Deconstructing Minimum Wage and 12-Cent Raises

Tuesday, January 11, 2011 - 01:36 AM

On January 1, about 650,000 minimum wage workers in Arizona, Colorado, Montana, Ohio, Oregon, Vermont, and Washington saw their paychecks rise by up to 12 cents per hour. Who makes the minimum wage these days, and is it enough to live on?

What’s the minimum wage? The federal minimum wage has been $7.25 an hour since July 2009. The rate can only rise when Congress approves it, which hasn’t always happened regularly: The longest period ever without an increase was between 1997 and 2007 – boom years in which the lowest-paid workers did not receive a raise. Meanwhile, most states have their own minimum wage laws, which can be set higher than the federal rate. The law says workers get whichever is higher between their state and federal rates. Washington State is currently at the top of the list at $8.67 an hour.

Who makes minimum wage? Surprisingly, fewer than five percent of hourly paid workers make the federal minimum wage. (The rest make something higher than that.) Minimum-wage workers are disproportionally young, female, and less educated.

Do minimum wage hikes help other workers? Yes. Even though relatively few workers make exactly minimum wage, there’s a ripple effect. As economist Heidi Shierholz of the Economic Policy Institute points out, employers like to preserve their own internal wage ladders, so when the lowest-earning workers get a raise, so do the folks already earning, say, $1 more an hour. Though workers much higher up the “food chain” don’t feel an immediate impact, she adds, the minimum wage is one of several labor-market standards that affect us all.

Is it enough to live on? Barely. If you make the minimum wage and work 40 hours a week without a vacation, your annual wages are $15,080. The federal poverty limit is currently $10,830 for a single person, so a minimum wage worker isn’t doing much better than that.

Do we even need a minimum wage? Some commentators and economists argue that the minimum wage hurts business owners and the economy. But economist Andrew Sum pointed out to me that even if we concede that drastically raising the minimum wage can be cumbersome to small businesses, there are smarter ways to deal with it. If we tied the minimum wage to cost of living, as several states do, we could protect business owners from a sudden spike in costs – but also protect the lowest-income workers whom the minimum wage is designed to help.

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