should the minimum wage be raised essay

March 31, 2024

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No More Lies: The Truth About Raising the Minimum Wage

“I budget and budget, and I still can’t really buy no food,” explained Carolyn Allen, a 58-year-old minimum wage worker at Hartsfield-Jackson Atlanta International Airport. She dreams of paying her medical bill and still being able to afford Pine-Sol or bleach to clean her house. Other minimum wage workers, like Laugudria Screven Jr. , resort to earning income other ways — in Screven’s case, by selling his blood plasma twice a week. The strategy leaves him feeling drowsy and weak, but allows him to afford rent and approximately one meal a day.  

The United States has a long, contentious history surrounding the minimum wage. Opponents of raising the minimum wage argue that most minimum wage workers are teens working their first jobs, that raising the minimum wage will kill businesses or jobs or that raising the minimum wage will have no effect at all on purchasing power because of the resulting increase in inflation. However, the arguments against raising the minimum wage range from disingenuous to objectively false. It’s time to raise the minimum wage.  

The “Minimum Wage” is More Minimal Today than Ever

The United States minimum wage originated with the Fair Labor Standards Act of 1938 (FLSA), which also set overtime pay and child labor restrictions. The contemporary opposition to the FLSA foreshadowed the current arguments against raising the minimum wage. The FLSA’s opponents claimed that the president was creating a “tyrannical industrial dictatorship” and that businesses would not be able to provide any jobs if they had to cope with “everlastingly multiplying governmental mandates” and “multiplying and hampering Federal bureaucracy.” 

These doomsday predictions proved untrue: the minimum wage did indeed impact the nature and distribution of employment, but industries did not buckle. At the time, two of the most low-paying industries in the South were the textile industry and the lumber industry. Southern textile mills did see a slight decrease in employment, but northern textile mills — which had paid slightly more than the southern textile mills prior to the institution of the FLSA — saw an employment increase of approximately equal magnitude . The lumber industry in the South and throughout the U.S. saw an increase in employment after the passage of the FLSA. Notably, other independent variables shifted in both industries: the textile industry had been trending to more automation prior to the bill, while the lumber industry was trending to a more labor-heavy resource base. Overall, the minimum wage leveled no industries and granted many workers a higher wage. 

Over time, the minimum wage has slowly crept higher with increased inflation and productivity.  However, this growth has not kept pace with other market factors, eroding the real value of the minimum wage.  

Today, the real value of the minimum wage is 31 percent   less than the real (adjusted for inflation) minimum wage in 1968, and 17 percent less than the real minimum wage in 2009. If minimum wage growth had tracked the growth in workers’ productivity since 1968, the minimum wage would be $18.42 , more than double the federally mandated minimum wage. For comparison, productivity since 1973 has increased 74.4 percent , while average hourly compensation has increased just 9.2 percent . As of 2020, the federally mandated minimum wage of $7.25 for non-exempt workers is not enough to lift a family of two above the poverty line.  

The slow growth of wages in comparison to productivity is not universal: the top 1% of workers saw their wages grow 138% since 1979, while the bottom 90% saw their wages grow 15% in the same time period. In 1965, the typical CEO earned 20 times what the typical worker did, while in 2013, the typical CEO earned 296 times the typical worker’s salary.  

Increasing the Minimum Wage Would Promote Health and Well-Being

Raising the minimum wage pays social dividends that stretch beyond any debate about the discrepancies between workers’ wages and CEO’s wages.  

First, workers who are affected by a minimum wage increase see immediate and significant health benefits for themselves and for society. A study conducted in 2011 found that blue-collar workers in states with higher minimum wage rates are much less likely to have untreated medical needs, as they are better able to afford care. Particularly in a country prone to global pandemics, an individual’s health can quickly become a community’s health: workers who leave illnesses untreated put everyone around them at risk. Additionally, an increased minimum wage corresponds to a lower smoking rate . Low-income workers currently make up 75 percent of smokers, but reducing the stress of poverty allows them to quit. Other studies have found that a higher minimum wage correlates with fewer teen pregnancies and less teenage alcohol consumption .  

Second, children disproportionately benefit from increasing the minimum wage. Across the United States, 28.2% of children have a parent affected by increasing the federal minimum wage to $9.80, and even more have a parent who would be affected by a higher minimum wage hike. In 2017, a study conducted by the School of Public Policy at Georgia Institute of Technology found that a minimum wage increase of just $1 would reduce reports of child neglect by 9.6%. “Money matters,” said Lindsey Rose Bullinger , co-author of the study, “when caregivers have a more disposable income, they’re better able to provide a child’s basic needs such as clothing, food, medical care, and a safe home. Policies that increase the income of the working poor can improve children’s welfare, especially younger children, quite substantially.” Bullinger’s study did not have enough data to determine if an even higher minimum wage would result in even fewer cases of child neglect, but Bullinger noted , “our findings point in that direction.” Infants also benefit from increasing the minimum wage: the American Journal of Public Health  estimated that between 2,800 and 5,500 premature deaths in New York City alone could have been prevented if the minimum wage was $15 an hour rather than $7 an hour. That figure constitutes approximately 8.33% of all of the premature deaths in New York City.  

Opponents of raising the minimum wage frequently argue that minimum wage jobs are intended for teenagers working entry-level jobs, and that a minimum wage raise would needlessly benefit teens living at home and working for pocket money. However, this argument defies reality.  

In California, 96 percent of workers who would benefit from the proposed minimum wage increase to $15 are over the age of 20, and 58 percent are over the age of 30. These numbers hold nationwide: the average age of an impacted worker would be 35 , and 51 percent of those affected would be 30 years of age or older. Only 13 percent of those impacted would be 20 or younger. On average, these affected workers earn half of their family’s income, and the majority of them work full time .  

Historically marginalized communities are the most likely to benefit from a minimum wage hike: in California, workers earning less than $15 per hour are 55 percent Latino or Latina , while the general population of workers is only 38 percent Latino or Latina . Nationally, about 40 percent of all black workers’ wages would increase, and more than half of workers who would be affected by a minimum wage increase are women. While 19 percent of families nationwide have incomes that are less than twice the national poverty line, 50 percent of workers who would benefit from a minimum wage increase come from these families. 

Increasing the Minimum Wage Won’t Decrease Employment

Carry on a conversation about minimum wage for more than twenty minutes, and inevitably, an opponent of raising the minimum wage will inform you, often with a condescending tone, that any Econ 101 student knows that raising the minimum wage will cost jobs. Many introductory economics courses do, in fact, teach a simple theory that raising the minimum wage will reduce employment. According to this theory, as the minimum wage rises, employers will be willing to employ fewer workers, since their salaries will be more expensive.  

The argument is far too simplistic to drive real-world policy for the world’s largest economy.  The argument incorrectly assumes a fantasy textbook-“perfect” market.  A “perfect” market has many buyers and sellers, no market power, no differences between the goods sold by each firm, and perfectly even information for buyers and sellers. (In a labor market, the “buyers” are employers, and the “sellers” are employees who are selling their time and effort.) Unsurprisingly, the US labor market is not a “perfect” market, so the opponents of increasing the minimum wage unwittingly make two huge, unjustified assumptions: first, that the demand for labor is not fixed, and second, that the wage employers pay without government intervention is the equilibrium wage.  

The first assumption — that demand for labor is not fixed — describes a phenomenon known as elasticity. When a demand curve is very elastic, the buyers respond to a slight increase in the price of the good —in this case, the wage —by dramatically reducing how much of the good they consume. However, if a demand curve is very inelastic , the buyers will buy the same amount of the good with little regard to how much it costs. The demand for labor in the United States tends to be elastic if and only if: (1) the product being produced has a high price elasticity of demand, meaning that people will buy a lot less of it if it costs slightly more; (2) other factors of production can replace the labor; (3) the supply of other factors of production can be purchased or used at higher levels without their prices rising; (4) if the labor costs are a large percentage of the costs of production. While some industries fall under these categories, many do not and would therefore not be likely to see a large shift in the amount of labor demanded. 

The second assumption — that wage employers pay the equilibrium wage — ignores the existence of “labor monopsonies.” A “monopsony” is a market with only one buyer — in terms of employers, it is a market with only one (or very few) employers. In the United States, economics experts have become increasingly worried that the US market has become filled with monopsonies . Rural U.S. localities in particular often have only one or two main, large employers. These employers are free to create a “race to the bottom” on wages — since there are far more workers than jobs, the dominant employer can start a reverse bidding war among job seekers, where desperate people compete with each other for work, and accept lower and lower wages. To keep wages low and desperation for employment high, these companies can limit the number of jobs to perpetuate the competition, ensuring high profit margins for themselves. However, a fixed reasonable minimum wage prevents companies from creating this desperate downward spiral and encourages them to employ a greater number of employees. In other words, monopsonies tend to employ fewer workers and pay them less when left to their own devices than they would if they were required to pay a minimum wage. In monopsony labor markets, a minimum wage would increase employment.

