Proposed Minimum Wage Increase Would Help Millions of Workers, But Not Enough

“Tonight, let’s declare that in the wealthiest nation on earth, no one who works full time should have to live in poverty,” the President proclaimed in his State of the Union address.

This broad, seemingly unobjectionable proposition prefaced a modest proposal — a phased-in minimum wage increase that would top out at $9.00 in 2015 and then rise to keep pace with cost-of-living increases.

This set off yet another round in the perennial minimum wage debate — one that will rage for quite awhile, I suppose.

So here are three of the big issues. Others to come in followup posts.

How Many Workers Would Be Helped?

A former conservative head of the Bureau of Labor Statistics says really not very many. Only 1.7 million workers were paid at the federal minimum wage last year — about 2.3% of all workers paid at hourly rates.

But this figure understates the impact because the new federal minimum would probably supersede most of the 18 state minimum wage rates that are now higher than the federal.

The District of Columbia’s minimum wage rate would also rise because it’s always, by law, $1.00 higher than the federal. About 1,000 workers would get a boost — perhaps considerably more if the tip credit wage were also increased.

The White House says that the proposed increase would “directly boost wages” for 15 million workers nationwide. The Economic Policy Institute puts the figure at more than 13 million, implying a somewhat lower estimate.

EPI also estimates that 4.7 million additional workers would get a boost because employers would, as in the past, adjust their wage scales to maintain a differential between their lowest-paid workers and those with jobs that require somewhat higher skills.

Who Are These Workers?

We tend to associate minimum wage jobs with the restaurant industry. And, indeed, there are far more minimum wage workers in food preparation and related services than any other occupation BLS defines.

But other service sector occupations also have large numbers of minimum wage workers — buildings and grounds maintenance, for example, retail sales and personal care, e.g., child care workers, home care aides, some beauty shop employees.

What’s striking to me is the breadth of occupations that had minimum wage workers in 2010 — the latest year BLS reports on. In addition to all the aforementioned, those that had at least 100,000 include office and administrative support staff and people employed in transportation and moving occupations.

We’ve been given to understand that most minimum wage workers are teenagers — the unspoken message being that they’re mostly just earning some running around money.

According to the White House, however, fewer than 20% are in their teens. The figure drops to 16% if we count the somewhat higher-paid workers who’ll benefit, according to EPI.

And we know more than enough to know that lots of them need the money — even may be trying to support families, though the former BLS chief says otherwise.

Is the Proposed Increase Big Enough?

The consensus among supporters seems to be no — and with good reason.

A $9.00 an hour minimum wage wouldn’t even make up for the value the wage has lost since its peak purchasing power back in 1968. For that we’d need an immediate increase to $10.56.

To give minimum wage workers the same share of productivity they had in the decades leading up to 1968, we’d have to raise the minimum wage to $16.54, according to a “conservative” estimate by economists at the Center for Economic and Policy Research.

Using the President’s own standard, the “family with two kids” he referred to — apparently one with a stay-at-home parent — would have a pretax income of $18,720, if the worker took not even one unpaid hour off for illness, family emergency or whatever.

This would leave the family $4,830 below the current federal poverty line.

Using a slightly lower annual income,* CEPR estimates that the family would be about $6,600 below the projected FPL by the time the last phase of the minimum wage increase kicked in.

On the other hand, the four-person family might well have more than one breadwinner. According to the White House, minimum wage workers contribute, on average, 46% of their households’ wage and/or salary income.

So the increase certainly could lift families out of poverty. Out of near-poverty too, which seems a more suitable criterion, given the unrealistically low poverty thresholds reflected in the FPL.

Still, I was somewhat puzzled by the figure the President settled on.

A bill introduced in Congress last year would have raised the minimum wage to $9.80 by 2014. The President himself campaigned for his first term on a promise to increase it to $9.50 by 2011.

Did he perhaps revert to negotiating with himself? Perhaps it doesn’t matter.

The cosponsors of last year’s bill have said they’ll introduce another, with a minimum wage hike to $10.10 by 2015, followed by the same cost-of-living increases the President has proposed.

This seems a better place to start if Congress is going to fix and forget the contentious minimum wage by letting it automatically rise just enough to prevent lost purchasing power after it reaches the initially-set rate.

* CEPR apparently assumes a smaller number of working hours for the year. I use the standard 2,080.

3 Responses to Proposed Minimum Wage Increase Would Help Millions of Workers, But Not Enough

  1. […] last post pulled together some figures on whom the President’s proposed minimum wage increase would […]

  2. […] minimum wage workers tend to be young, he says. This is true, but as I’ve earlier noted, intended to mislead us into thinking that they’re mostly teenagers who work just to earn a […]

  3. […] I noted in my post about the President’s minimum wage proposal, Senator Tom Harkin and Congressman George Miller […]

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