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Last updated April 2007

Who are minimum wage workers?
An estimated 13.0 million workers (10% of the workforce) would benefit from an increase in the federal minimum wage to $7.25 by 2009. Of these workers, 5.6 million would be directly affected and 7.4 million would indirectly receive raises due to the spillover effect of a minimum wage increase. Of the total affected workers, 79% are adults and 59% are women. Over half (53%) work full time and another third (31%) work between 20 and 34 hours per week. More than one-quarter (26%) of the workers who would benefit from an increase to $7.25 are parents of children under age 18, including 1.2 million single parents. The average minimum wage worker brings home over half (58%) of his or her family's weekly earnings.

What is the difference between directly and indirectly affected workers?
"Directly affected" workers refers to those earning less than $7.25 per hour and thus would receive an immediate raise following the passage of a federal minimum wage increase. "Indirectly affected" workers refers to those who are earning within a few dollars above the proposed minimum wage. While a raise is not legally mandated for these workers, empirical evidence shows that many employers raise the wages of workers earning above the new minimum wage in order to preserve internal wage structures, an occurrence known as the "spillover effect." The number of workers predicted to be affected by an increase in the federal minimum wage is based on EPI research into the effects of past minimum wage increases at the state and federal level over the last 20 years. The number of workers indirectly affected by a federal minimum wage increase is calculated separately for each state (because evidence shows the spillover effect depends on the existing local wage structure) and summed together. In general, the spillover effect is modest and isolated within the bottom fifth of workers in the hourly wage scale.

What is the difference between the minimum wage and a living wage?
The federal minimum wage is a wage floor of $5.15 an hour that applies to almost all workers. Thirty states including the District of Columbia have set a minimum wage that is higher than the federal minimum wage. A "living wage" is a term often used by advocates to point out that the federal minimum wage is not high enough to support a family. Some advocates have attempted to calculate a living wage based on an income that would provide for a family's basic needs (see EPI's "How Much is Enough?" for a discussion of "basic family budget" measures). These "living wages" are generally much higher than the minimum wage. Living wages also commonly refer to wages set by local ordinances that cover a specific set of workers, usually government workers or workers hired by businesses that have received a government contract or subsidy.

Why do we need a minimum wage increase?
A minimum wage increase of $2.10 by 2009 would raise the wages of 13.0 million workers. A minimum wage increase is needed to restore the minimum wage to historic levels. The inflation-adjusted value of the minimum wage is 30% lower in 2006 than it was in 1979. In addition, comparing the wages of minimum wage workers to average hourly wages, we find that the wages of minimum wage workers have not kept up with the wages of other workers. The minimum wage is 31% of the average hourly wage of American workers, the lowest level since 1947.

Congress has not increased the minimum wage in over nine years?the longest stretch of government inaction since the minimum wage was enacted in 1938. Since the minimum wage is not adjusted for inflation, when Congress does not increase the minimum wage, the minimum wage continues to lose value.

Can a worker support a family on the minimum wage?
One way to answer this question is to ask whether a full-time worker earning the minimum wage would have an income below the federal poverty line. A full-time worker (working 2,080 hours a year) earning $5.15 an hour would earn $10,712 a year, well below the 2007 federal poverty line of $17,170 for a family of three. However, there are several factors that complicate this analysis. First, not all workers can find full-time work, and others are unable to balance full-time work with family responsibilities. Second, federal programs such as the EITC and food stamps boost the reported incomes of working families. And third, the federal poverty line is viewed by many as an inadequate measure of the income needed to support a family.

Taking into account the EITC, the current minimum wage is still inadequate to support a single parent with two children. In 2007, a single parent working full time with two children would have a combined earnings and tax credit of $14,997, only 87% of the 2007 poverty threshold of $17,170 for a family of three. The proposal to raise the minimum wage to $7.25 fixes this problem. If the minimum wage were increased to $7.25 by 2009, the minimum wage and the EITC would work in tandem to raise this family's income to $19,796 (assuming maximum EITC for 2007), which is 15% above the 2007 poverty line of $17,170. It would still, however, be much lower than the income needed to support a family as calculated by "family budget" measures of poverty, which range from $23,000 to $46,000 for a family of three, depending on where the family lives. The local cost of living ? the price of food, rent, child care, transportation and other necessities varies a great deal.

Will a minimum wage increase reduce poverty?
In the past, the minimum wage has been limited in its effects on poverty because many poor families did not have any family members in the paid labor force. However, as welfare reform forces more poor families to rely on their earnings from low-paying jobs, a minimum wage increase is likely to have a greater impact on reducing poverty.

