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McDonald’s unveils first automated location, social media worried it will cut ‘millions’ of jobs

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Some users worried the technology will end up cutting “millions” of jobs, but McDonald’s argued the system helps restaurant crews focus on speed and accuracy in food prep.

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A minimum wage is the lowest amount of money that workers can be paid for their service, according to state or federal law. The federal minimum wage is $7.25 per hour for employees covered under the Fair Labor Standards Act who are non-exempt.

But many states have increased their minimum wage beyond the federal level in an attempt to provide workers with a living wage. For example, the minimum wage in the following regions in 2024 is:

$16.00 per hour in California

$16.28 per hour in Washington (higher in certain localities)

$17.05 per hour in the District of Columbia, increasing to $17.50 on July 1, 2024

As other states increase their minimum wage rates, a number of companies have benefited their workers by raising their own entry-level wages beyond the levels set by the federal or state governments.

Here are eight companies that have raised their minimum wage for their employees.

1. McDonald's

In 2021, McDonald's ( MCD) increased its wage range for entry-level employees to $11 to $17 per hour. It also increased the range for shift managers at certain restaurant locations to $15 to $20 per hour.

The fast-food giant sought to attract customers six years earlier by improving 10% of its workers' wages on the premise that happier workers make happier customers. It raised wages to $9.90 per hour in July 2015.

The company later noted that employee turnover rates dropped and customer survey scores increased. Still, labor advocates were displeased and pressed the hamburger chain to raise its minimum wage to a rate of $15.

According to data gathered by third-party staffing agency, Zippia, in 2023, the average hourly pay at McDonald's was $12.10 per hour. An assistant manager made on average $18.81 per hour. A cashier at the national chain averaged $13.53 per hour.

McDonald's planned to raise its average hourly pay to $15 in 2024.

2. Starbucks

For 2024, Starbucks is raising the wage it pays most hourly workers by a minimum 3%. For those employees who have worked from two to five years with the company, wages will rise a minimum of 4%. And those with more than five years of employment will receive a raise of at least 5%.

In 2022, it raised the hourly minimum for all U.S. retail employees to $15.

In July 2016, this renowned coffee store announced that its 150,000 entry-level workers would receive a long-expected minimum wage increase of up to 15%. The fact was that at least 8.5% of its workers already demanded this higher pay.

One day after this announcement, Starbucks ( SBUX) also raised its prices. A Starbucks spokeswoman mentioned that wage increases and beverage price increases were two separate decisions. Both were intended to make the company more competitive.

In 2024, Starbucks pays an average hourly salary of $17.50. Its minimum hourly range for a barista is $15 to $24. According to Zippia, Team Leaders earned $33.61 per hour in 2023.

3. Bank of America

Bank of America ( BAC) has bumped up its minimum wage several times since 2019:

$17 in 2019

$20 in 2020

$21 in 2021

$22 in 2022

$23 in 2023, with plans to raise it to $25 by 2025.

Bank of America now pays a higher minimum wage than most of its competitors. The average hourly rate was $25.58 in 2023.

4. Wells Fargo

Wells Fargo ( WFC) raised its U.S. minimum hourly wage by 32% as of March 2018, to $15 per hour.

In 2020, it again took steps to improve wages when it raised the range of its minimum wage to $15 to $20 per hour (the exact rate depended on where an employee was located). The change would impact more than 20,000 employees.

The financial services giant's average hourly wage was $20 in 2023, a figure that represents an annual salary of $41,599.

In 2015, health insurance company Aetna raised the wages of its lowest-paid employees from $12 per hour to almost $16, an increase of 33% more per hour. At the time, approximately 5,700 of its U.S. workers earned that $12 an hour rate.

The announcement stimulated significant public interest, with some commenting that Aetna showed that a well-paid workforce makes for a happier, more productive business with long-range benefits.

As of 2023, the healthcare company paid an average of $29.73 per hour. The highest salaries were paid to lead technicians ($58.58 per hour), data engineers ($56.79), and team leaders ($55.69).

People have been in love with Walmart's ( WMT) low prices for years. But there's been a lot of criticism of the corporate giant's alleged stinginess, especially when it comes to how much it pays the workers in its stores.

To improve its reputation, the company hiked the pay for entry-level workers to at least $10 an hour in January 2016. The company projected that this increase would affect more than 1.1 million employees.

In January 2023, Walmart made another move to improve the pay of its workers. Its chief executive officer (CEO) announced an average hourly wage hike to $17.50 for its associates. The new rate took effect in March of that year.

According to Zippia, in 2023, the average hourly wage at Walmart was $15.20 per hour.

Ikea may be known for its ready-to-assemble affordable furniture and housewares, but the company also tries to stay ahead of the trend by paying its workers a living wage.

In 2015, the company announced that it would raise its minimum wage in the U.S. to about $12 per hour, effective in January 2016. This amount represented a 10.3% increase over the previous year.

In response to its initiative, other retail store companies, including Target and Walmart, tooks steps to do the same.

Then in 2021, the company announced another U.S. rate hike to take effect in January 2022. Most entry-level workers would receive $16 while others would start at $17 to $18, depending on their locations. The company's action would result in an average hourly wage of $20.

Ikea's average hourly rate was $28.64 (depending on store location), as of 2023.

Costco ( COST) joined the momentum and has increased its minimum hourly rate several times since 2016.

It hiked its starting wage of $11.50 an hour to $13 in March 2016, and threw in company-sponsored health benefits to boot. Then in 2018, it raised it to $14.

Again, in March 2019, Costco raised its minimum hourly wage to $15.

Then, in an effort to keep its workers happy, the warehouse boosted its average starting hourly rate from $16 to $17 in October 2021 (the second increase that year).

In 2023, Costco's average hourly rate was $17.80.

What Is the Federal Minimum Wage?

What Is the Meaning of Living Wage?

Which Countries Pay the Highest Minimum Wage?

The Bottom Line

The minimum wage is the lowest amount of money that any employer can pay their workers, by federal or state law. This amount may vary based on what you do and where you live.

Some companies take matters into their own hands by paying workers above and beyond what is legally required by the federal government.

Our list above isn't an exhaustive one. Other major U.S. companies that are raising their minimum wages include Target, T.J. Maxx, Amazon, and Gap.

With their higher minimum wage rates, all reported improved customer service, happier workers, savings, and more professional candidates seeking to work for them.

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Get an overview of how some top companies have raised their minimum wage over time-including McDonald's, Starbucks, and Wells Fargo-and how those wages compare.

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McDonald's is warning that California's new minimum wage law will hurt franchisees in the state and could raise prices for consumers when it takes effect next year.

Last month, Gov. Gavin Newsom signed into law a minimum wage hike for fast-food workers at restaurants with at least 60 locations nationwide - although the law contains an exception for restaurants that sell their own bread. It increases the minimum wage for covered fast-food workers to $20 per hour effective on April 1, 2024.

McDonald's CEO Chris Kempczinski said on an earnings call Monday that the law is going to have "a wage impact for our California franchisees" and that "I don't think at this point, we can't say exactly how much of that is going to work its way through pricing."

"Certainly, there's going to be some element of that that does need to be worked through with higher pricing," he said. "There's also going to be things that I know the franchisees and our teams there are going to be looking at around productivity. How all of that plays out, there will certainly be a hit in the short term to franchisee cash flow in California; tough to know exactly what that hit will be because of some of the mitigation efforts."
CALIFORNIA GOV NEWSOM SIGNS FAST-FOOD WORKER $20 MINIMUM WAGE BILL INTO LAW

Kempczinski added, "Longer term, what we've been talking about with our franchisees is this is an opportunity for us to gain share because this is an impact that's going to hit all of our competitors. ... We believe we're in a better position than our competitors to weather this."