Of course, our Nation is made up of diverse regions, with widely varying local economies.  Viewing the U.S. as a whole, would a minimum wage increase result in less employment, more employment or the same amount of employment? Setting aside politically-motivated soundbites and editorials, the economic consensus suggests that a modest increase in the minimum wage likely won’t reduce employment and may even increase it. Some estimates found that increased economic activity from a minimum wage increase to $9.80 hourly would generate 100,000 new jobs . Other economists found no reduction in employment. In 2010, Dube, Lester, and Reich studied the time period between 1990 and 2006 and found no evidence of any job losses due to minimum wage increases in industries identified as “high impact” (predominantly restaurants and retail jobs). In 2013, the same economists conducted a similar study focused on teens, and found no impact on their employment, either. A 2014 study by Hoffman agreed that teen employment was also not impacted . In 2014, Dube and Zipperer conducted a study using a newly created control group approach, and came to the same conclusion . In 2009, Addison, Blackburn, and Cotti conducted yet another study and concluded that if they accounted for general trends, they did not find any evidence of job loss due to the minimum wage in retail or restaurant sectors. Of course, some survey methods have found more significant job losses, so it’s worth looking at what has actually occurred in jurisdictions that did raise their minimum wage. A study conducted by professors at the University of California, Berkeley, and the Center of Wage and Employment Dynamics found that the minimum wage hikes in Chicago, Washington, Oakland, San Francisco, San Jose, and Seattle, had not caused “ significant employment losses ” but had caused “ positive and statistically significant earnings effects. ” 

Increasing the Minimum Wage Will Benefit Small Businesses

Opponents to raising the minimum wage frequently invoke small businesses, arguing that raising the minimum wage will kill the local businesses and tip the market in favor of mega-corporations. However, if that’s true, someone forgot to tell the owners of small businesses — a study conducted by the American Sustainable Business Council found that 61 percent of small business owners across the US support raising the minimum wage. In some parts of the country, the number is even higher — it reaches 67 percent in the Northeast — and the lowest support, in the South, still reaches 58 percent .  Republican pollster Frank Lutz found that 80 percent of business executives in companies of varying sizes support a minimum wage increase to some degree.  

So, why do so many businesses support increasing the minimum wage?

They know that raising the minimum wage offers business a number of benefits. First, employees who are paid a higher wage tend to be more productive due to morale improvements, better health, less absenteeism and reduced “decision fatigue.” The Center for American Progress also found that raising the minimum wage causes reduced employee turnover . Employee turnover is expensive: replacing low-wage workers costs about 16% of the employee’s annual salary.  

Second, the worker-productivity benefits center mostly around a given business and the wages it pays its customers. However, business owners also have reason to advocate for a minimum wage increase across the entire market. Consumers who suddenly earn more also spend more, driving up proceeds for businesses. This assertion makes logical sense: people living below or close to the poverty line frequently forgo products they wish they could afford, but with more income, they will likely purchase those products. In practice, past minimum wage increases have indeed resulted in a boost in consumer spending. A minimum wage increase to $5.85 per hour in 2007 generated an additional 1.7 billion dollars in consumer spending and a minimum wage increase in 2008 to $6.55 per hour generated an additional 3.1 billion dollars in consumer spending.  

Gina Schaefer, owner of a collection of small hardware stores, notes , “When the minimum wage rises, it puts money in the pockets of those who most need to spend it, from paying the rent to buying more groceries to picking up lightbulbs, tools, and paint from the local hardware store. A higher minimum wage means more money circulating in the economy. It’s a virtuous cycle: our employees shop at other businesses and their employees shop at ours.”  

Why then don’t small businesses simply increase wages on their own, without waiting for the Federal Government to intervene?  Many do, and they benefit from it. But if a Federally-mandated increase is absent, others fear they will be undercut by competition.

Minimum Wage Does Not Mean Minimum Prices

Finally, opponents of increasing the minimum wage point to their own wallets: I don’t want to pay more for goods and services, so please don’t pay employees more .

But while economists concur that raising the minimum wage will likely cause prices of some goods and services to rise —so long as the raise is moderate, it will impact prices only slightly. And certainly raising the minimum wage will not cause prices to rise so much that the minimum wage hike was “useless,” as some detractors contend.   

For example, studies conducted by economists at California State University, San Bernardino, found that prices of impacted goods and services increase only 0.36 percent for every 10 percent increase in the minimum wage. Therefore, raising the minimum wage does indeed allow low-income workers to afford a wider range of purchases, even if the prices have increased very slightly. For example, if a worker for $7.25 an hour receives a 10% pay raise to $7.98 an hour, they can expect a good that cost $7.30 before the minimum wage increase to cost just $7.32 after the minimum wage hike. Even with that slight price increase, the worker is vastly better off.  

The United States has a long history of treating the free market as holy and rebelling against any form of government intervention. However, when big businesses and their pocket politicians advocate for keeping the minimum wage below a living wage, they aren’t just swindling their workers and damaging the economy: they’re swindling you, even if you aren’t working for minimum wage. They’re creating a less healthy, less productive, less solvent population and they’re relying on social welfare programs to pay their workers for them. Small businesses don’t benefit; workers don’t benefit. It’s time to stop pretending they do, and time to get serious about raising the federal minimum wage.  

Featured Image source: WorkingNation

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• economic inequality
• economic reform
• minimum wage

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To Fight Poverty, Raise the Minimum Wage? Or Abolish It?

The minimum wage has stagnated at $7.25 an hour for more than a decade. is increasing it to $15 the best way to fight poverty.

[MUSIC PLAYING]

Today on The Argument, what’s the downside to paying people more? [MUSIC PLAYING] Among the most popular and blunt tools to fight poverty is a minimum wage, but it doesn’t actually do that. Because if you have a full-time job that pays the federal minimum wage of $7.25, you’re only making about $15,000 a year, not enough to rent a one-bedroom apartment in 95% of counties in the United States. Raising the federal minimum to $15 an hour is something progressives have been fighting for for years. They came close this month, but an amendment to raise the minimum wage was ultimately removed from Biden’s COVID relief bill. Is raising the minimum wage or having one at all the right way to battle poverty? I’m Jane Coaston, and I think it’s past time to raise the minimum wage. It’s not a way station for 16-year-olds. For millions of Americans, including parents with small children, it’s how they make ends meet. More people across the political spectrum are beginning to support a higher minimum wage, but it does have opposition. So I’ve invited two guests who are on different sides of the debate. Saru Jayaraman is the president of One Fair Wage and director of the Food Labor Research Center at the University of California Berkeley. Jeff Miron is the head of undergraduate and graduate economic studies at Harvard and head of economics at the Cato Institute. [MUSIC PLAYING]

Hi, Saru. Thanks so much for joining.

Thank you so much for having me.

And hey, Jeff, thanks so much for being here.

My pleasure. Thank you.

Here’s what I want to get out of this conversation. I want to have this conversation in two pieces. First, I want to talk specifically about the $15 minimum wage, hear both of your positions, and then get into what the arguments for and against a wage hike are. And then I want to zoom out and talk about raising the minimum wage as part of an overall suite of policies aimed at lifting people out of poverty. We’re going to go over some other options and talk about what’s actually being considered and what’s actually possible. So Saru, what’s your position on the $15 minimum wage?

So I think it’s important to understand the full scope of what’s being proposed. The Raise the Wage Act not only would raise the minimum wage to $15 an hour over several years, but it would also eliminate the sub-minimum wage for tipped workers, which is literally a legacy of slavery, the sub-minimum wage for workers with disabilities, which is a direct reflection of the valuation of people with disabilities, and youth. The current federal minimum wage is $7.25 for all workers and $2.13 an hour for tipped workers, and it is cents — literally less than $1 — for workers with disabilities. Our position is, of course, that that is not just low, it actually creates severe poverty, economic instability. It has created just horrific suffering during the pandemic. With — in the case of the sub-minimum wage for tipped workers, it’s also been a source of horrific sexual harassment because you have a largely female workforce living off of tips as a portion of their base wage, and that $15 is actually the minimum that’s necessary to live, particularly given that this workforce of minimum wage workers are adults. Median age is in the 30s. They have children, and they are struggling to survive, often working multiple jobs on these poverty wages. So we strongly support phasing in the raise of the minimum wage over time.

