“No business which depends for existence on paying less than living wages to its workers has any right to continue in this country.” —Franklin Delano Roosevelt
A debate that has raged on in the United States for years is that of the federal minimum wage. Is a national minimum wage raise necessary? Should the current federal minimum wage be raised? What reasons to raise minimum wage and how do they benefit part-time and full-time workers? What are the consequences of a minimum wage rise for employers, employees, and the labor market? Would it affect racial equality and gender equality? Can people live off of these salaries?
Brief History of Minimum Wage
These are questions that have bounced across political arenas, debate stages, and social media platforms for as long as the national minimum wage has existed back when the hourly wage was first put into law in 1938. It’s been nearly 50 years since the last time the federal minimum wage peaked—way back in 1968. That was the last time the then current federal minimum wage was on par with the rate with inflation, even though the minimum wage rate was raised back in 2009 to $7.25.
And even though this is the national minimum wage, many states have raised their state minimum wage in their own municipalities. City council officials have also taken the matter of a minimum wage rise to the courts, raising their city minimum wage. Twenty-nine states, including the District of Columbia, have made increases to their minimum wages, according to the U.S. Department of Labor. But why haven’t these increases been done on a national scale especially with a majority of Americans calling for higher wages and fair labor for fair pay?
With poverty levels rising, inequalities increasing, and full-time worker productivity dwindling, what harm would raising the federal minimum wage do? But an even better question is: How would raising the minimum wage benefit the 323.1 million Americans who earn this salary?
9 Reasons to Raise Minimum Wage
Below are nine reasons to raise minimum wage—nine benefits a federal minimum wage rate increase could have not only for individuals but for the country at large.
1. Reduced poverty levels
According to a study conducted by Arin Dube, an increase from $7.25 to just $8 in the federal minimum wage would decrease poverty levels by 2.4%. Following these numbers, raising the minimum wage to $10 would reduce the number of Americans living in poverty by 4.6 million. A raise in the federal minimum wage would also increase the number of Americans living in the 10th percentile income bracket. And these are just the short-term effects.
Over time, this 39% increase in the federal minimum wage would result in a reduction of impoverished people by 6.8 million. Paying hard-working Americans a livable wage will pull them out of their desolate living situations and put them in a place where they can actually live as opposed to just scrape by.
2. Reduced income inequality
According to the Organisation for Economic Cooperation and Development (OECD), the United States is one of the top ranking countries when it comes to income inequality. Only a few countries score higher, including Turkey, Mexico, and Costa Rica. This is due, in part, to the extremely low minimum wage threshold. Full-time minimum wage workers in America make about $15,000 a year, meaning they must rely on government welfare programs that continue to keep them at a disadvantage economically.
But a federal minimum wage increase in the U.S. would not only ensure that minimum wage workers would be making more money, which would hopefully give them more freedom to spend and save, but it would also increase the number of those making the median wage for fair labor in America. As it is right now, employees are forced to rely on overtime pay to live. Some local government officials have challenged this, calling for a higher minimum wage. If the federal government were to enact a national wage increase these inequality gaps could slowly but surely close.
3 Increased worker productivity
According to a study by CEPR, worker productivity directly relates to the wages earned by employees. Using the 1968 hourly minimum wage as a benchmark, if employees were paid what their productivity is worth, the minimum wage in 2012 should have reached $21.72.
When employees are paid a livable wage, they are innately more invested in the company and work in which they are engaging. They put more effort into their work. They get more done. There are fewer miscommunications and less struggle to get employees to complete their tasks. An increased minimum wage pushes employees to prove their worth and work harder, increasing productivity.
4. Decreased employee turnover
When employees make the minimum wage, they are constantly looking for opportunities that could make them more money. This leads to a very high employee turnover since employees seek employers that are willing to pay them fairly for their fair labor and offer more benefits and incentives without forcing them to work overtime to receive them. That’s why it’s important for businesses to offer anything they can to keep employees and break this cycle. A raise in the federal minimum wage could be the help they need.
A National Employment Law Project research study delves into the links between employee turnover and low wages. According to the study, the fast-food chain industry suffers with a 100% turnover rate per year largely due to minimum wage workers leaving for other opportunities. And the cost for the company every time an employee leaves? $4,700.
An increased federal minimum wage could lead to $5.2 billion in savings for these fast food companies, as well as other businesses. It could also lead to nearly 1.1 million fewer employee departures. These numbers could easily translate to other industries as well.