The minimum wage has already proven helpful to former welfare recipients who are entering the workforce. A study of a 1999 state minimum wage increase in Oregon found that as many as one-half of the welfare recipients entering the workforce in 1998 were likely to have received a raise due to the increase. After the increase, the real hourly starting wages for former welfare recipients rose to $7.23. Another study found that federal minimum wage increases in the 1990s have reduced poverty rates (Addison and Blackburn 1999). Yet another study found that a minimum wage increase from $5.15 to $6.15 would lift nearly 900,000 people out of poverty (Sawhill and Thomas, 2001). In addition, the minimum wage raises the wages of low-income workers in general, not just those below the official poverty line. Many families move in and out of poverty, and near-poor families are also important beneficiaries of minimum wage increases. However, it is also important to keep in mind that while the minimum wage is a crucial tool in the effort to end poverty, it is only one part of a larger anti-poverty strategy.

Is the EITC a more effective anti-poverty tool than the minimum wage?
The federal Earned Income Tax Credit (EITC) combined with the minimum wage helps to reduce poverty, but the EITC is not a replacement for a minimum wage increase. The Earned Income Tax Credit is a popular federal anti-poverty program and an important piece of the ongoing strategy to make work pay. One reason for the EITC's popularity is that it is based on family income and is therefore well-targeted to poor families. In addition, it encourages work because the wage subsidy increases with earnings until it reaches the maximum credit level. The EITC and minimum wage work in tandem to raise a family's income. The effectiveness of the EITC in raising the incomes of the working poor above the poverty line therefore depends, in part, on regular increases in the minimum wage. This is because the EITC and the poverty threshold both rise each year to reflect increases in the cost of living, but the federal minimum wage does not. The EITC alone is not enough to keep a family above the poverty line, and a minimum wage worker gets further away from the poverty line each year the minimum wage is not increased.

If the minimum wage is raised to $7.25 by 2009, these two policies would work in tandem to raise the income of a family with one full-time minimum wage worker above the 2007 poverty line of $17,170 for a family of three. A proposal that sets annual increases to the federal minimum wage to adjust for changes in the cost of living would ensure that the combination of full-time work and the EITC would always keep this family above the poverty line.

Does the minimum wage cause job loss?
A 1998 EPI study failed to find any systematic, significant job loss associated with the 1996-97 minimum wage increase. In fact, following the most recent increase in the minimum wage in 1996-97, the low-wage labor market performed better than it had in decades (e.g., lower unemployment rates, increased average hourly wages, increased family income, decreased poverty rates). Studies of the 1990-91 federal minimum wage increase, as well as to studies by David Card and Alan Krueger of several state minimum wage increases, also found no measurable negative impact on employment. Finally, a recent Fiscal Policy Institute (FPI) study of state minimum wages found no evidence of negative employment effects on small businesses.

New economic models that look specifically at low-wage labor markets help explain why there is little evidence of job loss associated with minimum wage increases. These models recognize that employers may be able to absorb some of the costs of a wage increase through higher productivity, lower recruiting and training costs, decreased absenteeism, and increased worker morale.

Why doesn't the minimum wage keep up with inflation?
The minimum wage is not indexed to inflation. It is up to Congress to determine when the minimum wage increases and by how much. Congress has not passed increases to help the minimum wage keep up with inflation. The result is a minimum wage that, when adjusted for inflation, is worth 26% less today than it was in 1979. In fact, $5.15 today is the equivalent of only $3.95 in 1995? lower than the $4.25 level before the 1996-97 increase. Therefore, the impact of the last minimum wage increase in 1996-97 has been completely eroded by subsequent inflation. Some advocates would like Congress to pass a law indexing the minimum wage to inflation, but others argue that the minimum wage needs to be raised to an adequate level first (for example, by restoring it to its 1979 level).

How is the minimum wage determined?
The minimum wage is a provision of the Fair Labor Standards Act (FLSA). This law, which was passed in 1938, originally set a minimum wage of $0.25 per hour and also set standards regarding overtime pay and child labor. Minimum wage increases are passed at the will of Congress as amendments to the FLSA.

Original proposals for the FLSA provided for a commission that would set the minimum wage after a public hearing and consideration of cost-of-living estimates provided by the Bureau of Labor Statistics. In this way, the minimum wage would have been updated according to changes in the standard of living and inflation. However, the version of the FLSA that passed set a specific rate and had no provisions regarding updating the minimum wage.

Therefore, any increases in the minimum wage are based solely on the political climate and congressional agreement that an increase is needed. The frequency of minimum wage increases has varied; for example, in the 1970s, there were five increases to the minimum wage, but during the 1980s there were only two increases.

Is every worker covered by the minimum wage?
The minimum wage law (the Fair Labor Standards Act) applies to employees of companies with revenues of at least $500,000 a year. It also applies to employees of smaller firms if the employees are engaged in interstate commerce or in the production of goods for commerce. Also covered are employees of federal, state, or local government agencies, hospitals, and schools. The law generally applies to domestic workers.