The current minimum wage in California is $15.50 an hour, an amount that is the highest in the nation and is set to tick up to $16 an hour in January for all jobs in the state.
MCDONALD'S TO RELEASE 'BOO BUCKETS' IN 4 DIFFERENT STYLES AHEAD OF HALLOWEEN

"This is a big deal," Newsom said at an event in Los Angeles where he signed the fast-food minimum wage bill into law in late September.

Newsom also dismissed the view that fast-food jobs are meant for teenagers just entering the workforce and looking to gain experience.
GET FOX BUSINESS ON THE GO BY CLICKING HERE
"That's a romanticized version of a world that doesn't exist," Newsom said at the event. "We have the opportunity to reward that contribution, reward that sacrifice and stabilize an industry."
FOX Business' Louis Casiano contributed to this report.

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McDonald's CEO warns California minimum wage hike will hurt franchisees

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McDonald's is warning that California's minimum wage hike to $20 an hour will have an impact on franchisees as they deal with higher wages.

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Large Corporations and Minimum Wage impact

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Large Corporations and Minimum Wage impact

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Minimum wage announcements by national firms have striking spillovers to other firms. Many employers responded to Amazon's $15 minimum wage by matching it.

Between 2014 and 2019, five major national retailers - Amazon, Walmart, Target, CVS, and Costco - implemented company-wide minimum wages. Ellora Derenoncourt , Clemens Noelke , , and Bledi Taska investigate the impacts of these policies on low-wage workers who are not employed by these firms in Spillover Effects from Voluntary Employer Minimum Wages (NBER Working Paper ). They first illustrate their findings using Amazon's $15 minimum wage, which was announced in October 2018 and took effect that November 1. They then show these patterns generalize to the other large retailer minimum wages.

Utilizing data from approximately 7 million online job postings between February 2014 and February 2020, the researchers find that a 10 percent rise in average Amazon wages is associated with an increase of 2.3 percent in the average advertised wage at non-Amazon firms in the same labor market.

The researchers construct a measure of the extent to which workers in a given job and location are exposed to Amazon's minimum wage: the fraction of job postings for a job that offered wages below $15 an hour in the year before the announcement. About 56 percent of non-Amazon job postings in the researchers' data sample promise wages below this threshold. In the announcement month, going from zero to 10 percent exposure to Amazon's minimum wage is associated with about a 0.6 percent rise in non-Amazon advertised wages. The increase in non-Amazon wages persists for at least a year after the announcement. The researchers find similar wage increases at highly exposed employers after other large retailers announce their minimum wage policies.

The most frequent response of non-Amazon employers to Amazon's announcement is to raise wages to match the $15 minimum wage. For firms exposed to Amazon's minimum wage, there is a 17 percentage point increase in the probability of wages being exactly $15 an hour after the announcement. This bunching behavior is also exhibited by employers responding to other retailers' policy announcements, and it results in a concentration of post-announcement wages around the voluntary minimum wage. Using worker-reported salary data, the researchers confirm that these increases in advertised wages are also reflected in the hourly wages paid to workers.

When large retailers raise minimum wages, there are also small drops in employment. The estimates range from a 0.4 percent to a 1.3 percent decline in employment at firms other than the major retailer when Amazon's or a similar firm's minimum wage raises other firms' wages by 10 percent. These estimated employment effects are comparable to some recent estimates in the minimum wage literature.

Wage spillover effects are larger in areas with lower state and local minimum wages, as well as for jobs that are geographically closer to large retailers. Labor market tightness does not appear to affect the extent of labor market spillovers, suggesting that other factors, such as norms or market power, may influence firms' wage-setting decisions.
- Aaron Metheny

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The Effects of Major Retailers Raising Their Minimum Wages

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Minimum wage announcements by national firms have striking spillovers to other firms. Many employers responded to Amazon's $15 minimum wage by matching it. Between 2014 and 2019, five major national retailers - Amazon, Walmart, Target, CVS, and Costco - implemented company-wide minimum wages.

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McDonald’s unveils first automated location, social media worried it will cut ‘millions’ of jobs

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Some users worried the technology will end up cutting “millions” of jobs, but McDonald’s argued the system helps restaurant crews focus on speed and accuracy in food prep.

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Statistics, impacts, polls, and business stance on minimum wage

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McDonald's is warning that California's new minimum wage law will hurt franchisees in the state and could raise prices for consumers when it takes effect next year.

Last month, Gov. Gavin Newsom signed into law a minimum wage hike for fast-food workers at restaurants with at least 60 locations nationwide - although the law contains an exception for restaurants that sell their own bread. It increases the minimum wage for covered fast-food workers to $20 per hour effective on April 1, 2024.

McDonald's CEO Chris Kempczinski said on an earnings call Monday that the law is going to have "a wage impact for our California franchisees" and that "I don't think at this point, we can't say exactly how much of that is going to work its way through pricing."

"Certainly, there's going to be some element of that that does need to be worked through with higher pricing," he said. "There's also going to be things that I know the franchisees and our teams there are going to be looking at around productivity. How all of that plays out, there will certainly be a hit in the short term to franchisee cash flow in California; tough to know exactly what that hit will be because of some of the mitigation efforts."
CALIFORNIA GOV NEWSOM SIGNS FAST-FOOD WORKER $20 MINIMUM WAGE BILL INTO LAW

Kempczinski added, "Longer term, what we've been talking about with our franchisees is this is an opportunity for us to gain share because this is an impact that's going to hit all of our competitors. ... We believe we're in a better position than our competitors to weather this."

The current minimum wage in California is $15.50 an hour, an amount that is the highest in the nation and is set to tick up to $16 an hour in January for all jobs in the state.
MCDONALD'S TO RELEASE 'BOO BUCKETS' IN 4 DIFFERENT STYLES AHEAD OF HALLOWEEN

"This is a big deal," Newsom said at an event in Los Angeles where he signed the fast-food minimum wage bill into law in late September.

Newsom also dismissed the view that fast-food jobs are meant for teenagers just entering the workforce and looking to gain experience.
GET FOX BUSINESS ON THE GO BY CLICKING HERE
"That's a romanticized version of a world that doesn't exist," Newsom said at the event. "We have the opportunity to reward that contribution, reward that sacrifice and stabilize an industry."
FOX Business' Louis Casiano contributed to this report.

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McDonald's CEO warns California minimum wage hike will hurt franchisees

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McDonald's is warning that California's minimum wage hike to $20 an hour will have an impact on franchisees as they deal with higher wages.

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Also according to the Small Business Administration, there were 249,000 business start-ups creating 863,000 new jobs in 2018. However, those gains were partially offset by 222,000 businesses shutting down, taking 762,000 jobs with them.

This comparison is a good way of exposing a common myth about economics: It is not all about profits. It is also about losses.

If you took an economics course in college or high school, you probably found yourself spending time looking at the impact of losses and how much a business can lose before it must shut down.

Running a small business is hard. It requires dedication, resources, and daily decisions to keep operations viable without the benefit of an array of professional managers and departments that large businesses typically have. When a small business owner makes a mistake, he takes a direct hit. If the mistake is large enough, it could threaten his or her livelihood.

Politicians, on the other hand, can make a policy mistake impacting business, but they do not take a direct hit. Because every business is different, it is impossible for politicians to know what it takes for every type of business to stay viable and make a profit. Yet changes in government regulations, taxes, and wage laws can have devastating impacts on businesses.

