Wages Incomes and Wealth

Fact sheet for 2009 minimum wage increase—Minimum Wage Issue Guide

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Minimum Wage Issue Guide
updated July 21, 2009

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Fact sheet for 2009 minimum wage increase

by Kai Filion

On July 24, 2009, the federal minimum wage will increase to $7.25 per hour. This is the final step of a three-step increase passed in 2007 when the minimum wage was only $5.15. In this last step, about 4.5 million workers will receive a raise, providing an additional $1.6 billion annually in increased wages. However, when adjusted for inflation, the new federal minimum is still less than the minimum wage through most of the period from 1961 to 1981.

What states will be affected:

• There are 31 states that will be affected by the minimum wage increase to $7.25 on July 24, 2009:

Alabama, Alaska, Arkansas, Delaware, Florida, Georgia, Idaho, Indiana, Kansas, Louisiana, Maryland, Minnesota, Mississippi, Missouri, Montana, Nebraska, New Jersey, New York, North Carolina, North Dakota, Oklahoma, Pennsylvania, South Carolina, South Dakota, Tennessee, Texas, Utah, Virginia, West Virginia, Wisconsin, and Wyoming

• Nineteen states and the District of Columbia will not be affected by this increase. Of these, there are six states that already have a minimum of $7.25 (as of July 24, 2009):
Arizona, Hawaii, Iowa, Kentucky, Maine (increases to $7.50 in October), and New Hampshire

• The other 13 states and the District of Columbia have a minimum wage above $7.25:
California, Colorado, Connecticut, District of Columbia, Illinois, Massachusetts, Michigan, Nevada, New Mexico, Ohio, Oregon, Rhode Island, Vermont, Washington (D.C. has legislation that sets the minimum wage to be at least $1 more than the federal minimum)

A minimum wage increase will raise the wages of low-income workers.

• An estimated 4.5 million workers (less than 4% of the workforce) will receive an increase in their hourly wage rate when the minimum wage is raised to $7.25 in 2009. Of these workers, 2.8 million workers currently earn less than $7.25 and will be directly affected by the increase. The additional 1.6 million workers earning slightly above the minimum, those we call indirectly affected, will also be likely to benefit from an increase due to “spillover effects.” These spillover effects preserve the wage structure in a firm.

Minimum wage increases benefit working families.

• The earnings of minimum wage workers are crucial to their families’ well-being. Evidence from an analysis of the 1996-97 minimum wage increase shows that the average minimum wage worker brings home more than half (54%) of his or her family’s weekly earnings.

• An estimated 430,000 single parents with children under 18 will benefit from a minimum wage increase to $7.25 in 2009. Single parents will benefit disproportionately from an increase—single parents will make up 10% of workers affected by this increase, but they make up only 7% of the overall workforce. In addition, approximately 2.2 million children will benefit as their parents’ wages are increased.

• Adults make up the largest share of workers who will benefit from a minimum wage increase: 76% of workers whose wages will be raised by a minimum wage increase to $7.25 in 2009 are adults (age 20 or older).

• Almost half (47%) of workers who will benefit from a minimum wage increase work full time and another third (34%) work between 20 and 34 hours per week.

Minimum wage increases benefit disadvantaged workers.

• Women are the largest group of beneficiaries from a minimum wage increase: 63% of workers who will benefit from an increase to $7.25 by 2009 are women.

• A disproportionate share of minorities will benefit from a minimum wage increase. African Americans represent 11% of the total workforce, but are 18% of workers affected by an increase. Similarly, 14% of the total workforce is Hispanic, but Hispanics are 19% of workers affected by an increase.

A minimum wage increase will help reverse the trend of declining real wages for low-wage workers.

• The inflation-adjusted value of the minimum wage is 17% lower in 2009 than it was in 1968.

• Wage inequality has been increasing, in part, because of the declining value of the minimum wage compared to other workers’ wages. Today, the minimum wage is 39% of the average hourly wage of production and nonsupervisory workers, well below the ratio of the 1950s, 1960s, and 1970s.

A minimum wage increase is part of a broad strategy to end poverty.

• 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.

• A recent study of state minimum wage increases between 1997 and 1999 in Oregon found that as many as one-half of the welfare recipients entering the workforce were likely to have received a raise due to the increase. After the increase, the inflation-adjusted hourly starting wages for former welfare recipients rose from $6.48 in 1996 to $7.23 in 1999.

• The federal Earned Income Tax Credit (EITC) combined with the minimum wage helps to reward work and reduce poverty, but the EITC is not a replacement for a minimum wage increase.

• The benefits of the increase disproportionately help those working households at the bottom of the income scale. More than half of families with a minimum wage worker earn less than $35,000 a year.

• 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 beneficiaries of minimum wage increases.

There is no evidence of job loss from previous minimum wage increases.

• A 1998 EPI study failed to find any systematic, significant job loss associated with the 1996-97 minimum wage increase (Bernstein and Schmitt 1998). 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 studies by David Card and Alan Krueger of several state minimum wage increases, also found no measurable negative impact on employment.

• 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.

• A recent Fiscal Policy Institute (FPI) study of state minimum wages found no evidence of negative employment effects on small businesses.

Minimum wage increases stimulate the economy through increased consumer spending.

• A study by the Chicago Federal Reserve found that households with minimum wage workers increase their spending when the minimum wage goes up.

• EPI estimates that the increase to $7.25 will, over the course of the following 12 months, boost consumer spending by over $5.5 billion.

References

Aaronson, Daniel, Sumit Agarwal, and Eric French. 2008. The Spending and Debt Response to Minimum Wage Hikes. Working Paper. Chicago, Ill.: Federal Reserve of Chicago.

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

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

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

Bernstein, Jared, and Isaac Shapiro. 2006. Buying Power of Minimum Wage at 51-Year Low: Congress Could Break Record for Longest Period Without an Increase. Washington, D.C.: Economic Policy Institute.

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

Card, David. 1992. Using regional variation in wages to measure the effects of the federal minimum wage. Industrial and Labor Relations Review. Vol. 46, No. 1, pp. 22-37.

Card, David, and Alan B. Krueger. 1994. Minimum wages and employment: a case study of the fast-food industry in New Jersey and Pennsylvania. American Economic Review. Vol. 84. No. 4. pp. 772-93.

Card, David, and Alan B. Krueger. 1995. Myth and Measurement: The New Economics of the Minimum Wage. Princeton, N.J.: Princeton University Press.

Card, David, and Alan B. Krueger. 2000. Minimum wages and employment: A case study of the fast-food industry in New Jersey and Pennsylvania: Reply. American Economic Review. Vol. 90, No. 5, pp. 1397-1420.

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

EPI. 2000. 2005. Datazone.

Filion, Kai. 2009. A Stealthy Stimulus: How Boosting the Minimum Wage is Helping to Support the Economy. Washington, D.C.: Economic Policy Institute.

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

Fortin and Lemiuex. 1996. As cited in Lawrence Mishel, Jared Bernstein, and John Schmitt. The State of Working America 1998-99. Washington, D.C.: Economic Policy Institute.

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. 1999. Oregon’s Increasing Minimum Wage Brings Raises to Former Welfare Recipients and Other Low-Wage Workers Without Job Losses. Oregon Center for Public Policy.

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