Jeff, where do you stand on this issue?

So I’m opposed to raising the minimum wage to $15 an hour. I’m, in fact, opposed to government mandating any minimum wage at all.

You wrote in 2014 that the right minimum wage is not $10.10 or $7.25. It’s zero. Why?

For a bunch of reasons. First of all, the minimum wage is trying, mainly, to tackle an issue of people having low income. But it does not address, the people with the lowest income, namely, people who don’t have jobs in the first place. It’s raising the wage of people who are already employed who may have low or very low income, but they’re not the poorest members of society. In my view, government anti-poverty efforts should be focused exactly on the people who are the worst off. Minimum wage is very poorly targeted for doing that because it starts off by only affecting people who are employed who have jobs. Secondly, it’s going to, in some instances, have a very perverse effect if you’re trying to raise the wages, even if we accept that it’s focused on a group of people that have jobs. It’s going to cause employers to lay off some people or hire fewer people or work more unpleasant hours or cut other benefits or do various things that are going to make those jobs bad for some of the people that you’re trying to help, OK? In the case where it causes employers to hire fewer people, some people go from having a low wage to having a zero wage. That seems a very crude way of trying to alleviate poverty, even if the minimum wage has only a modest effect in reducing employment. There’s a huge, long controversy in economics about that. The bulk of the evidence does suggest there is a negative effect on employment, especially if you were to double the minimum wage, as is being proposed currently. But it may have other negative effects, such as raising the prices of the goods and services that these employers provide. That also is a regressive step, not a progressive step.

I’m just going to cut you off there because I really want to put this to Saru. Last month, the Congressional Budget Office put out a report on the impact of a $15 minimum wage, and it showed that a gradual increase to a $15 minimum wage could add $54 billion to the deficit, if you’re worried about that kind of thing. I know deficit spending — we don’t talk about that anymore. It’s not a thing. I don’t even know who she is. But it could also eliminate 1.4 million jobs because, as Jeff said, that could be added prices for food. That could be added prices in a lot of spaces that low-income people and all-income people might need. What’s your response to that?

You know, the press reported on that Congressional Budget Office report in a way that, I think, caused most people not to actually read the report. The actual CBO report, what it said is that we don’t know what the impact on jobs could be. The impact on jobs could actually be anywhere from 0 to close to 3 million jobs. We have no idea. And that 1.4 million number was an intermediate between zero and close to three. In fact, we looked at the seven states that require what we call one fair wage, a full minimum wage with tips on top, including California, which has passed a $15 minimum wage and full elimination of the sub-minimum wage for tipped workers. Those seven states — and by the way, they’re not all blue states. If you look at those states that have raised the minimum wage, those seven states, in particular for the restaurant industry — we looked at from 2011 to 2016 — we saw that those states actually had higher job growth rates in the restaurant industry. They all actually have the same or higher growth rates in the restaurant industry, in terms of jobs, as the rest of the country. And so it just hasn’t borne out in the seven states that got rid of the sub-minimum wage for tipped workers. It just hasn’t borne out in the evidence. In fact, the states with the highest wages have had the highest job growth rates in the restaurant industry. So what do they do when they get a minimum wage increase? They spend it, the economy is boosted, and more jobs are created. I also want to speak to the menu price issue because we’ve also studied this a lot. Actually, we’ve compared restaurants — the same restaurants, chains — in California compared to all other states, and the menu prices are exactly the same. These are publicly-traded companies. They wouldn’t undercut themselves. They wouldn’t grow in a state like California if they weren’t profitable.

Jeff, what do you think? Because I think that issue of, if you pay people more money, they have more money, they spend more money, that makes sense to me.

My best answer is that money came from some place. But let me also take a step further back, which is if you tell employers they have to pay a higher wage for some of their employees, what are the things that could happen? They could say, OK, that’s fine. I’ll just make less profits, OK? Or they could say, I’m going to reduce that kind of employment and substitute with higher-skilled people. I could substitute machinery for some of the less-skilled labor that I was paying this lower minimum wage at. They could raise their prices. It’s unlikely that they’re just going to do nothing and absorb that profit loss. They’re going to respond in some way, shape, or form, and all of those things make those markets less efficient, OK? It means that you’re distorting the decisions about whether to use, in producing a particular good or service, low-skilled labor or to substitute with a machine. Somebody is paying for it. It’s either reduced profits — OK, but then the business owners are going to respond in ways which try to recoup that, many of which are going to make those workers worse off, or at least undo some of the benefit they got from the higher wages, such as by adjusting their hours in ways that workers don’t like, cutting benefits, and all those sorts of things. So we can’t just give people more money without saying where we’re taking it from and then what the cost of that is and what the effects of that are going to be.

I’m thinking about not necessarily minimum wage jobs, but we’ve all heard of or even had jobs where in exchange for getting paid more, there is an expectation that, like, yes, you make more money, but you’re supposed to work far more hours. The expectations change. If that’s true for jobs I’ve had, this sounds like it would also be true for minimum wage positions. Wouldn’t, as Jeff said, companies just find another way to exploit workers? If they’re paying them more, they could hire fewer people or force them to do different and worse labor.

Now, I would totally agree with Jeff that, yes, this does come from somewhere. This is why I fundamentally cannot agree with the idea that there can’t be a minimum wage. Because employers, corporations, businesses need to pay their fair share of the cost and the value of the labor that they’re profiting from. That is a concept that we, as a country, decided on when we ended slavery in the United States of America. We decided, as a country, morally, that we believe employers should pay for the value of the labor that they are profiting from. Now, in the restaurant industry in particular, at emancipation, the restaurant lobby did not want to pay for the value of their labor, and so they mutated tipping from being an extra or bonus on top of the wage to becoming a replacement for wages, which by the way, before emancipation, waiters were paid a full wage. So the whole idea of employers paying for their labor is something that we, as a nation, have accepted. Now, what happens when the minimum wage goes up in the restaurant industry in California or in the states that have raised wages? They don’t necessarily just reduce jobs. That hasn’t been borne out in the data. They do actually figure out, to your point, Jeff, greater efficiencies. They figure out that when you pay people more, actually, they don’t leave you. They stay. We did a study with Cornell where we interviewed 1,100 restaurant managers, and they told us that when you raise wages, you cut the cost of employee turnover because, guess what? When you pay people more, they don’t have to keep moving and looking for different jobs. They stay with you. That’s less turnover, which costs in terms of the cost of recruitment and hiring and morale and training new people. So it actually pays off to pay people well, and that is part of the overall cost of doing business.

OK, I have to object really strongly to the notion that imposing this minimum wage is going to make businesses more efficient by reducing turnover or encouraging them to substitute capital in an efficient way. If those things were efficient, if they were profitable, the employers would have done them already. If you can reduce turnover by paying a little bit higher wage, then of course, employers will do that. And many employers do do that, precisely for the reasons you explained, but not when they’re forced to do it by the higher minimum wage. Take the example of substituting machinery for a lower-skilled employee. There’s a cost to the machinery. There’s a cost of the employees, of the wages. You make the calculation of which one is more profitable, and you do the one that makes sense. If it made sense to substitute capital, you would have done it already. OK, so I don’t think that argument is the least bit convincing, and it just doesn’t make logical sense that there’s all this profit opportunity that these big public corporations, whose sole objective in life is basically to make profits, that they’re leaving all this money on the table by not paying a wage which would get them to a more profitable outcome.

But isn’t there an argument that part of making more money is the public appearance of being a good corporate citizen? We’ve had a lot of conversations recently about big corporations attempting to position themselves on specific political issues. I’m thinking of Apple getting involved with the Religious Freedom Restoration Act about five or six years ago. Isn’t an element where, yes, there is kind of the brute capitalism, we need to make as much money as possible, but also, it can be a good business maneuver to advertise yourself as having a good corporate culture by having higher wages?

But then again, you don’t need the government to make businesses do it. If it’s good for business to do something which looks socially responsible, whether it has to do with global warming or the wages you pay or the benefits you pay, then businesses will do it on their own because the way you describe it, it’s in the interests of the business. The net effect on profits after taking account of the somewhat higher costs for wages, but having better PR, having more people like your company, et cetera, they’ll take that into account, and they’ll do it on their own.

But I do want to put that question to Saru because I live in DC, where we have a $15 minimum wage. Florida, as you mentioned, has passed one that will go into effect by 2026. New York and Seattle both have a $15 minimum wage. So if you have private businesses that are saying, it’s a good idea for us to look good on this particular front by having a higher minimum wage, if you have cities and states that are making these decisions, why do we need the federal government to set a higher minimum wage for all?

