An Argument for Raising the Federally Mandated Minimum Wage

An Argument for Raising the Federally Mandated Minimum Wage

January, 2021

According to the U.S. Bureau of Labor Statistics, the average hourly earnings rates for all U.S. employees fluctuated between $35.29 and $35.60 per hour in Q4 of 2020. Information presented by Goldman Sachs reports that “… 19% of workers make less than $12.50 per hour, 32% of workers make between $12.50 and $20 per hour, 30% make between $20 and $30 an hour, 14% make between $30 and $45 per hour, and 5% make over $45 an hour.” The federal minimum wage is currently $7.25.

The percentage of U.S. workers living on the federally mandated minimum wage of $7.25 is 2.3%. Factors such as age, education, industry, state of residence, whether working full or part-time, and to a degree ethnicity, influence wages. Whites, Latinos, and Asians tend to be in the 2% area, while the percentage of African Americans attempting to live on the minimum federal wage is closer to 3%.

Many states, especially states where the cost of living is high, have set wage minimums at higher levels. For example, Nevada requires employers pay at least $9.00 and that minimum will increase by $0.75 each year until reaching $12.00 per hour. The idea of phasing in wage raises is a common approach to adjusting for cost of living inequity, but the approach has failed millions.

The federal minimum wage of $7.25 per hour has been static since 2007. It was almost updated in July of 2019 when the House of Representatives passed the ‘Raise the Wage Act’. The law would have gradually raised the federally mandated minimum wage to $15 per hour by 2025 but the Senate voted down the bill. For more information on the $15 per hour debate, see Workest or download the report from edlabor.house.gov.

Most states are making an adjustment, but employees in the following states can be legally asked to work for the federal minimum wage: Alabama, Idaho, Indiana, Iowa, Kansas, Kentucky, Louisiana, Mississippi, New Hampshire, North Carolina, North Dakota, Oklahoma, Pennsylvania, South Carolina, Tennessee, Texas, Utah, Virginia, and Wisconsin. Wyoming and Georgia have a state minimum of $5.15, but employers subject to the Fair Labor Standards Act must pay $7.25.

Can a family survive on minimum wage? What if you were really prudent with your resources and lived where the cost of living was low? According to the World Population Review, Mississippi has the lowest cost of living of any state in the U.S., which means if you are the sole wage earner in a family of four and earn $48,537 per year, you should have income sufficient to procure housing, get food, pay your taxes, and purchase healthcare. The cost of living in Mississippi is 15% below the national average. Things cost less. Unfortunately, a full-time employee working 40 hours per week (2,080 hours per year) at $7.25 per hour will earn only $15,080 per year, before taxes. That is less than one-third of what statisticians consider to be a living wage, even in Mississippi.

MIT has published a living wage calculator, and the data indicates that even a massive jump from $7.25 to $15 per hour, phased in over the next five years, will fall short. According to researchers at MIT, the United States’ living wage was $16.54 per hour, or $68,808 per year, in 2019 and $16.14 in 2018. The number calculates pretax income for a family of four (two working adults, two children). A minimum wage of $7.25 per hour does not give a family of four, nor even a single worker, half of the national average living wage. Some workers hold two and even three jobs to make ends meet, but MIT explains that a worker making $7.25 per hour needs to work 138 hours per week, nearly the equivalent of working 24 hours per day for six days, to earn a living wage. Middle America currently struggles pay-check-to-paycheck. Those making the federal minimum wage of $7.25 struggle to stay alive.

Investopedia defines a living wage as “… a theoretical income level that allows an individual or family to afford adequate shelter, food, and the other basic necessities …. and to prevent them from falling into poverty. Economists suggest that a living wage should be substantial enough to ensure that no more than 30% is spent on housing.” The federal minimum wage does not meet the definition of a living wage, and falling below the living wage means falling into poverty.