5. It would give the economy a boost
According to a report by the EPI, a wage hike would boost the economy, spur economic growth and increase jobs for workers. Employees would benefit as would businesses and even the government. The report states that in three years' time, a minimum wage increase would raise the government $22.1 billion in net revenue. A wage hike from the current minimum wage would also put $35 billion more in the pockets of these hourly workers and create 85,000 new jobs.
According to the Bureau of Labor Statistics, only 45% of hourly workers making minimum wage are between 16 and 24; the rest are full-time workers who use this income to live. This means that those who would benefit from an increase are not just young adults looking to make money at their first job. The majority of workers making minimum wage are adults with children and families. Raising the minimum wage would give these people more flexibility to spend money on things they need, boosting economic growth and encouraging an upward trend.
In addition, raising the minimum wage will give more value to the federal minimum wage itself. It’s apparent that the federal minimum wage hasn’t kept up with inflation since the 1960s, and raising it would finally put it on par with what workers should be making and can afford to live off of.
6. Decreased gender and race-based inequality
Gender and race-based inequality is not just a local government issue but an issue about which the federal government needs to be proactive. This can start with a minimum wage increase.
According to the Economic Policy Institute, raising the federal minimum wage would affect women slightly more than men. This is due in part to the fact that more women make up the demographics of those that would be affected by a minimum wage hike. An hourly wage rate increase would, by default, promote woman equality.
Another study by the National Employment Law Project shows that 54.7% of women, 60% of Latino workers, and over 50% of African American workers are making less than $15 an hour. And these are in industries that range from fast-food chains and retail to childcare and the accommodation industry. This has led to an alarming gender and ethnic pay gap. In 2015, for every $15 a person of color was making, a white man was making $21.
“While increasing the minimum wage to $15 cannot alone close the racial pay or wealth gaps, it would directly increase the incomes of millions of African American and Latino workers earning under $15, bringing African American and Latino workers closer to economic security and helping to reduce the racial wealth gap over time,” the study reads.
For women, even though there has been progress since the 1970s, women still only make 80% of what a man makes. Raising the minimum wage would give these underprivileged communities the abilities and opportunities already afforded to their white, male counterparts. It will take time, but an hourly wage rate increase is a necessary step for closing these gaps.
7. A majority of Americans want an increase
According to a 2015 poll done by the Hart Research Associates, 75% of Americans are in support of a federal minimum wage rate increase and are calling for a higher minimum wage. By 2020, this majority believes the federal minimum hourly wage should reach $12.50 by 2020. Of those Americans in favor of a minimum wage law increase, 53% of them were Republicans. 71% of those polled also believe the government should raise the wage for tipped workers. They believe that the minimum wage law should apply to tipped workers as well. The poll continued to say that 63% of Americans want to raise the minimum wage by 2020, with increases to $15.
This is backed by a number of other polls and staunch outcry for a hike in the federal minimum wage across the country, especially as states continue to raise the wage for their state’s federal minimum wage. Beginning this process is an obvious solution to a problem that plagues thousands of Americans, and it’s one that the majority of the country wants.
8. Increased federal tax revenues
With a few exceptions, the more Americans make, the more they pay in taxes. So by default, raising the minimum wage would increase worker wages which would push them into higher tax brackets. Putting it simply, raising the minimum wage will make the American government more money in tax revenue. The money being made, as well as the money being saved through reduced welfare spending, could go towards other necessary programs like Medicare, education, and environmental services. It could also be used to take a chunk out of the federal deficit. The state minimum wage was increased in states like New York and California, which led to increased tax revenue. The federal government could see the same benefits.
9. Reduced government spending on welfare programs
When the federal minimum wage leaves thousands of American workers living below the poverty level, they have to turn somewhere for the aid they need. And these Americans turn to the federal government to solve the problem of a bleak minimum wage rate. In return, the federal government has many programs that use taxpayer money to help those in need.
Some of these programs include subsidies sent out to low-wage businesses to offer benefits for these low-income workers. Other welfare programs administered to low-income families by the government include SNAP, Housing Assistance, TANF, and LIHEAP, just to name a few that give assistance to those in poverty in the United States, in addition to Medicaid. According to an EPI report, the American government could save $7.6 billion a year on from this programs if they raised the minimum hourly wage to $10.10.
If the U.S were to raise the minimum wage, thousands of Americans will be pulled above the poverty level and will no longer need the assistance of these programs. In the long run, these higher wages would mean less government spending will go to these programs, which could possibly lead to lower taxes for the country as a whole.
For more information
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