So the truth is that we’re talking about giving people a very basic floor that would allow them to survive, allow them to get off of public assistance, allow them to feed their families when they work full time or more than full time. Look, here’s the problem with the argument Jeff is making of let’s just leave it entirely to the market, let’s have no minimum wage at all. If it were, efficient companies would do it. Well, guess what? There are lots of things companies do that are inefficient, that are based on their biases, their desires, their opinions. Racism and racial discrimination is not actually market efficient. So it is not entirely always efficiency that drives employer choices. And to the point of publicly-traded companies and if it were so great to pay people more, why wouldn’t they do it? I’ll tell you why. It’s because publicly-traded companies look at quarterly returns. And so there are a ton of efficiencies that arise from paying the minimum wage. The problem is that the publicly-traded corporations aren’t able to see it because they are so focused on short-term gains. So the problem with not having a federal minimum wage is that you leave the states with the highest populations of people of color at the lowest wages, and that exacerbates racial inequity in our country.

I want to focus on one thing that Saru said, which is that I’m arguing for leaving everything to the market. I haven’t said this yet, but I want to make clear that the argument against the minimum wage is not an argument against the social safety net. It’s an argument that the minimum wage is a terrible way of trying to have a social safety net. The libertarian view, my view, is that if you want to make poor people less poor, you should give them money via mechanisms like food stamps, housing assistance, universal basic income because those provide people with income without distorting private markets and without having the ancillary negative consequences that the minimum wage has. So they’re separate questions. One question is whether to help people who are not in a good financial position. The other question is how. My position is that the minimum wage is a terrible way in which to do it because it has all these ancillary side effects and because it doesn’t very successfully target the poorest people, whereas a universal basic income does explicitly target the very poorest people.

I do just have to address what Jeff said about leaving it to the market. You’re not saying leave it entirely to the market, but you are saying leave wages to the market, which means —

Yes, I am saying that.

— an employer could pay — meaning an employer could pay zero if they want to.

No, because people wouldn’t work for zero.

Well, people are working for zero right now, Jeff —

If employers have all this power, why don’t they set a zero wage?

Can I finish my point, please?

I apologize.

So actually, there are restaurant owners right now requiring workers to live off of tips. It’s illegal. Workers often don’t complain because they are scared to. They face retaliation. They are very vulnerable. They are women. They are people of color. And during the pandemic, these workers who receive zero dollars an hour could not get a dime of unemployment insurance because they were forced to live off of tips. And here’s the basic problem with having it rely entirely on government programs, social safety nets — some really big problems with that. One, workers want to be able to work and feed their families with their earnings. These workers, as well, want the dignity of being able to work in their profession — and these are professions — and not have to rely on government assistance, which is heavily stigmatized, difficult to access. And they want that dignity of being able to be paid. So you, Jeff, are asking taxpayers to cover these people’s livelihoods. But what I’m saying is that employers have to pay their fair share. They have to cover the value of their labor, of the people who are doing the work that brings them profit. [MUSIC PLAYING]

Hi, Jane. This is Reggie from Brooklyn. And the thing I’ve been arguing about with my friends and employer is whether we should use nuclear power to reach our climate goals. I think nuclear energy is the cleanest, most reliable way to bridge the gap between where we are now and our hopefully zero-carbon future in the time we have left.

What are you arguing about with your family, your friends, your frenemies? Tell me about the big debate you’re having in a voicemail by calling 347-915-4324, and we might play an excerpt of it on a future episode. So Jeff, you’ve said something that really interested me earlier, as a libertarian, is that you talked about the social safety net and the idea that we don’t need to raise the minimum wage. What we do need are better ways to support the poor that aren’t that, so talking about improving welfare programs. But you’ve mentioned two ideas in other work that you’ve done, the negative income tax and expansion of the earned-income tax credit. Now, I think for many people, they may have heard of the earned-income tax credit, but can you explain what the negative income tax would look like?

So a negative income tax, which is, in all important ways, the same as a universal basic income, says that everybody is guaranteed a certain amount of income per quarter or per year, some basis like that. And then they face some tax rate on all income earned. The simplest way to describe it, which doesn’t feel right to many people, is to say we send a check for $5,000 to every single person, including Bill Gates and, you know, Warren Buffett, but we then impose taxes. So if you have no income of your own, you receive that $5,000 per year, and that’s your total net income. If you earn $10,000 and there’s a 30% tax rate, you would get the $5,000 directly from the government plus the $10,000 you’ve earned, minus the $3,000 you would owe in taxes. You never owe any taxes on the universal basic income, on the negative income tax. So the idea is we put a floor on the amount of income that every single person has. And it gradually, as you earn income that didn’t come from the government, you pay taxes on that. But nobody will ever have any income below that floor that the government creates.

So what you’re saying here is that employers who make big profits, whether that’s a Walmart or McDonald’s or even a, like, company that’s doing really well in Washington DC, like a brewery, like the one that is being loud near my apartment, they do not have the responsibility to redistribute money. But the government — the federal government — through this program could redistribute money. They could send out checks for $5,000 to every American. Why do employers not have that responsibility but the government does? That seems — I’m confused.

It’s basically a practical answer that if the government does it in roughly the way I described, it’s consistent. It applies to everyone. It happens sort of year after year after year because it’s a government policy that’s in place and it continues, unless Congress changes its mind. But trying to get private employers to do it ends up mainly enriching private employers or some sectors relative to others. The housing industry gets richer than it would otherwise be because the government is subsidizing the building of housing projects. Certain farmers get richer than they would otherwise be because the government subsidizes food stamps. The transferring income to people approach doesn’t create any special favors for this industry versus that. It doesn’t allow you to go to Washington and lobby them to produce the — more of the goods and services that your industry produces because that’s allegedly helping poor people. It avoids all the inefficiencies created by having a centrally planned — central planner dictate what’s produced and how firms behave. If I could go back to one thing that Saru said, she said several times, we agreed, when we ended slavery, that we owe everyone a fair wage.

I don’t remember — or something like that.

We agreed that employers need to pay for the value of their labor, that they don’t get to —

When did we agree that?

That’s not in the Constitution. That’s not in a federal law.

Because we said —

Who agreed to that?

Because we said that employers should not be able to use free labor. That is what slavery was.

No, they should not be able to coerce free labor.

We agreed, as a country —

Outlawing slavery is not saying that someone can’t offer you a teeny wage and you agree to accept it. It’s saying that you can’t, using physical force, make people work for you for nothing.

And I would argue that because of the forced options that most people in this country on the minimum wage have, they are forced into very low-wage jobs, that their life situations have forced them into low-wage jobs that don’t give them the opportunities. When you’re working two and three jobs, you don’t actually have the time to go to college and get a degree and move up the ladder. So let me just say, one thing you said, Jeffrey, is just plain wrong. The idea that food stamps have not actually created inefficiencies and have not bred an industry or a sector that has profited off of food stamps is just plain wrong. The data shows that, actually, Walmart has profited quite a bit from food stamps. They —

That’s exactly my point.

OK, yeah, so —

I completely agree. That’s what I was saying. I totally agree with it.

Yeah, so Saru, like, the idea would be that you would have something that look kind of like Alaska’s Permanent Fund, which sends everyone in Alaska a check, or a dividend of some sort, which is that if you sent everyone in America a $5,000 check — everyone, every single person — and had that instead of food stamps, which as Jeff said, he argues have massive inefficiencies, you could wipe — use that instead of those programs. I’m interested to see your thoughts on that.

Yeah, my point is that we know, from situations like that, inefficiencies still will occur, even when people are given those checks. Because again, people at the lower end of the income spectrum have to spend those checks to survive on things like rent, which goes to developers, and food, which goes to grocery stores. There still will be inefficiencies. But here’s the bottom line. Employers — by doing that, by just providing everybody with $5,000, you completely remove any responsibility from employers to actually pay for, again, the people that are allowing them to create profit. The people who work for them generate the actual profit. And so employers should have the responsibility, rather than just taxpayers —

So I am saying that the employer should not bear this responsibility. I think it ends up being an incredibly inefficient way to try to accomplish the goal. I completely accept that some people have been forced by the conditions of the market and their luck and misfortunes of whatever their circumstances are to have very few opportunities, and I accept that there are people who have terrible circumstances. But I think the best way to do it is not by trying to make the employers responsible for it but letting their employers be responsible for maximizing efficiency and producing the most. First, that gives you the biggest economic pie available to redistribute to the people who deserve it, and they are not completely absolved because they pay taxes.