What is poverty in the U.S.? “The U.S. Census Bureau’s poverty threshold for a family with two adults and one child was $20,578 in 2019. Earning below $20,578 is the official measurement of poverty used by the Federal Government, and the measure used for most poverty-based data presented on State Health Facts.” Given this definition, a family living on the federally mandated minimum wage must find suitable housing at $420 per month or less to be considered above the poverty line. “A worker earning the federal minimum wage of $7.25 per hour must work 127 hours per week (more than 3 full-time jobs) to afford a two-bedroom rental home 103 hours per week (more than 2.5 full-time jobs) to afford a one-bedroom rental home at the national average fair market rent,” this according to the National Low Income Housing Coalition. Among workers earning more than the minimum wage, the average renter in the U.S. “must work 52 hours per week to afford a modest two-bedroom apartment of his or her own, a challenging task that is even more difficult for a single parent of a young child or a person with a disability. In only 10% of U.S. counties can a full-time worker with a full-time job earning the average renter’s wage afford a modest two-bedroom rental home at fair market rent. The same worker can only afford a modest one-bedroom apartment in 41% of U.S. counties.”

COVID and the War on Poverty. In 1964 President Lyndon B. Johnson declared an “unconditional war on poverty.” In 2020 President Donald J. Trump declared war on the COVID19 pandemic. The battle continues in both of these wars, and today they overlap. A study at Columbia University estimates that an additional 8 million families have fallen into poverty due to the pandemic. In 2018, 38.1 million people lived in poverty (11.8%) of the U.S. population. Based upon the Columbia University research, the additional 8 million who have fallen into poverty moves us to 46 million. Stimulus checks issued by Congress temporarily kept some families from slipping into poverty, but monthly unemployment subsidies expired before renewal. The proposed $1,400 stimulus check still being debated will give a temporary boost to many families, but the crisis will deepen until we reach herd immunity. When is that? Dr. Fauci says herd immunity is possible by late summer or early fall of 2021. Herd immunity requires that 75% to 80% of Americans be vaccinated. Rising from poverty is for most, a lifelong slog.

Fighting poverty should not be measured exclusively in long-term strategies. Sometimes, actions in the present have a profound and nearly immediate result. Today, right now, if we care about our fellows, we will wear masks and get vaccinated. Shortening the terrible pandemic and raising the federally mandated minimum wage will lift millions out of poverty.

A recent Gallup poll suggests that 58% of Americans are now willing to get the vaccine, up from just 50% in September of 2020. PEW reports that “… 92% of Democrats and those who lean toward the Democratic Party say they usually wear masks in stores and other businesses, as do 76% of Republicans and GOP leaners. In June, 76% of Democrats said they had usually worn masks in stores and other businesses over the past month, compared with a little over half of Republicans and GOP leaners (53%). The partisan gap is now 16 percentage points, down from 23 points this spring.” In another Pew poll, “Two-thirds of Americans (67%) support raising the minimum wage to $15 an hour, including 41% who say they strongly favor such an increase …”

Many senators will continue to resist any raise in the federally mandated minimum wage. In a 2017 article at Forbes, Panos Mourdoukoutas quotes a CBO report on what will happen to businesses if wages are gradually raised to $15 per hour. The CBO study says a $15 minimum wage will give a big boost to the incomes of American workers paid the minimum wage. “In an average week in 2025, the $15 option would boost the wages of 17 million workers who would otherwise earn less than $15 per hour. Another 10 million workers otherwise earning slightly more than $15 per hour might see their wages rise as well,” says the report.

Still, many small businesses believe they cannot survive without inexpensive labor. As the minimum wage rises, their expense to profit ratios will change. Some will face difficult decisions and may take measures including a reduction in hours, layoffs, and terminations.

The downside, again according to the same CBO report, is this: “… 1.3 million other workers would become jobless, according to CBO’s median estimate,” adds the report. “There is a two thirds chance that the change in employment would be between about zero and a decrease of 3.7 million workers. The number of people with annual income below the poverty threshold in 2025 would fall by 1.3 million.”

Raising the minimum wage to at least $15 per hour is a moral and economic imperative. As a nation, as employers, as human beings we must find the will to reduce the wealth gap and welcome more of our citizens into a functioning economy. We cannot possibly believe that the minimum wage of $7.25 per hour is sufficient for that purpose.

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