A rising tide for increasing minimum wage rates

On Monday, the New York Times reported on the growing groundswell to raise wages for the lowest-paid workers by increasing minimum wage rates. Legislators in New York, New Jersey, Massachusetts, Connecticut, and Illinois are all looking toward raising their state minimums. At the same time, Iowa Sen. Tom Harkin has introduced a bill that—among making other critical investments, strengthening worker protections, increasing tax fairness, and reducing the federal deficit—would raise the federal minimum wage to $9.80 per hour over three years and then index it to inflation.

As Table 1 shows, increasing the federal minimum wage in three steps to $9.80 per hour, as described in the Harkin bill, would raise the wages of 28 million Americans. About 19.5 million workers whose wages are between the current minimum and the proposed $9.80 rate would be directly affected. Another 8.9 million whose wages are just above the proposed minimum would also see a pay increase through “spillover” effects as employers adjust their overall pay scales.

Table 1 Table 1 (continued)

Workers affected by proposed federal minimum wage increase

Federal minimum increased to $9.80 per hour in three increases of 85 cents, modeled for July 2012, 2013, and 2014
Total estimated workers in third year*  127,361,000
Directly affected**  19,485,000
Indirectly affected***  8,869,000
Total (directly & indirectly) affected  28,354,000

*Total estimated workers is estimated from the CPS respondents for whom either a valid hourly wage is reported or one can be imputed from weekly earnings and average weekly hours. Consequently, this estimate tends to understate the size of the full workforce.

**Directly Affected workers will see their wages rise as the new minimum wage rate will exceed their current hourly pay.

***Indirectly affected workers currently have a wage rate just above the new minimum wage (between the new minimum wage and the new minimum wage plus the dollar amount of the increase). They will receive a raise as employer pay scales are adjusted upward to reflect the new minimum wage.

Source: EPI Analysis of 2011 Current Population Survey, Outgoing Rotation Group

Table 2 highlights some demographic characteristics of the affected workers. Fifty-four percent are women and 54 percent work full-time. The overwhelming majority (87.9 percent) are at least 20 years old. This may come as a surprise to some, as minimum-wage workers are often portrayed as teenagers working part-time. The reality is that only 12 percent of those who would be affected by the raise are teenagers and only 15 percent work fewer than 20 hours per week.

Table 2 Table 2 (continued)

Demographic characteristics of affected workers

Directly affected* Indirectly affected** Total affected % of total affected
Total  19,485,262  8,868,654  28,353,916 100.0%
Female  10,924,035  4,527,632  15,451,666 54.5%
Male  8,561,228  4,341,022  12,902,250 45.5%
Part-time (<20hrs/week)  3,327,498  918,690  4,246,187 15.0%
Mid-time (20-34hrs/week)  6,599,616  2,167,363  8,766,979 30.9%
Full-time (35+ hrs/week)  9,558,149  5,782,601  15,340,750 54.1%
Age 20 +  16,509,188  8,421,003  24,930,191 87.9%
Under 20  2,976,074  447,651  3,423,725 12.1%
White  10,959,722  4,960,138  15,919,860 56.1%
African American  2,741,079  1,285,583  4,026,662 14.2%
Hispanic  4,654,719  2,035,908  6,690,626 23.6%
Asian  1,129,742  587,025  1,716,767 6.1%

*Directly Affected workers will see their wages rise as the new minimum wage rate will exceed their current hourly pay.

**Indirectly affected workers currently have a wage rate just above the new minimum wage (between the new minimum wage and the new minimum wage plus the dollar amount of the increase). They will receive a raise as employer pay scales are adjusted upward to reflect the new minimum wage.

Source: EPI Analysis of 2011 Current Population Survey, Outgoing Rotation Group


Furthermore, low-wage workers tend to spend rather than save an additional dollar earned, often because they have little other choice. The additional  household consumption generated by this boost to low-wage workers’ paychecks would benefit the labor market as a whole, because  the resulting economic activity translates into job growth. After controlling for a reduction in corporate profits resulting from the minimum wage increase, and assuming some of the business expense of paying higher wages is passed on to consumers, the net effect of the proposed minimum wage increase is an increase in economic activity of over $25 billion over the next three years, which would generate roughly 100,000 new jobs.

