Economic Snapshot | Economic Growth

Making the minimum wage work

Snapshot for February 26, 2003.

Making the minimum wage work

Since 1981, Congress has failed to make regular moderate increases in the minimum wage as it had for the first four decades of the policy. This has been one factor that has caused wage stagnation for low-wage workers. Had the federal government raised the minimum wage from $5.15 to $6.90 last year, workers would have seen a significant boost to their wages, as shown in the figure below.

Wage increases for low-wage workers, 2001-02

From 2001 to 2002, the average hourly wage of low-wage men (the bottom 20% of male wage earners) increased by only 0.2% after adjusting for inflation. Had the federal government raised the minimum wage to $6.90, the increase would have been 3.3%. Low-wage earning women would have benefited even more. While their average hourly wage increased by only 1.5%, it would have grown by 7.7% under a minimum wage of $6.90.

In 2002, Washington State led the nation with a minimum wage of $6.90. This year, Alaska, Connecticut, and Oregon also raised their minimum wages to $6.90 or higher. Oregon and Alaska followed the example of Washington State in another important way—by enacting automatic annual increases in their minimum wages. Low-wage workers in these three states no longer have to rely on state legislatures to act in order to keep pace with the rising cost of living.

Raising the federal minimum wage to the levels set by these four states would significantly help reverse the neglect of the minimum wage by Congress. Furthermore, indexing the federal minimum wage, as Washington, Alaska, and Oregon have done, would ensure that such neglect doesn’t happen again.

This week’s Snapshot by EPI policy analyst Jeff Chapman.

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