Not anymore.

No matter what the structure of the business taxes, they are ultimately paid by people, and the people are paying taxes that supports the transfers to those people who are deemed deserving by society’s judgments.

Saru, I noticed that you laughed a little bit when he talked about big corporations paying taxes. But I want to get at something. We appear to agree that there are, in our current system, a lot of inefficiencies that are bad. And we’re in a situation, and it is a situation, Jeff, as a libertarian, in which you are often in, which is that no one agrees with us and no one listens to us. No Republicans support raising the minimum wage to $15 an hour, so what are some other alternatives that could get us closer to poverty mitigation that could work with what we currently have in Congress, where we’re dealing with Democrats who are saying, we are supportive of raising the minimum wage, but the Republicans who are in Congress are not the people who are interested in thinking about poverty mitigation the same way we’re — you know, they’re not talking about a UBI. They are talking about tax cuts. When you’re thinking about either making the case for raising the minimum wage to Republicans or thinking about other ideas for poverty mitigation, where do you go?

So one thing that, actually, we have been able to agree with on — with some libertarians and Republicans is that we do need to reduce people’s dependence on public assistance, actually. And it is shown that raising the minimum wage reduces people’s dependence on food stamps, on other forms of public assistance. So raising the minimum wage reduces the burden on the taxpayer, on the government by allowing employers to pay their fair share and then reducing people’s dependence on public assistance. That is one area that we have in common with some Republicans.

Let me say a few things. First, I don’t want to leave the impression that libertarians advocate adding a universal basic income on top of the current social safety net. Libertarians think that if we could replace the existing social safety net with the universal income, that is plausibly an improvement. But many libertarians would still have severe qualms about the existing generosity of the current social safety net. They would say there might be — maybe there’s a role for some. It probably shouldn’t be federal. It should be left to states. It should probably be less generous — just so I don’t mislead. But on your question of what other things can be done to help people who are poor, libertarians have a few things that they emphasize quite a bit, which is repeal of regressive regulation. Lots of regulations are especially bad for poor people. This includes land-use regulation, which makes it hard for people to afford housing because you restrict the density of buildings, the heights of buildings, building more in inner cities. That forces people with lower incomes to live farther away, to have longer commutes, to have less access to jobs, to stores, and so on. Similar issues with occupational licensing, has effects of two kinds. One, it keeps relatively poor people from entering certain professions because they have to spend money or spend time getting degrees in order to practice those occupations. At the same time, those licensing restrictions raise the cost of the goods in those occupations of the — being produced by those occupations. And that, of course, has a bigger negative effect on people who are poor. And there are lots of other examples. Childcare regulation is another good one. There’s tons of regulation of childcare. Whom does that harm especially? Poor mothers, OK, who can’t easily afford daycare and be able to hold jobs because of the regulation, which raises costs so much.

Saru, I’m going to guess that you probably don’t think that these ideas should replace the fight for the $15 minimum wage and my efforts to join us all on one side of the argument. Eh, a little quixotic. But what’s your what’s your last point on this particular issue? Because I think that I agree with Jeff, the occupational licensing issue is particularly interesting because of how, in my own personal experience, it hinders African-American business owners. For instance, you can get into a very weird place with the licenses you need to do African hair braiding. But what is it about the $15 minimum wage that makes it your central issue and the central issue for this conversation?

The current debate is how much should the minimum wage be and should it apply equally to everybody in this country. And so therefore, 32 million Americans would get a raise from a $15 minimum wage. And by eliminating sub-minimum wages, we reduce racial inequity, legacies of slavery, and severe gender discrimination and harassment.

I just want to thank both of you so much for joining me. Saru Jayaraman is the president of One Fair Wage, a group that advocates for raising wages and working conditions for restaurant service workers. She’s also director of the Food Labor Research Center at the University of California Berkeley. Thank you so much for joining me.

Jeff Miron is a senior lecturer at Harvard and director of economic studies at the Cato Institute, a libertarian think tank based in Washington DC. Thank you for joining me, Jeff.

My pleasure. Thank you for having me. [MUSIC PLAYING]

If you want to learn more about the minimum wage, I recommend reading the full report from the Congressional Budget Office published in February about what Biden’s bill to raise the minimum wage $15 an hour would actually mean for jobs and the economy. And for the policy wonks — I know who you are — I also recommend the Bureau of Labor Statistics’ February report on the characteristics of minimum wage workers. You can find links to both of these reports in our episode notes. Finally, some of you called in with your own stories about student loan debt after last week’s episode.

Hi, my name is Kendra. I’m an African-American woman who graduated from George Washington University in 1997. My experience has been chronic oppression due to student loan debt accompanied by low to no income over several years. There should be complete forgiveness for those who have suffered such a burden. I’m Janelle from Vermont, and I have over $50,000 of student loans. There’s nothing I can do but continue to pay and hope that when I die, the remaining debt doesn’t carry on to my children.

The Argument is a production of New York Times Opinion. It’s produced by Phoebe Lett, Elisa Guttierez, and Vishakha Darbha, edited by Alison Bruzek and Paula Szuchman with original music and sound design by Isaac Jones and fact-checking by Michele Harris. [MUSIC PLAYING]

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The federal minimum wage of $7.25 an hour hasn’t changed since 2009. Workers in 21 states make the federal floor, which can be even lower for people who make tips. And at $7.25 an hour, a person working full time with a dependent is making below the federal poverty line.

[You can listen to this episode of “The Argument” on Apple , Spotify , Google or wherever you get your podcasts .]

States such as California, Florida, Illinois and Massachusetts have approved gradual minimum wage increases to reach $15 an hour — so is it time to do it at the federal level?

On Wednesday 20 senators from both parties are set to meet to discuss whether to use their influence on minimum wage legislation.

Economists have argued for years about the consequences of the hike, saying employers who bear the costs would be forced to lay off some of the very employees the minimum wage was intended to support. A report by the Congressional Budget Office on a proposal to see $15 by 2025 estimates the increase would move 900,000 people out of poverty — and at the same time cut 1.4 million jobs.

[ Instagram Live : Watch host Jane Coaston and Kara Swisher discuss whether we need to raise the minimum wage .]

On today’s episode, we debate the fight for $15 with two people who see things very differently. Saru Jayaraman is the president of One Fair Wage and the director of the Food Labor Research Center at the University of California, Berkeley. Jeffrey Miron is a senior lecturer in the department of economics at Harvard University and the director of economic studies at the Cato Institute.

Mentioned in this episode:

The Congressional Budget Office’s February 2021 report on the budgetary effects of the Raise the Wage Act of 2021.

The U.S. Bureau of Labor Statistics’ April 2020 report “Characteristics of Minimum Wage Workers.”

(A full transcript of the episode will be available midday on the Times website.)

Thoughts? Email us at [email protected] or leave us a voice mail message at (347) 915-4324. We want to hear what you’re arguing about with your family, your friends and your frenemies. (We may use excerpts from your message in a future episode.)

By leaving us a message, you are agreeing to be governed by our reader submission terms and agreeing that we may use and allow others to use your name, voice and message.

“The Argument” is produced by Phoebe Lett, Elisa Gutierrez and Vishakha Darbha and edited by Alison Bruzek and Paula Szuchman; fact-checking by Michelle Harris; music and sound design by Isaac Jones.

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Should We Raise The Minimum Wage?

Cardiff Garcia

Stacey Vanek Smith

Should We Raise the Minimum Wage?

Burr vs Hamilton. The Celtics vs the Lakers. Godzilla vs King Kong. To this list of famous rivalries you can now add: advocates of raising the minimum wage to 15 dollars an hour... versus opponents of raising it.

We have been watching economists duke it out on social media and in their papers, arguing for and against the idea. This is a topic where things can get heated, but it's also a really important and nuanced debate.

To show what's at stake, Stacey and Cardiff take sides on the minimum wage debate. Get ready for a fight over the minimum wage... with maximum rage!

