Fact Sheet | Wages, Incomes, and Wealth

How (and Why) to Raise the National Minimum Wage to $12.50 by 2020

EPI/NELP Fact Sheet

Proposal For New Federal Minimum Wage Legislation

  • Raise the federal minimum wage to $12.50 by 2020 ($1.05 a year for five years).
  • Set automatic increases starting in 2021 to keep pace with rising wages overall (i.e., adjust the minimum wage to maintain a constant minimum wage/median wage ratio).
  • Gradually phase out the subminimum wage for tipped workers.

Rationale

  • An increase to $12.50 restores the federal minimum wage’s historic value: $12.50 in 2020 is approximately equivalent to the federal minimum wage at its peak value in 1968, based on the Bureau of Labor Statistics’ most commonly used measure of inflation and Congressional Budget Office inflation projections.
  • A $12.50 wage in 2020 is economically sustainable: The “Kaitz index,” or the ratio of the minimum wage to the median wage, is a key measure economists use to assess whether a minimum wage is economically viable. Under this proposal, the minimum wage would rise to 56.2% of the median wage by 2020. In 1968, when national unemployment was below 4%, this figure was a comparable 55.1%.
  • Annual increases under this proposal are in line with past federal minimum wage increases, in percentage terms: Raising the minimum wage to $12.50 over five years represents average annual increases of 11.5%. The average of all increases since 1961 is 11.7% a year.
  • An increase to $12.50 could provide raises for close to 40 million workers directly or indirectly through ripple effects – about 25% of the workforce – in an era of stagnant wages: Economists are still analyzing the proposal, but rough estimates suggest that more than 10 million additional workers will get a raise under this proposal – directly or indirectly through spillover effects – than under the $10.10 bill.
  • An increase to $12.50 could pump tens of billions of dollars into the U.S. economy, benefiting main street businesses: Economists are still analyzing the proposal, but rough estimates suggest that affected workers would see over $70 billion in increased earnings. Because low-wage workers tend to spend increased earnings locally on basic needs, this will benefit main street businesses that rely on consumer spending.
  • An increase to $12.50 would move many families out of poverty and off of public assistance: A $12.50 minimum wage would move all families with one or two full-time earners and up to two kids out of poverty. In addition, many families with more than one full-time-equivalent earner would move off of food stamps completely, while others would require less in benefits.
  • According to a new poll, 75% of Americans—including 53% of Republicans—support raising the minimum wage to $12.50, and 71% support eliminating the subminimum tipped wage. The poll also shows that 63% of Americans support an even greater increase in the minimum wage to $15.00 by 2020.

See related work on Minimum wage