans in school working part-time jobs would agree that we should continue to raise the minimum wage because their paychecks are increased, however, we must analyze the long-term effects of raising it as well as the lowered potential to strive for bigger and better jobs post-graduation.

Although it is not recommended that we raise minimum wage to $15, I do agree that we should slowly and steadily increase wages around the country as inflation rises. This action would result in a less harsh jump in wages around the country and would not result in such drastic price changes that would affect our day-to-day lives. An increase in minimum wage would also result in layoffs within companies because they would not be able to afford paying their employees, an increase in part-time workers, and a decrease in individuals wanting to pursue a full-time career. Raising wages for part-time work results in, “misleading people to think these lower-rung jobs will afford a sustainable lifestyle,”.[footnoteRef:11] Although it may seem like it would improve our economic sustainability at the moment, the drastic increase of our minimum wages across the board would result in many negative outcomes for us in the future. [11: https://www.forbes.com/sites/jackkelly/2019/07/10/the-unintended-consequences-of-the-15-minimum-wage/?sh=782f8072e4a7]

It is clear that the minimum wage should not be raised; in addition to the previously stated reasons, it is also an important aspect to understand that actually having a minimum wage does not, itself, establish the minimum standard of living. According to Merriam-Webster, a standard of living refers to “a minimum of necessities, comforts, or luxuries held essential to maintaining a person or group in customary or proper status or circumstances”.[footnoteRef:12] Depending on where one lives in the United States, there are different costs to maintaining the same lifestyle. As such, establishing a minimum wage for the United States does not automatically make the standard of living in various areas adjust to the income based on an established minimum wage. When reviewing Consumer Price Index or the Cost-of-Living Index, it is evident that an established minimum wage would not carry the same weight across the entire country. Instead, the standard of living in various parts of the country is what should drive a minimum wage in each area of the country. [12: https://www.merriam-webster.com/dictionary/standard%20of%20living]

It is clear that there are economic impacts from increases in minimum wage that would be levied upon employers. Changes in minimum wage would lead to additional pass through costs and would result in an increase in the cost of living. According to CBO, increases in minimum wage would cause losses in business income in the first years as businesses take a decrease in profits. To account for these cost increases, businesses will likely “increasingly pass their higher costs on to consumers...”.14 This results in a near to midterm increase in the cost-of-living expenses that may have a higher impact on those with lower wages and in poverty.

These factors indicate that the minimum wage does not establish a minimum standard of living. Further, a significant increase in minimum wage may have negative economic consequences that may last for many years. A large increase in minimum wage may result in additional job losses, especially impacting those with lower incomes. These financial impacts also affect employers as the cost to continue employing minimum wage workers increases. These additional costs result in pass through costs as the price of goods and services increase to account for the wage increases. Ultimately, significant increases in minimum wage can have significant economic and social impacts.

As discussed, there are many cons regarding the minimum wage; raising it proposes its own challenges and it has not established the standard of living in which it was originally designed to do. Another issue surrounding the minimum wage issue is that by continuing to administer the minimum wage on a federal level, it continues to add to this growing problem.

A federally set minimum wage creates consistency among the income levels of many citizens across the entire United States. The problem with this is that income becomes relative as there are many differences in costs in each state. So, a minimum wage worker making $7.25[footnoteRef:15] in New Hampshire with an average cost of living of 108.4[footnoteRef:16] is realistically making less money than someone making $7.25 in Georgia where the average cost of living is 89.7. A federal minimum wage puts a blanket over the country, keeping the wages the same despite the varying costs. [15: https://www.pewresearch.org/fact-tank/2020/02/24/when-it-comes-to-raising-the-minimum-wage-most-of-the-action-is-in-cities-and-states-not-congress/] [16: https://meric.mo.gov/data/cost-living-data-series]

Now yes, some states have already taken the situation into their own hands by increasing their minimum wages according to the standard of living. However, this can be debated as an entirely different point regarding if the states’ minimum wage increases are too high. For this current point about how a federally determined minimum wage should cease, I am instead simply suggesting that states should be required to have their own unique minimum wages based directly on their costs of living. On the website, Divvy, there was a graph that cross-referenced each state’s cost of living with their own minimum wages; it shows the disparity among the country, mostly since 21 of those states still use the federal rate. Specifically, Virginia’s minimum wage covers about 52% of the average cost of living while New Jersey’s minimum wage covers about 78% of the average cost of living.[footnoteRef:17] Therefore, to continue administering the minimum wage on the federal level, as a consistent amount for all 50 states, is not feasible. States with exorbitant costs of living were driven to now determine their own minimum wage while other states fell back onto the federal rate. Creating a systematic process to determine each state’s unique minimum wage, it can change that graph from Divvy. We would see each states’ minimum wage cover a good majority of the cost of living, removing that disparity that currently exists. [17: https://getdivvy.com/blog/minimum-wage-vs-living-wage/]

Overall, having the same minimum wage set on a federal level for the entire country has not worked and will not work, even if raised. Changing it to a state level allows it to flow with each region’s costs of living, allowing it to be unquestionably reasonable and fair across the country. There may be other great solutions that could be pursued but staying complacent with a federally set minimum wage is not one of them.

References