Introduction
A minimum wage is the lowest hourly pay that employers may give their employees. Each U.S. State has the power to set its own minimum wage at or above the federal minimum of $7.25/hr. Minimum wages vary greatly from state to state, ranging from $7.25/hr to $17/hr. Typically, minimum wages will rise over time in an effort to keep up with inflation. Currently, adjusted for inflation, the federal minimum wage is at its lowest value since 1956. While many call for a raise to the federal minimum wage, many states have passed legislation to raise their own wages. Across the country, the question of whether or not to raise the minimum wage remains a spirited debate.
Arguments for Raising the Minimum Wage
Many argue that higher minimum wages promote equity in terms of race, gender, and class. In 2022, on average, women earned 82% of what men did. Among full time workers in 2015, black people earned 25% less than white people. Women and black people are also more likely to hold minimum wage positions than men and people of other races. Thus, some argue that raising the minimum wage promotes equity by disproportionately aiding those who are victims of the wage gap.
More generally, the minimum wage also exists to reduce poverty and narrow class divide. Studies have suggested that minimum wage raises are correlated with shrinking wage disparities, as those earning the least are given higher incomes. Some studies show that a majority of workers whose families lived below the poverty line would receive a pay increase if the minimum wage were raised. Some also argue that raising minimum wages specifically reduces child poverty. One study found significant increases in employment in conjunction with minimum wage hikes among single mothers with children from ages 0-5, thus reducing child poverty. This is likely due to the increased incentive for participation in the workforce that an increased minimum wage provides.
Arguments Against Raising the Minimum Wage
Increases in the federal minimum wages also tend to be associated with increased prices, as employers seek to maintain their profit margin despite being forced to spend more on labor. One study found that a 10% increase to the minimum wage translates to a 0.36% increase in grocery prices. In the same study, they estimated that, due to the increased prices, net income would actually be reduced for households earning less than $10,000/yr. Another study suggested that 75% of the increase in minimum wage is passed onto consumers. Fast food chains largely pay their employees minimum wage, and thus, they are often subject to price increases in correlation with wage hikes as well. Price increases in fast food and grocery stores disproportionately harm low income households, as they are more likely to spend a greater proportion of their income in these industries.
Some studies also suggest that minimum wage hikes result in reduced hours for employees. In doing so, minimum wage hikes can result in overall reduced pay for workers. In addition, increases in the minimum wage are associated with increases in worker schedule fluctuation. This is likely because employers’ cost of labor rises, leading them to make changes in the way they organize their labor. The study found that a $1 increase to the minimum wage resulted in a “33.0% increase in fluctuations in the number of hours worked per week, a 9.5% increase in fluctuations in the number of hours worked per day, and 9.8% increase in fluctuations of shift start times.” The lack of schedule consistency can be difficult for low income workers, and make it substantially harder for them both to balance their personal lives and to achieve longer term financial stability – especially those working multiple jobs.
On Employment
Economists have long debated the effects of minimum wage on employment, and continue to do so today. Some studies find no substantial decrease in employment correlated with minimum wage jumps, while some suggest that increases in the minimum wage result in decreased employment. Specifically, these studies point to decreased employment among low skilled workers, who therefore would not be able to benefit from the increased wages that the new minimum provides. However, much of the recent data corroborates the theory that minimum wage increases have minimal impact on employment with some even suggesting an increase. Overall, minimum wage increases remain highly debated throughout the country today. As discussed above, beyond the vexing impact on employment, research suggests ways in which increases can result in both financial aid and financial harm to those earning the lowest incomes.