Articles on Minimum Wage:

Characteristics of minimum wage workers (2019) , from the Bureau of Labor Statistics

How Increasing the Federal Minimum Wage Could Affect Employment and Family Income , from the Congressional Budget Office

Minimum Wages and Racial Inequality (paywall), by Ellora Derenoncourt and Claire Montialoux

Impacts of Minimum Wages: Review of the International Evidence , by Arindrajit Dube

City Limits: What do Local-Area Minimum Wages Do? , by Arindrajit Dube and Attila S. Linder

Racial Inequality and Minimum Wages in Frictional Labor Markets , by Jesse Wursten and Michael Reich

The Disparate Impact of a National $15 Minimum Wage , by Paul H. Kupiec

Myth or Measurement: What Does the New Minimum Wage Research Say about Minimum Wages and Job Loss in the United States? , by David Neumark and Peter Shirley

The Distributional Effects of Minimum Wages: Evidence from Linked Survey and Administrative Data , by Kevin Rinz and John Voorheis

The Economic Impact of a High National Minimum Wage: Evidence from the 1966 Fair Labor Standards Act , by Martha J. Bailey, John DiNardo, and Bryan A. Stuart

History of Changes to the Minimum Wage Law , from the Department of Labor

Why $15 Minimum Wage is Pretty Safe , by Noah Smith

The Minimum Wage Pushback , by Noah Smith

Minimum Wage Tracker , from The Economic Policy Institute

$15 Minimum Wage Subverts Biden Recovery Plan (paywall), by Michael R. Strain

How Can Price Theory Help Us Navigate the Minimum Wage Debate? , by Brian Albrecht

Pay Is Rising Fastest for Low Earners. One Reason? Minimum Wages. , by Ernie Tedeschi

Music by Drop Electric . Find us: Twitter / Facebook / Newsletter .

Subscribe to our show on Apple Podcasts , PocketCasts and NPR One .

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Understanding the Minimum Wage

• Pros of Raising
• Cons of Raising

The Bottom Line

• Macroeconomics

What Are the Pros and Cons of Raising the Minimum Wage?

J.B. Maverick is an active trader, commodity futures broker, and stock market analyst 17+ years of experience, in addition to 10+ years of experience as a finance writer and book editor.

The minimum wage is the lowest hourly rate that an employer can pay an employee according to law. Many states have minimum wages in place. But the federal minimum wage hasn't increased since 2009, despite many attempts to do so. The discussion around increasing the minimum wage brings both pros and cons.

As of January 2024, Washington had the highest state minimum wage rate at $16.28 per hour. Washington, D.C. has the highest rate overall at $17.00 an hour.

There's also a federal minimum wage at $7.25 an hour. Employers must pay minimum wage employees whichever rate is higher, so if the federal rate is higher than the state rate, an employee gets the federal minimum wage. The same is true if the state rate is higher.

Minimum wage laws have been in effect in the United States since 1938 when the first federal rate was set at $0.25 per hour. Amendments were made to the Fair Labor Standards Act (FLSA) since then, increasing the base rate of pay for many hourly workers according to inflation.

Key Takeaways

• Despite efforts to raise the minimum wage, no bill has successfully passed both chambers of Congress.
• Proponents of raising minimum wages argue that changes are needed to help incomes keep pace with increasing costs of living, and a higher minimum wage will lift millions out of poverty.
• Opponents of raising the minimum wage believe that higher wages could lead to inflation, make companies less competitive, and result in job losses.

As noted above, the term minimum wage refers to the legally established lowest amount that employers are required to pay their employees for their work. It serves as a baseline wage that is intended to ensure that workers receive fair compensation for their labor, covering basic living expenses and preventing the exploitation of low-wage workers.

The primary purpose of minimum wage is to provide workers with a level of income that allows them to meet their essential needs. It acts as a safeguard against extremely low wages and helps reduce poverty and income inequality within a society. By setting a minimum wage, governments aim to promote decent working conditions and provide a degree of economic security for workers.

National and sub-national government entities analyze several factors when considering whether to raise or maintain the current level of minimum wage. As the general increase in prices over time, inflation can erode purchasing power . Economic conditions such as the state of the economy may call for adjusted labor market dynamics. Social equity considerations may call for more livable wages. Regardless of the consideration, there are various reasons to support and detract from raising the minimum wage.

On Oct. 24, 1938, the first minimum hourly wage was put into effect. The wage rate was $0.25 per hour.

Pros of Raising the Minimum Wage

The primary argument advanced in favor of raising the minimum wage is that higher earnings would improve the overall standard of living for minimum wage workers by providing them with a more appropriate income level to handle the cost of living increases.

A 2022 study by the Congressional Budget Office analyzed the macroeconomic impact of the standard minimum wage reaching $15 per hour in 2027. The data reported that 10.9 million workers would be directly affected, while an additional 9.2 million workers would potentially be affected. The total directly or potentially affected workers by 2032 would surpass 23 million.

While some proponents of raising the minimum wage estimate that a much larger number of individuals and families will move out of poverty if they earn more money, a related potential benefit is a projected reduction in the need for federal and state government expenditures on financial aid for poor and low-income individuals.

Meanwhile, an intangible benefit that could translate into tangible benefits for both companies and employees is improved employee morale resulting from higher wages. Business owners frequently note the challenge of providing sufficient encouragement to spur workers to put maximum effort into their job duties, and that this is particularly problematic with low-wage workers who feel that their job efforts aren't keeping them out of poverty.

Increasing employee morale could easily translate into more tangible benefits, such as increased employee retention and reduced hiring and training costs. Employees who are more inclined to stay with a company longer could benefit from greater advancement and an overall reduction in job-related relocation expenses .

A boost to economic growth is another potential advantage of increasing the minimum wage, as consumer spending typically increases along with wages. A higher minimum wage would put more discretionary dollars in the pockets of millions of workers; money that would then flow to retailers and other businesses.

Lawmakers have tried to raise the federal minimum wage on many occasions. The U.S. House of Representatives passed an amended version of the Raise the Wage Act of 2019 in July of that year to gradually increase the federal minimum wage to $15 an hour by 2025. But the bill died in the Senate. President Joe Biden tried to increase the rate for federal contract workers to $15 per hour, but that motion was blocked by a U.S. district judge in September 2023.

Cons of Raising Minimum Wage

Among the disadvantages of increasing the minimum wage is the probable consequence of businesses increasing prices, thus fueling inflation .

Opponents argue that raising the minimum wage would likely result in wages and salaries increasing across the board, thereby substantially increasing operating expenses for companies that would then increase the prices of products and services to cover their increased labor costs.

Increased prices mean a general increase in the cost of living that could essentially negate any advantage gained by workers having more dollars in their pockets.

Though the current federal minimum wage in the U.S. is $7.25 per hour, 30 states and D.C. have approved higher minimum wages.

Another projected problem resulting from an increased minimum wage is that of potential job losses. Many economists and business executives who point out that labor is a major cost of doing business argue that businesses will be forced to cut jobs to maintain profitability.

The same 2022 study mentioned above by the Congressional Budget Office also analyzed how higher wages may result in the elimination of roles. By 2027, the CBO estimated that up to 1.6 million jobs would be lost. By 2032, this would increase to 1.9 million lost jobs.

One potentially negative impact that is less readily apparent is the possibility that a higher minimum wage would result in increased labor market competition for minimum wage jobs.

The net outcome of an increased minimum wage might be a large number of overqualified workers taking minimum wage positions that would ordinarily go to young or otherwise inexperienced workers. This could impede younger, less experienced entrants to the job market from obtaining work and gaining experience to move their careers forward.

How Does Minimum Wage Affect the Economy?

The impact of minimum wage on the economy is a complex issue. Supporters argue that increasing minimum wage can stimulate consumer spending and boost the overall economy by putting more money in the hands of low-wage workers. Critics, on the other hand, warn that higher labor costs might lead to job cuts, automation, and increased prices for goods and services.

Is Minimum Wage the Same for All Workers?

No, minimum wage laws often take into account different categories of workers. For example, there might be different minimum wage rates for adult workers, minors, or workers in specific industries. Tipped employees, like servers in restaurants, may also have a lower minimum wage due to the expectation of receiving tips .

Does Inflation Impact Minimum Wage?

Yes, inflation can erode the purchasing power of minimum wage over time. To address this, some governments index minimum wage to inflation rates. This means that the minimum wage is adjusted periodically to ensure that its real value remains relatively constant.

How Does Minimum Wage Affect Small Businesses?

The impact of minimum wage increases on small businesses can vary. Some small businesses might struggle to absorb the additional labor costs, potentially leading to layoffs or reduced hours. Others might adapt by increasing prices or finding operational efficiencies to mitigate the impact.

Do All Countries Have Minimum Wage Laws?

While minimum wage laws are prevalent in many countries, not all nations have implemented such legislation. The presence and level of minimum wage often depend on a country's economic structure, labor policies, and social priorities.

Raising the federal minimum wage to $15 an hour is a policy goal for many lawmakers. Increasing the minimum wage is expected to lift individuals out of poverty and improve work ethic, however, it also comes with many possible negative implications, such as inflation and a loss of jobs.

U.S. Department of Labor. " State Minimum Wage Laws ."