The ability of businesses to withstand changes in minimum wage laws depends on the circumstances of the business and their profitability. It is naive to assume that every business relying on low-cost labor would be able to pay its employees more just because the government mandates them to do so.

Many businesses operate on thin profit margins. If their costs go up, they may substitute technology for labor, if they can, which naturally and unfortunately results in workers losing their jobs.

Worse, the business may have to shut down. It makes no sense to expect businesses to continue operating if they are losing money. Many small business owners who shut down may need to find a job themselves or risk landing in poverty. This helps no one, least of all the laid-off employees.

Beware of large corporations like Amazon or Walmart who might support minimum wage laws. It could be because they see it as a way to drive out competition from small mom and pop businesses.

Forcing small businesses to raise wages, especially after they sustained a financial hit from a pandemic, only promises to weaken an all-important job growth engine for the U.S. economy at a time when we need to bolster the small business sector and get the economy rolling again. This strategy of mandating wage increases certainly did not work out well during the Great Depression. There is no good reason to think it will work now.

So, what do our state and national legislators need to be doing? They need to concentrate on getting the economic job engine revving up again, and this is done by finding ways to reduce costs for businesses (not raising them), making it easier for entrepreneurs to start their own businesses (not making it harder), and making sure the financial markets are working properly so small businesses can access much-needed funds.

Where does all this leave the worker stuck in a low-wage job? Stay tuned. I'll answer that question in my next blog.
*Erik Randolph is Director of Research at the Georgia Center for Opportunity. This blog reflects his opinion and not necessarily that of the Georgia Center for Opportunity.

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Why the Minimum Wage is Bad News for Small Business - Georgia Center For Opportunity

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In a prior blog, I explained how empirical research supports the side of the debate asserting negative consequences due to minimum wage laws. Now we'll look under the hood to understand more why this might be the case.

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A minimum wage increase to $15 per hour would significantly disrupt many small businesses, harming small employers who could see a significant increase in their labor costs and a doubling of their entry level position costs. In a recent survey by the NFIB Research Center, the vast majority of small employers (74%) report that they would be negatively impacted by the federal government mandated a $15 minimum wage. Wages are an important "price" in an economy, impacting decisions about the use of labor in producing goods and services. The market law in every economy that can't be changed by governments is the higher the price of something, the lower the quantity that will be purchased. This applies to labor as well. To stay in business, owners will have to figure out how to pass on and reduce those labor costs by raising prices or reducing employment.

Here's an example: the total payroll for a small pizza parlor with 10 employees, earning on average $10 per hour and working 2,000 hours total a year is $200,000. Selling an average of 100 pizzas a day for $10 each for 365 days totals $365,000 in revenue. The remaining $165,000 after labor costs covers rent, utilities, etc. and the owner's income. Mandating a minimum wage of $15 per hour is an increase of $5 per hour which would raise labor costs by $100,000. The $100,000 in additional labor costs from a $15 minimum wage increase would likely bankrupt the business, leaving the owner with some difficult decisions on whether to close the business or radically adjust business operations to absorb the increased cost.

If the owner decides to remain open, their options to absorb costs are limited, and none of them good. Laying off one employee would save $30,000, but the job opportunity is lost permanently and that employee's income from that position is now zero. Three fewer workers would cut labor costs by $90,000, but could seven workers produce the same 100 pizzas per day? The owners could also reduce employee hours, although same problem applies. The owner could use cheaper ingredients or reduce the amount of ingredients, that would save money, but lowers the quality of the product and risks customer loyalty. Raising the price of pizza could make up the loss, but would fewer people now opt for pizza? An increase of $3 per pizza could do it, as long as the higher price did not discourage customers, which it will with competition from larger pizza businesses that can survive with smaller profit margins. The owner could also suspend future raises for the most productive or experienced employees, creating wage compression that erodes employee morale. The owner could also accept a lower income, reducing the incentive to own the business at all.

In reality, all of this will happen to varying degrees. Of those employers reporting that they would be negatively impacted,

· 89% report that they would experience lower earnings,

· 58% would decrease their number of employees,

· 60% would reduce employee hours,

· 67% would leave an open position unfilled,

· 87% would raise prices and

· 56% would increase their number of part-time employees.

Higher mandated costs make starting a business, weathering economic downturns, and competing with large businesses far more difficult. Every mandated dollar increase in the minimum wage is paid for by somebody else, and for small businesses it's often not paid for by those who can "afford" it. Total income and total spending don't change. There are winners, but also losers. Higher prices for customers, reduced profits for small employers, lost income for those who lose a job, those who experience reduced hours, and those who want basic work experience and have a more difficult time finding job opportunities all pay for the higher minimum wage. They are all severely impacted in response to a hike in the minimum wage.

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$15 Federal Minimum Wage Attacks On Small Businesses

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Raising the federal minimum wage to $15/hour will hurt small businesses.

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Minimum Wage Impact on Small Businesses and Inviduals

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Minimum Wage Impact on Small Businesses and Inviduals

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Both positive and negative impacts on small businesses

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If the federal governmentpasses the Raise the Wage Act, it will increase the national minimum wage to$15 per hour. Whether you're for or against the Act, you can't deny that it's a hot topic.

Proponents of the act argue that increasing the minimum wage to $15 per hour on a national scale could raise nearly 1 million people out of poverty, helping low-income families attain a higher standard of living.

Those who oppose the act argue that minimum wage increases will hurt small businesses, which make up the majority of U.S. employers. Small business owners were hit especially hard during the COVID-19 pandemic. Some people fear that increasing the minimum wage would further inflate labor costs, in some cases by more than 100%. To stay open, they argue, small businesses may need to reduce employee benefits and automate positions, which could lead to job loss.

About the Proposed $15 Minimum Wage Increase

The last time the federal minimum wage rate increased was in 2009, when the rate went from $6.55 per hour to the current rate of $7.25. That makes this the longest period in U.S. history without a raise to the federal minimum wage rate.

If the Raise the Wage Act passes and the rate gets raised to $15 per hour, it would be the largest ever percentage increase in U.S. history. The last time a percentage increase was even close to the current proposal was in 1950, when the minimum wage rate rose from $0.40 to $0.75 per hour.

Several amendments to the Fair Labor Standards Act mandated nearly annual increases to the U.S. minimum wage between 1960 and 1970 and between 1974 and 1981. While the 1990s and late 2000s saw several increases, the federal minimum wage has since stagnated. That's why some argue that it's time to pass the Raise the Wage Act of 2021 and, via scheduled increases, raise the federal minimum wage to $15 per hour by 2025.

Supporters believe that the increase would provide a necessary boost to low-wage workers and stimulate the economy. Opponents argue that it could lead to job loss and the closure of many small businesses that can't afford a large increase in labor costs.

While the Act hasn't been passed at the federal level in Washington, D.C., some state legislatures have elected to raise their own minimum wages, bringing them closer to or even beyond the proposed $15 rate.

The Minimum Wage Increase's Effects on Small Businesses

Many small business owners worry about the negative impact a $15 minimum wage could have on their business. But, as with anything, the Raise the Wage Act has pros and cons. Depending on whom you ask, you'll hear different opinions. While it may seem like workers would enjoy all the pros while businesses would bear all the cons related to increases in the minimum wage, there could be both dark clouds and silver linings on each side.

What Are the Pros of a $15 Minimum Wage Increase?

While the federal minimum wage has increased over time, the increases haven't consistently kept up with inflation rates. When you factor in today's cost of living, people who make $7.25 per hour today are effectively earning 30% less than those who worked for minimum wage 50 years ago. Modern minimum wage workers have less purchasing power than those in the past. That's part of the reason some people believe that paying more than minimum wage can give businesses a competitive edge.

