Minimum wage systems should not be seen or used in isolation, but should be designed in a way to supplement and reinforce other social and employment policies. Several types of measures can be used to tackle income and labour market inequality, including pro-employment policies, social transfers, and creating an enabling environment for sustainable enterprises. The purpose of a minimum wage, which sets a floor, should also be distinguished from collective bargaining, which can be used to set wages above an existing floor.
For additional information, visit our Wage-Hour website: www. Questions and Answers About the Minimum Wage. What is the federal minimum wage? What is the minimum wage for workers who receive tips? Must young workers be paid the minimum wage? What minimum wage exceptions apply to full-time students?
What minimum wage exceptions apply to student learners? How often does the federal minimum wage increase? Who makes sure workers are paid the minimum wage? A reduction in the availability of entry-level jobs makes it more difficult for disadvantaged workers to gain traction in the labor force.
Some will instead end up receiving income support through government transfer programs despite preferring to work. More generally, one should be skeptical about the effectiveness of minimum wage laws in ameliorating poverty. There is only a loose relationship between working in a minimum wage job and living in or near poverty. Based on data from the Bureau of Labor Statistics, about half of all workers paid the minimum wage are teenagers or young adults under the age of 25, most of whom live in households with incomes far above the poverty line.
To be sure, older workers earning the minimum wage are more likely to be struggling financially. Still, many are not poor. For example, many minimum wage workers are secondary earners in relatively high-income households. Measuring true costs, of course, is more complicated than measuring the number of dollars spent on a program; mandatory wage increases are not free.
Economic theory does not rule out the possibility that minimum wage laws can increase employment in some cases. About We also look at essential and front-line work from another angle, considering occupations in which workers cannot do their jobs remotely by working from home. The first definition comes from a classification by Dingel and Neiman based on pre-pandemic survey information.
The second definition comes from our classification based on Current Population Survey data collected during the pandemic, specifically the employment share of occupations that were not teleworking during the months of May through December Under these definitions of essential and front-line work, the number of workers affected by raising the minimum wage grows.
That is because workers in both the cannot-telework categories are paid less on average than workers in the critical infrastructure category. The Raise the Wage Act would benefit between Other EPI research has found that Black, Latinx, and Native American workers are the least likely to be in jobs that allow them to work from home Wilson Even when we restrict our analysis to workers in both critical infrastructure and nontelework occupations, we find a significant impact.
Regardless of the specific definition, it is clear that tens of millions of essential and front-line workers are underpaid and would benefit from a much higher minimum wage. The five-decade decline and stagnation of the minimum wage has prevented millions of people, often children, from maintaining an adequate standard of living. Notably among minimum wage workers struggling to get by are those whose incomes are so low they fall under the federal poverty threshold.
From its origins, the minimum wage has been an important policy tool in the fight against poverty. Unfortunately, infrequent and inadequate increases in the national minimum have reduced it to a poverty wage. As a consequence, a single parent working full time would be in poverty if they earned the federal minimum wage and had no other source of income. Sources: Authors' calculations of federal minimum wage values adjusted for inflation using the CPI-U-RS and inflation projections from the Congressional Budget Office , and weighted average poverty thresholds from U.
Census Bureau , adjusted to dollars. In , about By raising wages for some full-time workers above their respective poverty threshold, the Raise the Wage Act would play a meaningful role in reducing the extent of hardship among low-wage workers and their families.
To calculate this poverty reduction, we apply poverty reduction estimates from Dube b to the average minimum wage increase expected under the Raise the Wage Act. If we assume the age distribution of poverty reduction is similar to the actual poverty distribution, the Raise the Wage Act would raise 1.
We apply that difference to the range of long-run poverty rate elasticities in Table 7 of Dube b , or A broader look at the needs of families reinforces the necessity of a substantial increase in the minimum wage. As a result, EPI has designed Family Budget thresholds to estimate area-specific incomes needed to cover basic expenses like housing, food, transportation, health care, taxes, and other necessities Gould, Mokhiber, and Bryant ; EPI By any reasonable standard, the Family Budget thresholds are very conservative.
For example, they do not account for savings of any kind, such as for emergencies or retirement, or for any entertainment—they are simple calculations of what it takes to cover basic necessities on a month-to-month basis. Notes: County-specific annual family budget thresholds for a single adult are adjusted to dollars, and hourly wage thresholds calculated assuming 40 hours per week, 52 weeks per year.
Rising costs of living imply that, in , workers all across the country will need even more to support themselves and their families. And of course when a family includes children, the wage needed to just afford the basics increases dramatically.
In addition to the disproportionate impact that it would have for workers of color and those in essential and front-line jobs, raising the federal minimum wage would broadly benefit women workers. There is sometimes a perception that the workers who would benefit from a higher minimum wage are mostly teenagers in their first jobs. Past research shows that many of these workers are likely supporting families Cooper The average age of affected workers is 35 years old.
Fifty-nine percent of affected workers work 35 hours per week or more, and more than a quarter have children. Table 2 also shows that the majority of workers who would receive a raise come from families with limited means. For these families, every additional dollar they receive has a meaningful impact on their ability to make ends meet.
More detailed demographic statistics are available in Appendix Table 3. The economy is still reeling from the stunning collapse of economic activity during the COVID pandemic. Extra dollars in the pockets of millions of working families would help by boosting aggregate demand. Economists generally recognize that low-wage workers are more likely than any other income group to spend any extra earnings immediately on previously unaffordable basic needs or services. Indeed, research by Cooper, Luengo-Prado, and Parker finds that minimum wage increases are associated with higher consumer spending, particularly in places with higher concentrations of low-wage workers.
The perennial concern raised about minimum wage increases is their effects on the employment of low-wage workers. By raising the cost of labor, do minimum wage increases cause businesses to employ significantly fewer workers, threatening the incomes of the low-wage workforce overall?
Some of these studies and more recent research show that there have been little to no employment losses for even the highest minimum wages enacted at state or local levels. Cengiz et al. Using data from low-wage counties, where minimum wage increases have raised labor costs much more than in high-wage labor markets, Godoey and Reich found that the policies significantly reduced poverty and had essentially no employment impact.
Dube and Lindner found that 21 city-level minimum wage increases raised wages in those cities with little effect on the number of low-wage jobs. One such measure is the ratio of the minimum-to-median wage, with the median of course representing the worker at the very middle of the wage distribution.
According to this statistic, the highwater national minimum wage is remarkably similar to the Raise the Wage Act. Estimates from Derenoncourt and Montialoux suggest that the policy directly affected an estimated Despite such evidence, some still may maintain that concerns about job losses are warranted. There are three reasons why this estimate is overstated.
First, that particular employment reduction estimate is not well supported by the best research or even the typical minimum wage study; in Dube a , the median estimate of the own-wage elasticity was —0.
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