U.S. Department of Labor. " Minimum Wage ."

U.S. Department of Labor. " History of Federal Minimum Wage Rates Under the Fair Labor Standards Act, 1938-2009 ."

Congressional Budget Office. " How Increasing the Federal Minimum Wage Could Affect Employment and Family Income ."

The Brookings Institution. " How Family Sustaining Jobs Can Power an Inclusive Recovery in America’s Regional Economies ."

Berkeley Political Review. " No More Lies: The Truth About Raising the Minimum Wage ."

U.S. Congress. " H.R. 582 - Raise the Wage Act ."

Reuters. " Biden's $15 minimum wage for federal contractors blocked by US judge ."

U.S. Department of Labor. " Consolidated Minimum Wage Table ."

Congressional Budget Office. " The Budgetary Effects of the Raise the Wage Act of 2021 ," Page 8.

U.S. Department of Labor. " Questions and Answers About the Minimum Wage ."

Pew Research Center. " The U.S. Differs From Most Other Countries in How it Sets Its Minimum Wage ."

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How increasing the federal minimum wage could affect employment and family income.

This interactive tool—developed and updated by the Congressional Budget Office—allows users to explore the effects of policies that would increase the federal minimum wage, which is $7.25 per hour and has not changed since 2009.

The default policy option in this interactive tool is based on the Raise the Wage Act of 2023 (S. 2488) , which CBO analyzed in The Budgetary and Economic Effects of S. 2488, the Raise the Wage Act of 2023 . Under the default option, the first incremental increase in the minimum wage occurs in July 2024. Five years later, in July 2029, the minimum wage reaches its target of $17 per hour. Thereafter, it is indexed to the median hourly wage. The subminimum wage for tipped workers reaches $17 per hour in July 2030 and equals the regular minimum wage beginning the following year.

Users can also create custom policy options to examine how different approaches to changing the minimum wage would affect people’s earnings, employment, family income, and poverty.

In general, increasing the federal minimum wage would raise the earnings and family income of most low-wage workers and thus lift some families out of poverty—but doing so would cause other low-wage workers to become jobless, and their family income would fall.  

Federal Minimum Wage [?]

Federal minimum wage.

Options for the target amount for the minimum hourly wage range from $12 to $17 (in $1 increments).

The federal minimum wage would rise by varying amounts in July of each year until it reached the target amount in the year specified for full implementation. Under the default policy based on the Raise the Wage Act of 2023, the minimum hourly wage is $9.50 in 2024, $11.00 in 2025, $12.50 in 2026, $14.00 in 2027, $15.50 in 2028, and $17.00 in 2029; it is indexed to the median hourly wage thereafter.

Subminimum Wage for Tipped Workers [?]

Subminimum wage for tipped workers.

Cash earnings (excluding tips) must be at least $2.13 per hour under current law, and total hourly earnings (including tips) must be greater than or equal to the federal minimum wage.

Users of this interactive tool can leave the subminimum wage unchanged, increase it by varying amounts in July of each year until it reaches 50 percent of the federal minimum wage, or increase it by varying amounts in July of each year until it matches the federal minimum wage. The implementation period for the subminimum wage is one or two years longer than that for the regular minimum wage, depending on whether the minimum wage is adjusted after the target year. For options that increase the subminimum wage, the percentage difference between the federal minimum wage and the subminimum wage is maintained after the implementation period for the subminimum wage ends.

Under the default policy based on the Raise the Wage Act of 2023, the subminimum hourly wage for tipped workers is $6.00 in 2024, $8.00 in 2025, $10.00 in 2026, $12.00 in 2027, $13.50 in 2028, $15.00 in 2029, and $17.00 in 2030; it equals the federal minimum wage thereafter. As with the regular minimum wage, increases in the subminimum hourly wage would occur in July of each year.

Target Year for Full Implementation [?]

Target year for full implementation.

Like previous increases in the minimum wage, the options presented here would take years to be fully implemented. The target year for full implementation is the year in which the regular minimum wage reaches its target value.

Under the default policy based on the Raise the Wage Act of 2023, the increase in the regular minimum wage is fully implemented in July 2029. The subminimum wage for tipped workers reaches $17 per hour the following year and equals the regular minimum wage beginning in July 2031.

Adjustments After Target Year [?]

Adjustments after target year.

Users of this interactive tool can leave the minimum wage unchanged after the end of the phase-in period or index it to one of two measures: the consumer price index (CPI, a common measure of the cost of living) or the median hourly wage. Indexing the minimum wage means tying it to another measure so that it is automatically adjusted after it reaches the target amount to grow at the same rate as that other measure. Past increases in the federal minimum wage have not been indexed, so the value of those increases has been eroded by inflation.

Historically, the median hourly wage has grown faster than the CPI, and CBO expects that pattern to continue over the next decade. As a consequence, in this interactive tool, selecting the option to index the minimum wage to the median hourly wage leads to slightly larger effects on employment, wages, and family income than choosing to index it to the CPI.

Showing the option most similar to the Raise the Wage Act of 2021 (S. 53)

Raise the federal minimum wage to $ by The subminimums for teenagers and disabled workers are eliminated.

Federal Minimum Hourly Wage as of July 1

Change in Employment in an Average Week

Millions of jobs.

Change in the Number of People in Poverty

Millions of people.

Change in the Number of People Entering and Leaving Poverty

Overall change in real family income, billions of 2023 dollars, distribution of changes in real family income, by income group, 2029.

Average Change in Real Family Income, by Income Group

Size and scope of increases in wages, average mandated percentage increase in wages, effects on employment, income, and poverty.

* = a value that rounds to zero.

ASPECTS OF THE POLICY OPTIONS THAT ARE ADJUSTABLE

Federal minimum wage. Options for the target amount for the minimum hourly wage range from $12 to $17 (in $1 increments).

Subminimum wage for tipped workers. Cash earnings (excluding tips) must be at least $2.13 per hour under current law, and total hourly earnings (including tips) must be greater than or equal to the federal minimum wage.

Target year for full implementation. Like previous increases in the minimum wage, the options presented here would take years to be fully implemented. The target year for full implementation is the year in which the regular minimum wage reaches its target value.

Adjustments after target year. Users of this interactive tool can leave the minimum wage unchanged after the end of the phase-in period or index it to one of two measures: the consumer price index (CPI, a common measure of the cost of living) or the median hourly wage. Indexing the minimum wage means tying it to another measure so that it is automatically adjusted after it reaches the target amount to grow at the same rate as that other measure. Past increases in the federal minimum wage have not been indexed, so the value of those increases has been eroded by inflation.

DEFINITIONS

Directly affected workers. Workers whose wages would be between the previously applicable minimum (state or federal) and the proposed minimum if the federal minimum wage remained unchanged. Under any of the policy options, such workers would either become jobless or see increases in their earnings in an average week.

Potentially affected workers. Workers whose hourly wages would be greater than the proposed minimum but less than that amount plus 50 percent of the difference between the increased federal minimum wage and their previously applicable (state or federal) minimum wage. Only some of those workers’ earnings would increase under any of the policy options.

Income group. Families are grouped on the basis of their projected income (in 2023 dollars) measured in relation to the poverty threshold. In 2029, for example, the average family income of the groups is projected to be as follows: $12,300 for families with income less than the poverty threshold; $33,500 for families with income 1.0 to 1.49 times the poverty threshold; $47,400 for families with income 1.5 to 1.99 times the poverty threshold; $66,000 for families with income 2.0 to 2.99 times the poverty threshold; $113,900 for families with income 3.0 to 5.99 times the poverty threshold; and $285,900 for families with income 6.0 or more times the poverty threshold. Those projections reflect the assumption that the current federal minimum wage remains unchanged. 

Range of likely outcomes. In CBO’s assessment, there is a two-thirds chance that the effects of the policy option would be within this range.

Real family income. This measure constitutes before-tax family cash income (primarily earnings but also unemployment compensation, cash benefits from public assistance programs, and other forms of income) expressed in 2023 dollars to remove the effects of inflation. Changes in real family income reflect increases in earnings for workers who receive a higher wage, decreases in earnings for workers who lose their job, losses in income for business owners, and decreases in purchasing power because of increases in prices.

Subminimum wages for teenagers and disabled workers. For teenage workers, the minimum wage is currently $4.25 per hour during their first 90 days of employment; for disabled workers whose employers are certified by the Department of Labor, minimum wages are based on analyses of prevailing wages and worker productivity.