Read on to learn why supporters of a higher minimum wage say it could help both workers and employers.

Reduced Employee Turnover

Proponents of the Raise the Wage Act argue that higher wages may lead to increased job satisfaction and, ultimately, lower turnover rates. After historic quit rates in the early 2020s, this may come as welcome news. After all, when small businesses can hold onto their employees longer, they don't need to hire and train new employees as often, which saves time and money. And employees enjoy more stability in their careers.

Improved Worker Productivity

Some studies have shown that higher wages can lead to increased productivity. The idea is that employees are more motivated and better focused when they feel they are fairly compensated for their work.

Increased Economic Activity

When people earn more, they typically spend more. And when large portions of a population see their spending power increase, economic activity tends to go up. The argument is that a resulting boost in economic activity could also increase the demand for small businesses' goods and services.

Higher Employee Morale

Money can't buy happiness, according to the old adage. While that may be true, money can reduce financial stress. When employees are less worried about paying their bills, they're likely to be happier and more focused at work. Some argue that improved morale has numerous benefits for employers, too, including better customer service.

Reduced Reliance on Public Assistance

If passed, the Raise the Wage Act could elevate nearly one million people above the federal poverty line by 2025, according to the Congressional Budget Office. Proponents of the Act argue that if fewer people live below the poverty line, fewer people would need public assistance programs. Down the line, this could save small businesses money by reducing taxes that help fund these programs.

What Are the Cons of a $15 Minimum Wage Increase?

If you're a small business owner, you know how tough the COVID-19 pandemic was on the majority of small businesses. Many businesses struggled to protect their staff's safety while keeping their businesses open. Supply chain issues choked productivity and costs on all fronts seemed to rise.

For this reason, some people say that now just isn't the right time to hit small businesses with another challenge. Opponents argue that raising the minimum wage to $15 per hour is more difficult than ever for small businesses-and they fear that the following issues would arise.

Higher Labor Costs

One of the most significant and earliest impacts of a higher minimum wage is increased labor costs. In fact, some states would need to more than double the current pay rates for their minimum wage workers-not to mention adjusting the wages for those at higher levels. Many argue that such a steep increase in labor costs would likely result in higher prices for goods and services, negating any increase in employees' purchasing power; a reduction in employer-provided benefits; fewer hours for workers; and the automation of more jobs.

The Need to Increase Pay Across the Board

Raising pay at the minimum wage level will likely pressure companies to increase the pay for higher-paying positions as well. Hard-working, tenured employees and those with specialized skill sets understandably want their contributions and experience to be rewarded. If companies try to keep wages for their more experienced and specialized employees similar to what they pay newer, less skilled employees, they could have trouble keeping and attracting higher level talent.

Reduced Profits

Higher labor costs can reduce profits, especially for small business owners who are less likely than large employers to pass added expenses to their customers. This means small businesses may need to make significant changes to their cost control strategies to absorb the additional costs.

Decreased Hiring

To keep higher labor costs from ballooning out of control, some small businesses may choose to hire fewer people. Not only does this decrease job opportunities, especially for low-skilled workers, but it can also increase the burden on remaining employees.

Increased Automation

As technology with built-in artificial intelligence (AI) improves and gets cheaper, more small businesses are using it to automate processes and increase productivity. If small business owners decide that labor has gotten too expensive, they'll likely lean further into automation as a tool to save money while still getting work done. For instance, some might use chatbots to automate customer service-related tasks and eliminate positions. While this could be a long-term boon to small businesses' bottom lines, it would also decrease the availability of low-skilled jobs for workers.

Increased Price Competition

Small businesses may need to increase their prices in order to cover higher labor costs. As some do, others may use the opportunity to lower their prices and attract customers, spurring price competition that could further harm small businesses.

Minimum Wage Increases By State

If passed, a new federal minimum wage rate of $15 per hour would have markedly different effects from state to state. That's because each state's minimum wage differs based on its own state law.

In fact, three state minimum wage rates are already higher than the proposed $15 per hour: California, Washington and Washington, D.C. The state of Massachusetts has already set $15 as its minimum hourly pay rate. While small businesses in these locations wouldn't experience higher labor costs if the Raise the Wage Act gets passed, businesses in other states could see a huge impact on their bottom lines.

It's worth noting that not all states have their own minimum wage laws. In those cases, they're subject to the rate currently mandated by the Fair Labor Standards Act. In the 21 states that use the federal minimum wage, small businesses could see a 107% increase in labor costs. For the other 16 states, the increase would range between 6% and 51%. Use the below chart to see how your small business could be affected.
*Source: https://www.dol.gov/agencies/whd/minimum-wage/state (accessed January 6, 2023)
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[FOOTNOTES]

1. Georgia has a minimum wage of $5.15 per hour, but its state law excludes from coverage any employer subject to the federal Fair Labor Standards Act.

2. By Montana state law, a business with gross annual sales of $110,000 or less is not covered by the federal Fair Labor Standards Act and, therefore, may pay $4.00 per hour. However, if an individual employee is producing or moving goods between states or otherwise covered by the federal Fair Labor Standards Act, that employee must be paid the greater of either the federal minimum wage or Montana's minimum wage.

3. In Nevada, the $10.50 minimum wage applies only to employees whose employers do not offer health insurance. Employers that do offer health insurance can pay a minimum wage of $9.50 per hour. On July 1, 2023, the minimum wage will increase to $11.25 for employees not offered qualifying health insurance and to $10.25 per hour for employees offered qualifying health insurance. Effective July 1, 2024, there will be a uniform minimum wage of $12.00 per hour for all employees.

4. This minimum wage does not apply in New York City, Long Island or Westchester, which are $15 per hour.

5. A minimum wage of $10.10 applies to employers with annual gross receipts of $372,000 or more.

6. This minimum wage applies to employers of ten or more full time employees at any one location and to employers with annual gross sales over $100,000, irrespective of number of full time employees.

7. Wyoming has a minimum wage of $5.15 per hour, but its state law excludes from coverage any employer subject to the federal Fair Labor Standards Act.

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$15 Minimum Wage Increase Impact on Small Businesses

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How will increasing the minimum wage to $15/hour impact small businesses? Learn about the positive and negative impacts the "Raise the Wage Act" could have on small business owners.

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Impact of minimum wage on inflation and large corporations

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There are two main debates about what to do about inflation. One is mostly good-faith (if highly contested): It concerns the actions of the Federal Reserve. Another is mostly bad-faith: It uses the existence of elevated inflation as a cudgel against any progressive policy change and as a justification for long-standing ideological priorities. This is most visible in fiscal policy debates, with some people claiming simultaneously that spending must be restrained (a contractionary move in fiscal policy), but taxes must be cut (an expansionary move).

This bad-faith will certainly rear its head in debates on attempts to move forward on stronger labor standards as well-say by increasing the federal minimum wage. Even under normal circumstances, opponents of minimum wage increases claim that they will be inflationary, so they will almost certainly exaggerate these effects today. In this blog post, I make the following points about the relationship between minimum wages and inflation:

Faster inflation makes it more important, not less, to raise the federal minimum wage. Every year lawmakers don't raise the minimum wage is a year that they have effectively cut the purchasing power and living standards of this country's lowest wage workers.

Even under a worst-case inflation scenario where every penny in extra pay that results from moving the federal minimum wage to $15 by 2027 is passed on in the form of higher prices, the result would be a five-year stretch of inflationary pressure equal to 0.1% per year (or about 1/100th of the increase we've seen since 2021), then the inflationary effect would return to zero.