Table 3 Table 3 (continued)

Economic effects of proposed federal minimum wage increase

Federal minimum increased to $9.80 per hour in three increases of 85 cents, modeled for July 2012, 2013, and 2014
Increased wages for directly & indirectly affected* $39,677,170,000
GDP Impact** $25,115,648,697
Jobs Impact*** 103,000

*Increased wages: Total amount of increased wages for directly and indirectly affected workers.

**GDP and job stimulus figures utilize a national model to estimate the GDP impact of workers’ increased earnings, after controlling for reductions to corporate profits.

***The jobs impact total represents full-time equivalent employment.The increased economic activity from additional wages adds not just jobs but also hours for people who already have jobs. Full-time employment takes that into account, by essentially taking the number of total hours added (including both hours from new jobs and more hours for people who already have jobs) and dividing by 40, to get full-time-equivalent jobs added. Jobs numbers assume full-time employment requires $115,000 in additional GDP.

Source: EPI Analysis of 2011 Current Population Survey, Outgoing Rotation Group. Job impact estimation methods can be found in: Hall, Doug and Gable, Mary. 2012. The benefits of raising Illinois’ minimum wage. Washington, D.C.: Economic Policy Insitutute; and Bivens, Josh L. 2011. Method memo on estimating the jobs impact of various policy changes. Washington, D.C.: Economic Policy Institute.

In a historical context, the increase proposed by the Harkin bill is long overdue. As John Schmitt and Janelle Jones at the Center for Economic and Policy Research explain, the real value of the minimum wage is far below its historical levels, despite the fact that the low-wage workforce is older and better educated than ever before. Congress has had to raise the minimum wage 17 times since its peak value in 1968 in order to combat inflation. Indexing the minimum wage, as 10 states have already done, would fix this problem once and for all.

The lingering effects of the recession make this an even more critical time to raise the wage floor. Even as employment has slowly picked up in the recovery, wage growth is still painfully weak. Moreover, recent reports show that low-wage work has been driving much of the recent job growth. (This also means that the figures here may actually understate the number of people who would be affected by an increase in the federal minimum.)  The Harkin bill, and similar state proposals, would give much-needed help to these workers and provide additional stimulus to the U.S. economy – all without costing anything to taxpayers.


  • Benleet

    James Galbraith recently proposed raising minimum wage to $12 an hour. Scholars at PERI proposed raising it to $12.30 an hour and doubling the EITC yearly wage bonus to low income workers. I wrote an essay about the last proposal, http://benl8.blogspot.com/2011/01/raising-income.html
    According to National Jobs for All Coalition (see unemployment report) 17% of full time workers, 16.8 million workers, receive less than poverty wages or less than about $11 an hour for a family of four. Most important, wages are just too low. As a portion of total personal income, the lower-earning 80% of households receive 28.2% of all the nation’s personal income through wages and salaries, according to State of Working America, 2006-2007, page 69, quoting a Tax Policy Center study. And checking Social Security Administration report on W-2 wage income, the median worker’s yearly income –worker  #75 million among 150 million workers —  is $26,363, and 1/6 of all workers (25 million) report annual income of $0 to $5,000, another 1/6 or 25 million report income of $5,000 to $15,000 and still another report income of $15,000 to $26,363 a year. 
    What might the average worker income be? I think the average worker income is around $85,000 a year. The S.F. Federal Reserve reports that each worker contributes over $109,000 a year to the GDP. Doesn’t it seem a little low to place the minimum at under $10 an hour or $20,000 a year? BEA states personal Income is over $12 trillion for 2012. This is an excellent report, above, and an excellent proposal. Half of workers affected by it will be full-time, or 14 million. And then 1/3  or 14 million will be part-time workers, everyone will benefit.  

  • Don Matsuda

    Records show that we Japanese and Mexican Americans are the most decorated veterans of WWII.  We suffered great casualties.   We also shed the most sweat and blood to build the great western agricultural wealth of America.   Instead of decorations we were given the worst living conditions.   We could not own the land we toiled so hard to enrich.  We suffered great indignities.  We were denied the right to vote.  We deserve more.  We’ll fight for it.