The FLSA contains a number of exemptions from the minimum wage that may apply to some workers. The law establishes a youth sub-minimum wage of $4.25 that employers can pay employees under 20 years of age during their first 90 consecutive calendar days of employment with an employer. Certain full-time students, student learners, apprentices, and workers with disabilities may be paid less than the minimum wage under special certificates issued by the Department of Labor. More information on other exempt workers is available from the Department of Labor, Wage, and Hour Division http://www.dol.gov./esa/minwage/q-a.htm.

Does my state have a higher minimum wage level than the federal minimum wage?
States can set a minimum wage higher than the federal minimum wage. Currently, more than half of the U.S. population lives in states that have passed minimum wages higher than the federal rate of $5.15. As of February 1, 2007, twenty-nine states and the District of Columbia have enacted higher minimum wages. These states include: Alaska ($7.15), Arizona ($6.75) Arkansas ($6.25), California ($7.50), Colorado ($6.85), Connecticut ($7.65), Delaware ($6.65), the District of Columbia ($7.00), Florida ($6.67), Hawaii ($7.25), Illinois ($6.50), Iowa ($6.20 effective 4/1/07), Maine ($6.75, set to increase to $7.00 on 10/1/07), Maryland ($6.15), Massachusetts ($7.50), Michigan ($6.95, set to increase to $7.15 on 7/1/07), Minnesota ($6.15), Missouri ($6.50), Montana ($6.15), Nevada ($6.15), New Jersey ($7.15), New York ($7.15), North Carolina ($6.15), Ohio ($6.85), Oregon ($7.80), Pennsylvania ($6.25 , set to increase to $7.15 on 7/1/07), Rhode Island ($7.40), Vermont ($7.53), Washington ($7.93), and Wisconsin ($6.50). Ten states (AZ, CO, FL, MO, MT, NV, OH, OR, VT, WA) currently annually adjust their minimum wages for inflation. See Table 5 for the most up-to-date state minimum wage rates.

Do other countries have minimum wage laws?
Most industrialized countries have laws setting a minimum wage, but these laws vary greatly by who is covered and how strictly the law is enforced. In some countries, the minimum wage is not universal for the whole country, but varies according to the industrial sector or the worker's age and gender.

Sources
Addison, John, and McKinley Blackburn. "Minimum Wages and Poverty." Industrial and Labor Relations Review. Vol. 53, No. 3.

Appelbaum, Eileen, et al. 2004. The Minimum Wage and Working Women.

Bernstein, Jared, Heidi Hartmann, and John Schmitt.The Minimum Wage Increase: A Working Woman's Issue. Washington, D.C.: Economic Policy Institute, 1999.

Bernstein, Jared, and Chauna Brocht. 2000. The Next Step: The New Minimum Wage Proposals and the Old Opposition. Washington, D.C.: Economic Policy Institute.

Bernstein, Jared. Minimum Wages and Poverty. Economic Policy Institute, 1999.

Bernstein, Jared. Another Modest Minimum Wage Increase. Economic Policy Institute, 1998.

Bernstein, Jared, and John Schmitt. Making Work Pay: The Impact of the 1996-97 Minimum Wage Increase. Economic Policy Institute, 1998.

Bernstein, Jared, and Isaac Shapiro. Buying Power of Minimum Wage at 51-Year Low. Economic Policy Institute, 2006.

Chasanov, Amy. No Longer Getting By: An Increase in the Minimum Wage Is Long Overdue. Washington, D.C.: Economic Policy Institute. 2004.

Department of Labor Web page.http://www.dol.gov/dol/topic/wages/minimumwage.htm.

Fiscal Policy Institute. 2004. State Minimum Wages and Employment in Small Business. Available at www.fiscalpolicy.org.

Grossman, Jonathan. "Fair Labor Standards Act of 1938: Maximum Struggle for a Minimum Wage." Monthly Labor Review, 1978.

Levin-Waldman, Oren. The Minimum Wage Can be Raised: Lessons From the 1999 Levy Institute Survey of Small Business. Levy Institute, 1999.

Rasell, Edith, Jared Bernstein, and Heather Boushey. 2000. Step Up, Not Out: The Case for Raising the Federal Minimum Wage for Workers in Every State. Washington, D.C.: Economic Policy Institute.

Sawhill, Isabel and Adam Thomas. 2001. "A Hand Up for the Bottom Third." Washington, D.C.: The Brookings Institution.

Thompson, Jeff. Oregon's Increasing Minimum Wage Brings Raises to Former Welfare Recipients and Other Low-Wage Workers without Job Losses. Oregon Center for Public Policy, 1999.

For a closer look at research on the minimum wage, see EPI's publications No Longer Getting By, Employment and the Minimum Wage, Making Work Pay, The Next Step, Minimum Wages and Poverty, and The Minimum Wage: A Working Woman's Issue.

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