Even this extremely mild inflation could be substantially blunted by other margins of adjustment to a higher minimum wage-including a retreat from today's still sky-high profit margins. During normal times, profits account for about 13% of the price of goods and services, but since recovery from the COVID-19 recession began in the second quarter of 2020, rising profit margins have accounted for roughly 40% of the rise in prices. When these margins normalize, there will be ample room for noninflationary wage growth.

Faster inflation makes it more important to raise the minimum wage

Every year that the minimum wage's value is not raised, it is effectively cut in inflation-adjusted terms. These inflation-driven cuts can snowball quickly, even during stretches of time without particularly fast inflationary outbursts. But when inflation is higher than normal, the real value of the minimum wage can be absolutely crushed if lawmakers don't act. In the last two years alone, the minimum wage's purchasing power has dropped by 12.2%-a massive hit to the living standards of working people.

In the 1980s, when inflation was substantially faster than it has been during most of the past 35 years, the federal minimum wage stood frozen at $3.35 between January 1981 and April 1990. Over that time, inflation cut the minimum wage's value by 46%.

Arguing that the federal minimum wage should only be raised after the current inflationary outbreak is far in the past is arguing that low-wage workers should have no serious protection against the damage to living standards being done by today's price growth.

Minimum wage increases have trivial effects on inflation

Some claim to worry that raising the minimum wage might exacerbate our current inflation problem. This is not a serious concern. Consider the Raise the Wage Act, which would raise the minimum wage to $15 in five steps by 2027 and would be indexed to growth in median wages thereafter. If every penny of this higher minimum wage fed directly into higher prices-that is, none of it was financed by higher productivity or lower profits-the move to $15 would create a one-time step-increase in the overall price level of less than 0.5%. Spread over five years, this implies an average boost to inflation of less than 0.1% per year, after which it would fade to near-zero. This is completely trivial. Over the past two years, inflation has run at a rate about 100 times faster than this.

The math on this is relatively straightforward. As part of our analysis of previous versions of the Raise the Wage Act (and other minimum wage increases), we estimate the increase in the total wage bill generated by the higher minimum wage. That is, we multiply the number of workers affected by raising the minimum wage from its current level to $15 and then we estimate the average increase in wages they receive. This includes an estimate of "spillover" effects on workers who earn a bit above the new value of the minimum wage, and we assume no job loss stemming from these increases-both of which make our estimate of the effect on the total wage bill larger than it would be otherwise.

We're currently refining our model to account for the inflation of the past year and the states that have passed laws that will raise their workers' wages in the same period as the Raise the Wage Act would take effect. These new estimates (though not totally final) indicate roughly a $50-75 billion boost (in 2021$) to the overall wage bill in 2027. An extremely conservative estimate of personal consumption expenditures in 2027 (also expressed in 2021$) is $16.5 trillion ( this assumes they grow 1% per year for the next 5 years). This means that the full $50-75 billion boost to the wage bill- i f it was financed entirely by price increases- would increase the price level of personal consumption expenditures by roughly 0.3-0.4% by 2027. Importantly, this increase would be spread over the five years before 2027, so inflation would rise by less than 0.1% per year.

Other margins-particularly corporate profits-can absorb this small price pressure

Importantly, even this small increase isn't guaranteed to happen. Past research has shown that many margins besides higher prices can be used to absorb higher minimum wages. Productivity might increase or profits might fall, for example.

On this latter margin-lower profits-it's important to note that there is a lot of room for them to absorb the minimum wage hike without feeding through to higher prices. For example, profit margins are up nearly 30% relative to pre-pandemic peaks, and these profit spikes explain roughly 40% of the rise in prices over the recovery. Even in normal times, increased profits contribute to inflation, but in this recovery, the share of inflation that is explained by increased profits is more than three times their normal amount. In short, lower profit margins are a huge potential absorber of any price pressures in coming years-particularly those as small as what a minimum wage increase would impose.

The figure below shows the share of price changes accounted for by unit labor costs, nonlabor costs, and profits over various time periods. Between 1979 and 2019, profits accounted for 13% of price increases and unit labor just a bit under 60%. Since the recovery from the COVID-19 recession began in the middle of 2020, profits account for 40% of the increase-three times their normal contribution. Even compared with the pre-COVID business cycle peak at the end of 2019, the growth of profits accounts for two-and-half times their normal contribution to price growth-right around 34%.

The lesson of this figure is clear : If we're going to start looking at income sources that need to be restrained to keep inflation in check, we should look to corporate profits, not the wages of America's lowest-paid workers.

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Inflation, minimum wages, and profits: Protecting low-wage workers from inflation means raising the minimum wage

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There are two main debates about what to do about inflation. One is mostly good-faith (if highly contested): It concerns the actions of the Federal Reserve. Another is mostly bad-faith: It uses the existence of elevated inflation as a cudgel against any progressive policy change and as a justification for long-standing ideological priorities.

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Minimum wage- Impacts on Individuals, Small Businesses, Large Corporations, and Government- (poverty, unemployment)

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Minimum wage- Impacts on Individuals, Small Businesses, Large Corporations, and Government- (poverty, unemployment)

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How Increasing the Federal Minimum Wage Could Affect Employment and Family Income | Congressional Budget Office

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This interactive tool, updated in August 2022, allows users to explore how various policies to increase the federal minimum wage would affect earnings, employment, family income, and poverty.

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How a minimum wage increase could impact people's livelihoods

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Addresses all sides

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Raising the minimum wage is a hot-button issue, politically speaking - and rightly so, as it has a real impact on everybody's finances. So what are the pros and cons of raising the minimum wage?

Raising the minimum wage could have immediate effects on the lives of low-wage hourly workers by helping them to move out of poverty and keep up with inflation. Some economists argue that other pros of raising the minimum wage could include increased consumer spending, reduced government assistance (and increased tax revenue), and stronger employee retention and morale.

Alternatively, other financial experts point to the cons of raising the minimum wage, including potentially increasing the cost of living, reducing opportunities for inexperienced workers, and triggering more unemployment.

Learn more here, including:

* What is the federal minimum wage?

* What is the purpose of the minimum wage?

* What are the pros and cons of raising the minimum wage?

* What are the likely effects of raising the minimum wage?

What Is the Federal Minimum Wage in 2023?

The federal minimum wage in 2023 is $7.25 per hour. The last time that minimum wage increased was on July 24, 2009, when it grew $0.70 from $6.55 an hour. This was part of a three-phased increase enacted by Congress in 2007.

It's worth noting that tipped employees (say, waiters) have a different rate. The current federal tipped minimum wage is $2.13, as long as the worker's tips make up the difference between that and the standard minimum wage.
Some states have their own minimum wage laws with a higher (or lower) starting wage than the federal minimum. In such states, employers must pay out the higher of the two minimum wages.

Here are some minimum wage fast facts:

* The highest current minimum wage is in Washington, D.C., where it is $16.10 - and will go up to $17.00 on July 1, 2023.

* According to a 2022 Oxfam American report, 51.9 million US workers, or a little less than a third of the workforce, make less than $15 per hour, and many are making the federal minimum wage of $7.25 per hour or less.

* While the minimum wage has been stagnant since 2009, inflation has not. The spending power of $7.25 in 2009 is equivalent to $10.11 in 2023. This means that $7.25 can buy today about 7!5 of what it could buy in 2009.
Recommended: 7 Factors That Cause Inflation
What Is the Purpose of the Minimum Wage?

