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Raising the minimum wage to $15 by 2025 will restore bargaining power to workers and support the pandemic recovery


WAGES HAVE BEEN STAGNANT FOR A DECADE

Congress has failed for more than a decade to raise the federal minimum wage. While there have been some wage increases at the state and local level, the current federal minimum wage stands at $7.25.


WORKER WAGES REMAIN AT 1963 LEVELS WHEN ADJUSTED FOR INFLATION


In 1963, back when John Kennedy was president, the applicable minimum wage varied by industry between $1.00 and $1.25 per hour, and there was no minimum wage at all for agriculture, nursing homes, restaurants, and other service industries. A few years later, Congress expanded the policy’s coverage to some of the previously excluded sectors and significantly raised the minimum wage to $1.40 in 1967 and then $1.60 in 1968.

If the minimum wage had been raised to $2.00 in 1963, with future increases tied to the cost of living, the minimum wage this year would be $14.79, more than twice its current value of $7.25. Instead, after rising to the inflation-adjusted high point of $10.43 in 1968, infrequent increases since then have dramatically eroded its value.


SMALL STEPS TO INCREASE THE MINIMUM WAGE – A GAME CHANGER


Five years of regular increases, however, could reverse that trend. A $15 minimum wage in 2025 would be consistent with existing national legislation already passed by the House of Representatives.  A comparison of wage income and necessary expenses for families shows that anything less than $15 per hour will not fulfill the purpose of the 1938 Fair Labor Standards Act, which established the minimum wage “to protect this Nation from the evils and dangers resulting from wages too low to buy the bare necessities of life.”

MOVING TOO FAST – NOT FAST ENOUGH


Of course, some claim that five years is too fast for businesses to accommodate a minimum wage increase from $7.25 to $15.00. But this concern ignores that the minimum wage has been stuck at $7.25 for more than a decade, and at this point only a small share of workers regularly earn that rate at their job. In 2019, only about 5% of the workforce earned less than $9.00 per hour.1 Any multi-year schedule of increases can therefore substantially raise the minimum wage right out of the gate without imposing an undue burden on low-wage businesses.


SOME SAY THAT NOW IS NOT THE TIME TO RAISE WAGES


Others argue that while we should raise the minimum wage in general, we should refrain from doing so during a pandemic-related recession because now is a particularly difficult time for businesses to pay more to entry-level workers.  When unemployment is high, as is the case now, employers suppress wages because workers have especially low bargaining power. One clear example is the scant evidence of “hazard pay” during the current pandemic, highlighting the fact that low-wage workers have little bargaining power relative to their employers. Raising the minimum wage can help tilt the playing field back towards workers.


RAISING THE MINIMUM WAGE WILL BOOST THE BROADER ECONOMY 


Finally, the main impediment to reducing unemployment next year will be too-slow growth of spending. Raising the minimum wage directly pushes back against the consumer demand shortfall by providing low-wage workers with money to boost the broader economy. Three academic studies published this year examined historical minimum wage increases and found they raised consumer spending, with sales rising the most in areas where there were many low-wage workers. While there is little consensus regarding whether the positive economic effects of the increasing the minimum wage are small or large, there is no debate about the direction: all of this recent research found evidence that the minimum wage has increased spending.

Exiting the pandemic recession on solid footing will require a broad range of policies to support workers, but raising the minimum wage to $15 by 2025 is a critical policy to restore the bargaining power of workers and strengthen the labor market.


Content for this post has been excerpted from that posted on 9/14/20 by the Economic Policy Institute and authors Ben Zipperer and John Schmitt.