EFFECTS ON EMPLOYMENT

How would increasing the minimum wage affect employment? Raising the minimum wage would increase the cost of employing low-wage workers. As a result, some employers would employ fewer workers than they would have employed under a lower minimum wage. However, for certain workers or in some circumstances, employment could increase.

Changes in employment would be seen in the number of jobless—not just unemployed—workers. Jobless workers include those who have dropped out of the labor force (because, for example, they believe no jobs are available for them) as well as unemployed workers (those who are searching for work).

How did CBO estimate effects on employment? In CBO’s analysis, the size of the effects depends on the number of workers affected by the increase in the minimum wage, the changes in wages induced by the higher minimum, and the responsiveness of employment to those changes in wages. Effects would generally be greater if the change in the minimum wage affected more workers, if it led to larger mandated increases for directly affected workers, if firms had more time to respond (if, for example, the change was phased in over a longer period), and if the minimum wage was indexed to inflation or wage growth.

For details of CBO’s analysis, see Appendix A of CBO’s July 2019 report The Effects on Employment and Family Income of Increasing the Federal Minimum Wage . CBO updated the method it uses to calculate the responsiveness of employment to changes in the minimum wage, which is represented by elasticities. For details about that change, see CBO’s December 2023 report The Budgetary and Economic Effects of S. 2488, the Raise the Wage Act of 2023 .

If workers lost their jobs because of a minimum-wage increase, how long would they stay jobless? At one extreme, an increase in the minimum wage could put a small group of workers out of work indefinitely so that they never benefited from higher wages. At the other extreme, a large group of workers might shuffle regularly in and out of employment, experiencing short spells of joblessness but receiving higher wages during the weeks they were employed.

In analyzing the effects of joblessness on poverty, CBO used its estimates of the distribution of durations of unemployment for the 2000–2020 period to assign directly affected workers either no joblessness or a duration of joblessness within the projection year that was randomly chosen from that distribution. Thus, some workers in CBO’s analysis are out of work for nearly an entire year, whereas others are jobless for shorter—sometimes much shorter—periods.

EFFECTS ON INCOME

How would increasing the minimum wage affect family income? By boosting the income of low-wage workers who have jobs, a higher minimum wage would raise their families’ real income (that is, income adjusted to remove the effects of inflation), lifting some of those families out of poverty. For other families, however, income would fall because some workers would not be employed and because business owners would have to absorb at least some of the higher costs of labor. For those reasons, in this interactive tool, a minimum-wage increase generally causes a net reduction in average family income.

How did CBO estimate the effects on family income? CBO projected the distribution of family income in future years and then combined those forecasts with estimates of the effects on wage rates, employment, business income, and prices. The estimated effects on wage rates also include increases in the wages of some workers who would have earned slightly more than the proposed minimum wage if the minimum wage had not changed, because the literature indicates that wage increases from the policy would spill over to those workers. Losses in business owners’ income and consumers’ purchasing power would be partly offset by an increase in the productivity of workers who received higher wages. That increase in productivity might occur through various channels, such as a reduction in employee turnover. (For details, see The Effects on Employment and Family Income of Increasing the Federal Minimum Wage .)

How would increasing the minimum wage affect the number of people in poverty? By boosting the income of low-wage workers with jobs, a higher minimum wage would lift some families’ income above the poverty threshold and thus reduce the number of people in poverty. But low-wage workers who lost employment would see their earnings decrease, and in some cases their family income would fall below the poverty threshold. The first effect would tend to be larger than the second, so the number of people in poverty would generally fall.

How did CBO estimate the effects on the number of people in poverty? CBO projected the distribution of poverty in future years by using the same methods it used to project the distribution of family income and by applying the same definitions of income and poverty thresholds that the Census Bureau uses to determine the official poverty rate.

UNCERTAINTY AND OTHER EFFECTS

How certain are these outcomes? The size of any option’s effects on employment and family income are very uncertain for two main reasons.

First, future wage growth under current law is uncertain. If wages grew faster than CBO projects, then wages in future years would be higher than CBO anticipates. In that case, increases in the federal minimum wage would have smaller effects. If, instead, wages grew more slowly than CBO projects, the effects would be larger.

Second, the responsiveness of employment to an increase in the minimum wage is uncertain. If employment was more responsive than CBO expects, then increases in the minimum wage would lead to larger declines in employment. By contrast, if employment was less responsive than CBO expects, the declines would be smaller. Findings in the research literature about how changes in the federal minimum wage affect employment vary widely. Many studies have found such changes have little or no effect, but many others have found that increases in minimum wages lead to substantial reductions in employment.

Would changing the minimum wage have other effects? Studies have examined the link between the minimum wage and a range of other outcomes, including labor force outcomes such as labor force participation (whether a person is working or actively seeking a job); health outcomes, such as depression, suicide, and obesity; education outcomes, including school completion and job training; and social outcomes, such as crime. CBO did not examine those other possible outcomes in this analysis. However, a list of sources for more information is available in Appendix B of The Effects on Employment and Family Income of Increasing the Federal Minimum Wage .

In The Budgetary and Economic Effects of S. 2488, the Raise the Wage Act of 2023 , CBO estimated how an option for increasing the minimum wage to $17 would affect the federal budget.

CHANGES SINCE CBO LAST UPDATED THE INTERACTIVE TOOL

How have updates changed the estimates generated by this tool? For two main reasons, outcomes generated by the current version of the tool differ from those produced by the 2022 version.

First, the options would begin to be implemented in July 2024, not January 2023, and the increases in the regular minimum wage would be fully implemented on July 1 of 2028, 2029, or 2030—two and a half years later than the date by which the analogous options in the previous version of the interactive tool would be fully implemented. Wages would grow over those additional years—from 2027 to 2029, for example—further reducing the effect of any given increase in the minimum wage. The default policy based on the Raise the Wage Act of 2023 would begin to be implemented in July 2024 and would be fully implemented in July 2029. (The increase in the subminimum wage for tipped workers would take longer to be fully implemented. It would reach the target for the regular minimum wage of $17 per hour in July 2030, and the two rates would be equal starting in July 2031).

Second, CBO now projects a higher rate of wage growth under current law, so any given increase in the minimum wage would generally have a smaller effect on wages—and thus on employment and family income—than it would have had in the previous version of the interactive tool.

CBO made other revisions to the tool to reflect baseline policy changes (including updating the data it uses to account for increases in states’ minimum wages and the minimum wage for federal contractors), newer data, and an updated method for calculating elasticities. For details about the change CBO made to its method for calculating elasticities, see the agency’s December 2023 report The Budgetary and Economic Effects of S. 2488, the Raise the Wage Act of 2023 . Combined, the effects of those changes are smaller than the effects resulting from the later implementation of the policies and the higher projected rate of wage growth.

DATA AND SUPPLEMENTAL INFORMATION

The computer code for employment elasticities linked below reflects the method that CBO used to calculate elasticities in its analysis of minimum wage policies starting with the 2019 report The Effects on Employment and Family Income of Increasing the Federal Minimum Wage . As noted above, the agency updated its method for calculating employment elasticities for its December 2023 report The Budgetary and Economic Effects of S. 2488, the Raise the Wage Act of 2023 . This code does not reflect those changes.

• Computer Code on Employment Elasticities (.zip file)

Related Publications

• The Budgetary and Economic Effects of S. 2488, the Raise the Wage Act of 2023 December 18, 2023
• CBO Updates Its Interactive Tool for Analyzing the Effects of Federal Minimum-Wage Increases April 5, 2021
• The Budgetary Effects of the Raise the Wage Act of 2021 February 8, 2021
• The Effects on Employment and Family Income of Increasing the Federal Minimum Wage July 8, 2019
• H.R. 582, Raise the Wage Act April 22, 2019
• The Effects of a Minimum-Wage Increase on Employment and Family Income February 18, 2014

CBO continually seeks feedback to make its work as useful as possible. Please send comments to [email protected] .

About this Interactive Tool

Nabeel Alsalam, William Carrington (formerly of CBO), Justin Falk, and Kevin Perese produced the initial estimates for this interactive tool with guidance from Molly Dahl and Joseph Kile. In January 2024, Nabeel Alsalam, Justin Falk, Julia Heinzel, Junghoon Lee, and Timothy Young updated the tool with guidance from Xiaotong Niu and Julie Topoleski.

The underlying data are based on CBO’s February 2023 economic forecast, which was developed by the agency’s Macroeconomic Analysis Division.

Casey Labrack developed and updated the interactive tool. Mark Doms, Jeffrey Kling, and Robert Sunshine reviewed it. Bo Peery edited it, and Maria Aquino integrated it into CBO’s website and prepared it for release.

This page was last updated on January 30, 2024.