So why was the minimum wage originally created? The minimum wage was an idea that gained traction during the Great Depression era. During that time, President Franklin D. Roosevelt worked with Congress to pass the Fair Labor Standards Act of 1938, which officially established the minimum wage. Even then, politicians bickered over the hourly rate and potential impacts on the economy, and the final legislation (25 cents an hour) was not what FDR originally had in mind.

Regardless of the final number that Congress landed on, FDR's vision for this minimum wage law was to "end starvation wages and intolerable hours," according to the Department of Labor. The Legal Information Institute of Cornell Law School paints an even clearer picture: "The minimum wage was designed to create a minimum standard of living to protect the health and well-being of employees."

In short, early proponents of the minimum wage legislation intended for it to be a living wage. And as the Kenan Institute of Private Enterprise points out, in today's economy, "there is a stark difference between the federal minimum wage and a living wage."

Benefits of Raising the Minimum Wage

Many economists point to several pros of raising the minimum wage, including the following:

Helping Families Get Out of Poverty

Even without minimum wage increases in today's market, inflation is skyrocketing. In July 2022, it was up 9.1% year-over-year, a four-decade high. The average American family is likely trying to cut grocery costs, gas prices, and utility bills.

A nonpartisan analysis conducted by the Congressional Budget Office found that raising the federal minimum wage to $15 an hour would reduce the number of people in poverty by nearly 1 million within a decade. And that same report indicates that earnings could increase for up to 29 million workers by 2031.

While raising the minimum wage will not stop inflation (in fact, it can have the opposite effect), it can help families more easily afford basic necessities. It can also fulfill the legislation's original intention of eliminating starvation wages and establishing a minimum standard of living.
Recommended: Is Inflation Good or Bad?
Increasing Consumer Spending

Multiple studies over the last decade have demonstrated that low wage earners are more likely to put their income directly back into the economy. That's because low wage workers spend a larger portion of their budget on immediate needs, like food, clothing, transportation, and shelter.

Increased consumer spending is a boon to the economy, as it is a positive economic indicator reflecting consumer confidence in the market - and brings more revenue to small businesses and corporations alike.

Increasing Federal Revenues

The CBO's report found that federal spending would both increase and decrease if the minimum wage were raised. While those with newly raised wages might rely on government assistance less (for example, the CBO predicts reduced spending on nutrition programs like SNAP), workers who lose their jobs as a result of minimum wage increases will put an excess burden on unemployment.

However, increased tax revenue from higher wages should boost federal revenues overall, per the CBO report.

Increasing Employee Retention and Performance

The theory of efficiency wages suggests that higher-paid employees are more motivated to work harder and thus produce more goods and services faster. If that theory is true, increasing the minimum wage could help businesses become more profitable.

Further, employees are more likely to stay with a company longer if they earn good wages. The longer an employee is with a company, the more skilled that employee can become - and thus more valuable to the business.

On top of that, employee turnover is expensive. Replacing an employee with a new candidate can cost up to 150% of the worker's salary or possibly more. In many cases, it might be cheaper for a business to pay an employee a better salary to keep them from leaving. It could be cheaper than recruiting and training a new worker to replace them after they've left.

Cons of Raising the Minimum Wage

There are multiple downsides to raising the minimum wage to consider when debating this policy as well:

Increasing Labor Costs and Unemployment

The largest concern with raising the minimum wage is increased labor costs. If the minimum wage increased to $15 an hour, businesses would suddenly need to give raises to everyone making less than that.

But if some employees were making $10 to $15 an hour, they might not be thrilled to hear that other workers with less tenure and experience are suddenly being paid the same. And employees who were making $15 an hour or slightly above it may also expect a raise once entry-level workers are bumped to $15.

The problem? Not all businesses can afford that. Restaurants, for example, operate at a 3% to 5% profit margin. Increasing labor costs could shrink (or eliminate) their margins, meaning they might have to let go of some staff or go out of business.

The report from the CBO supports this data; it estimates that raising the minimum wage to $15 could result in the loss of roughly 1.5 million jobs within a decade.

Another aspect of this is that if employers have to raise their wages, they might well raise their prices, passing along the increase to their customers.

Increasing Cost of Living

As businesses adjust prices to accommodate higher labor costs, consumers should expect that their dollars won't go as far as they used to. That is, many economists argue that minimum wage is correlated with inflation. Some say that if business owners have to raise the minimum wage they pay workers, they will pay along those costs to their customers, ratcheting up their prices and contributing to inflation.

That said, other economists paint inflation as the boogeyman of the minimum wage debate. For example, Daniel Kuehn, a research associate at The Urban Institute, said that, though increasing wages will increase the cost of goods and services, it's not really a 1:1 ratio. In other words, it won't be "enough for consumers to really feel a burn in their wallet."
Recommended: Compare Texas Cost of Living to California Cost of Living
Decreasing Opportunity for Inexperienced Workers

Typically, employees without specialized skills - first-time workers in high school and college, people with disabilities, and the elderly - fill some minimum wage jobs. But as employers are forced to pay workers more, some argue that companies will look for employees with more experience (or will invest in automated technology). This could make it more challenging for unskilled laborers to find work.
Recommended: What Is a Good Entry Level Salary?
Handling the Effects of Raising the Minimum Wage

Businesses may need to adjust practices to pay employees a higher hourly rate if the federal or state minimum wage increases. Here are a few ways company leaders might be able to handle the effects of increased wages:

* Raising prices: If a company's labor costs go up, the company may need to offset those expenses with higher prices for its goods and services. Paying attention to what competitors are doing and how consumers are reacting to price hikes can be helpful in determining how much you raise prices.

* Working with independent contractors: Independent contractors might be more affordable than full-time employees for specific job duties. For instance, the employer would save on paying benefits. Before establishing an independent contractor model at your business, it's a good idea to research the guardrails around independent contractors, as laid out by the IRS.

* Automating some positions: Technology continues to offer new ways to automate certain business functions, which may allow employers to reduce headcount, avoid future hires, or reassign existing employees to more revenue-generating work.

* Reducing hours or cutting costs: Business owners who do not want to lose any employees might be able to reduce overall hours or find other ways to cut costs instead (perhaps a less expensive benefits package, for instance).

* Getting creative: Offsetting increased labor costs can be as easy as generating more business. But then generating more business isn't always so easy. Some creative ideas to get customers in the door could include loyalty programs or offering low-cost alternatives for budget-conscious customers.
Recommended: How Does Unemployment Work?
The Takeaway

The original intention for establishing a minimum wage was to enable workers to have a standard of living that allowed for their health and well-being. While opponents may still argue over "living wage vs. starting wage," many signs point to today's federal minimum wage not being enough to have a basic standard of living. Raising the minimum wage has several pros, but it's important to remember that there are many negative effects to minimum wage increases as well. The economic solution may not be simple, but it will likely be a debate that's in the spotlight today and in the near future.

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FAQ

How does increasing the minimum wage affect the economy?

Some economists argue that increasing the minimum wage encourages consumer spending, helps families out of poverty, and boosts tax revenue while reducing tax-funded government assistance. Other economists point out the cons of raising the minimum wage, like increased inflation and unemployment.

How does decreasing the minimum wage affect the economy?

In general, the discussion around minimum wage is about increasing it. Economists and politicians are not considering decreasing the minimum wage; doing so would send more families into poverty and decrease consumer spending.

Why are state minimum wages different?

States are able to enact their own laws that supplement or deviate from federal laws. Many states with a higher cost of living, like California and Washington, have increased their minimum wage to roughly double the federal minimum. If a state's minimum wage differs from the federal minimum wage, employers must pay the higher of the two rates.

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Should the Minimum Wage Be Raised? Pros and Cons | SoFi

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Whether to raise the federal minimum wage, which has been the same since 2009, is being debated. Learn more about the pros and cons of raising the minimum wage.

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Minimum Wage Debate: Individuals, inflation and the economy

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Minimum Wage Debate: Individuals, inflation and the economy

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Editorial Note: Forbes may earn a commission on sales made from partner links on this page, but that doesn't affect our editors' opinions or evaluations.

There are few political arguments more polarizing than raising the federal minimum wage.

The current federal minimum wage, which sits at $7.25 an hour, hasn't been raised since 2009. Democrats have proposed raising the wage to $15 an hour in the next stimulus package . And although the Senate parliamentarian has declared it cannot be passed through the budget reconciliation process , House Democrats are still leaving the language in the bill in hopes of getting it passed one way or another.

A closer look at the debate around raising the minimum wage reveals how arcane the surrounding research is. For every argument in favor of raising the wage, there seems to be an equally appealing argument against it.

But when looking at the bigger picture-who the minimum wage impacts, who would benefit from raising it, how it currently compares with inflation and its long-term effects for the economy-one thing is clear: An increase at the national level is overdue.

A Brief History of the Minimum Wage

The federal minimum wage was implemented in 1938 under the Fair Labor Standards Act. It was the first time the federal government stepped in to establish a standard of pay for workers-and though it was originally drafted to be 40 cents an hour, it was pared down to a mere 25 cents per hour, in order to win support from southern state representatives.

The federal minimum wage has increased 22 times since its inception, inching its way up from cents on the dollar to today's $7.25 rate. Through the 1940s-1960s, the wage increases kept pace with productivity growth (meaning more goods and services are produced per hour) and inflation. As America became economically stronger, workers throughout the labor chain were growing along with it.

Although economic productivity continued to grow, the pace of wage growth started slowing after 1968, and the minimum wage stopped rising with inflation.

It's clear that the federal minimum wage's purchasing power-the amount of goods or services that your money can buy-has severely eroded over time. The current federal minimum wage, adjusted in 2020 dollars, has less purchasing power than it did from the mid-1950's to around 1980.

It's important to differentiate here between minimum wage keeping pace with productivity and growing with inflation; if it simply grew with inflation (referred to as indexing), the money would have the same purchasing power over time. If it rose with productivity, minimum wage earners will continue to be able to buy more over time. That's why some economists and politicians argue that only raising the wage to account for inflation isn't necessarily the best option to help minimum wage earners.

Each year, the Bureau of Labor Statistics does a deep dive into who is living off the minimum wage. In 2019, 392,000 workers earned exactly the minimum wage, and 1.2 million workers earned below the minimum wage (these are typically people in the hospitality industry who receive tips to make up for their hourly wage being below the federal minimum, such as servers at restaurants). Together, these individuals represented 1.9% of all hourly paid workers.

The Effects of Raising the Minimum Wage

There are multiple ways researchers model the effect of a minimum wage increase, along with different variables that researchers focus on, such as industry or the age of people affected. As a result, there is debate on exactly how raising the minimum wage would affect employment, small businesses and the federal deficit. Here are common arguments for and against raising the minimum wage.

Raising Minimum Wage Will Kill Jobs and Increase Prices of Goods and Services

Arindrajit Dube, a professor of economics at the University of Massachusetts and a research associate at the National Bureau of Economic Research argues that the CBO's estimates are wrong due to its methodology, and the overall research that a minimum wage hike's effects on employment are difficult to accurately pin down. He estimates that a national minimum wage increase to $15 per hour, using the CBO report's evidence, would lead to just under 500,000 lost jobs.

Daniel Kuehn, research associate at The Urban Institute, says the overall consensus of the effects of minimum wage are that yes, it will result in jobs lost-but the number of jobs it removes from the economy aren't statistically significant (although they come at a human cost that's harder to quantify). Employers could also absorb the wage hike costs in other ways, such as reducing fringe benefits (such as free meals for restaurant servers or employee discounts for retail servers).

But what about those memes of a minimum wage hike turning your $7 Big Mac meal into a $20 splurge? Is that true? According to Kuehn, it's also unlikely to happen.

$15 minimum wage? congrats your taco bell order just became sit-down restaurant price

- 𝚑𝚊𝚗𝚗𝚊𝚑 𝚐𝚛𝚒𝚏𝚏🐉 (@yeahrightgirlhg) January 15, 2021

"A wage hike might raise prices of goods and services, but the increases will be spread out among many consumers," Kuehn says. Prices may increase, but not enough for consumers to really feel a burn in their wallet.

Arguments for Raising Minimum Wage: It Will Benefit Millions, Lift Struggling Workers Out of Poverty

The CBO report does have some silver linings: It estimates a federal minimum wage hike to $15 per hour would lift nearly one million people out of poverty and nearly 27 million workers would be affected by the increase.

Though the benefits of a minimum wage increase are positive in terms of the overall economy, it's important to note that effects can vary by location. Since some states have higher standards of living than others, the effects of a high $15 federal minimum wage could affect states like Kentucky or Alabama in much more consequential ways than states like California or New York, where prices and wages are already higher.

Kentucky and Alabama's current state minimum wages are the federal minimum, where California's is $13 or $14 an hour depending on the number of the company's employees, and New York's is $15 per hour. More than doubling the minimum wages for states like Kentucky and Alabama would likely be a shock for their small businesses, since the cost of living is already low, and therefore their revenues are likely smaller compared to companies where the cost of living is higher.

Twenty-one states and Washington D.C. currently have minimum wages above the federal minimum wage. The proposed increase to $15 per hour would happen in stages over a period of four years to give employers time to figure out how to balance the costs.

The Current Minimum Wage Debate: Where Democrats, Republicans Stand

Democrats are holding firm on their proposed federal minimum wage increase to $15. They're hoping to pass it as part of the next stimulus package, but the Senate parliamentarian has ruled that it cannot be included under the budget reconciliation process. So while it may pass in the House, it's likely to be removed from the bill that goes to the Senate.

Some Republicans have voiced support for raising the federal minimum wage, but not to $15 per hour. Sen. Mitt Romney (UT) and Sen. Tom Cotton (AR) offered a counterproposal of raising the minimum wage to $10 per hour over four years-but employers would have to prove that their workers are legally documented. A 2019 CBO report estimated that raising the federal minimum wage to $10 per hour would have much smaller effects for workers compared to a $15 per hour raise, and would have negligible effects on the number of people in poverty.

Why Raising the Minimum Wage is the Right Thing to Do

Looking at how the current federal minimum wage has flatlined over the past 12 years makes it clear: Low-wage earners are falling behind. They're working for less money, thanks to inflation, making them poorer over time.

Pew Research points out that wage growth has largely gone to the highest earners-and a separate EPI analysis notes that it has also remained unequal by race, with significant widening gaps in wages between Black and white Americans-but raising the minimum wage could help. Research about raising the minimum wage in 1966 reveals it led to a significant drop in earnings inequality between Black and white Americans, accounting for more than 20% in the reduction in racial earnings and the income gap. A stagnant minimum wage is clearly becoming a proponent of the widening racial wealth gap in the country.

Over 100 economists agree. A letter from the Economic Policy Institute (EPI) has garnered dozens of signatures from economists all over the country in support of raising the federal minimum wage to $15 per hour by 2024.

The letter cites the stagnant minimum wage growth as "directly responsible for growing inequality between the bottom and the middle class," and adds "this minimum wage increase would provide a significant and much needed boost to the earnings of low-wage workers."

What comes next for the federal minimum wage increase remains to be seen. What is known, though, is that most Americans support a $15 minimum wage; a recent poll from Reuters/Ipsos found 59% of respondents are in favor of the idea. We can expect to see both Democrats and Republicans battle to raise the wage in a separate bill, even if it doesn't land directly on $15 an hour.

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What You Need To Know About The Minimum Wage Debate

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There are few political arguments more polarizing than raising the federal minimum wage. The current federal minimum wage, which sits at $7.25 an hour, hasn't been raised since 2009. Democrats have proposed raising the wage to $15 an hour in the next stimulus package. And although the Senate parl

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All Sides- there are news stories related to both sides in this site

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All Sides- there are news stories related to both sides in this site

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Twenty-six U.S. states plan to raise the minimum wage in 2022. Should the federal government follow suit?

California and parts of New York, including New York City, already have the country's highest minimum wage at $15/hour. Ten other states, including Florida, Massachusetts and Illinois, plan to reach a statewide $15 minimum wage in the next few years. Georgia and Wyoming share the lowest state minimum wage ($5.15). The federal minimum wage has been $7.25 since 2009. The issue resurfaces as a record number of Americans quit their jobs, and as consumers face the highest levels of inflation seen in almost four decades. President Joe Biden's "plan to Build Back Better for American workers" lists raising the minimum wage to $15 as a top priority.

Right-rated voices have consistently opposed raising the minimum wage over concerns that it would lower employment for certain demographics and industries. Amid high inflation, some on the right are more open to boosting the federal minimum wage, albeit not to $15. One writer for Washington Examiner described how raising the minimum wage to $10 may give Biden a political boost while also minimizing job losses. On the left, two writers for NYNMedia argued that the subminimum wage "is a direct legacy of slavery and perpetuates some of the worst sexual harassment of any industry," and highlighted how some low-paying restaurants across the country have reversed course and started to offer higher wages amid a mass exodus of employees.

Featured Coverage of this Story

From the Left

26 states will raise the minimum wage this year

The federal government isn't moving on raising the minimum wage from $7.25 - but states and cities are.

The big picture: A total of 26 states are set to raise their minimum wage in 2022, according to an analysis by consulting firm Wolters Kluwer.

On top of that, 56 municipalities will bump their pay floors, for a record year of increases, according to the National Employment Law Project.

Why it matters: The battleground has largely moved from the federal level and is playing out in statehouses across the country.

At least 20 states have laws...

From the Right

If Biden wants a win, he should raise the minimum wage

Joe Biden isn't having a great presidency.

His approval ratings are poor: 43.4% of voters approve of the job he is doing, while 51.6% of them disapprove, according to FiveThirtyEight. The Afghanistan withdrawal was a disaster. Inflation is high. Businesses are having a hard time filling jobs. The coronavirus isn't going away. Biden hasn't been able to get many of his campaign promises done, including his "Build Back Better" agenda. And his administration has taken some divisive positions, such as support for repealing the Hyde Amendment that protects taxpayers from funding elective abortion.

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From the Left

How the current worker shortage is really a wage shortage

The subminimum wage for service workers is a direct legacy of slavery and perpetuates some of the worst sexual harassment of any industry. And yet for years, Congress and the 43 states that still have a subminimum wage have been dragging their heels on ending it - despite widespread public support for raising wages.

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Twenty-six U.S. states plan to raise the minimum wage in 2022. Should the federal government follow suit? California and parts of New York, including New York City, already have the country's highest minimum wage at $15/hour. Ten other states, including Florida, Massachusetts and Illinois, plan to reach a statewide $15 minimum wage in the next few years.

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On July 18, 2019, the U.S. House of Representatives passed an amended version of the Raise the Wage Act of 2019, which would gradually increase the federal minimum wage to $15 an hour by 2025. The current federal minimum wage is $7.25 an hour and has not been increased since 2009.

The bill died in the Senate, however, as the Senate Committee on Health, Education, Labor, and Pensions declined to vote on the legislation (or to discuss any increase in the minimum wage, for that matter). As a result, the debate about whether to lift the minimum wage rages on.

With Joe Biden winning the presidential election in November 2020, a federal minimum wage of $15 an hour might be closer, as it is one of his policy agendas. The discussion around the increase in the federal minimum wage brings both pros and cons.

Key Takeaways

Understanding the Minimum Wage

Minimum wage refers to the legally established lowest amount that employers are required to pay their employees for their work. It serves as a baseline wage that is intended to ensure that workers receive a fair compensation for their labor, covering basic living expenses and preventing the exploitation of low-wage workers.

The primary purpose of minimum wage is to provide workers with a level of income that allows them to meet their essential needs. It acts as a safeguard against extremely low wages and helps reduce poverty and income inequality within a society. By setting a minimum wage, governments aim to promote decent working conditions and provide a degree of economic security for workers.

National and sub-national government entities analyze several factors when considering whether to raise or maintain the current level of minimum wage. As the general increase in prices over time, inflation can erode the purchasing power of wages. Economic conditions such as the state of economy may call for adjusted labor market dynamics. Social equity considerations may call for more livable wages. Regardless of the consideration, there are various reasons to support and to detract from raising the minimum wage.

Pros of Raising the Minimum Wage

The primary argument advanced in favor of raising the minimum wage is that higher earnings would improve the overall standard of living for minimum wage workers by providing them with a more appropriate income level to handle the cost of living increases.

A 2022 study by the Congressional Budget Office analyzed the macroeconomic impact of the standard minimum wage reaching $15 per hour in 2027. The data reported 10.9 million workers would be directly affected, while an additional 9.2 million workers would potentially be affected. The total directly or potentially affected workers by 2032 would surpass 23 million.

While some proponents of raising the minimum wage estimate that a much larger number of individuals and families will move out of poverty if they earned more money, a related potential benefit is a projected reduction in the need for federal and state government expenditures on financial aid for poor and low-income individuals.

Meanwhile, an intangible benefit that could translate into tangible benefits for both companies and employees is improved employee morale resulting from higher wages. Business owners frequently note the challenge of providing sufficient encouragement to spur workers to put maximum effort into their job duties, and that this is particularly problematic with low-wage workers who feel that their job efforts aren't keeping them out of poverty.

Increasing employee morale could easily translate into more tangible benefits, such as increased employee retention and reduced hiring and training costs. Employees who are more inclined to stay with a company longer could benefit from greater advancement and from an overall reduction in job-related relocation expenses.

A boost to economic growth is another potential advantage of increasing the minimum wage, as consumer spending typically increases along with wages. A higher minimum wage would put more discretionary dollars in the pockets of millions of workers; money that would then flow to retailers and other businesses.

Cons of Raising Minimum Wage

Among the disadvantages of increasing the minimum wage is the probable consequence of businesses increasing prices, thus fueling inflation.

Opponents argue that raising the minimum wage would likely result in wages and salaries increasing across the board, thereby substantially increasing operating expenses for companies that would then increase the prices of products and services to cover their increased labor costs.

Increased prices mean a general increase in the cost of living that could essentially negate any advantage gained by workers having more dollars in their pockets.

Another projected problem resulting from an increased minimum wage is that of potential job losses. Many economists and business executives who point out that labor is a major cost of doing business argue that businesses will be forced to cut jobs to maintain profitability.

The same 2022 study mentioned above by the Congressional Budget Office also analyzed how higher wages may result in the elimination of roles. By 2027, the CBO estimated that up to 1.6 million jobs would be lost. By 2023, this would increase to 1.9 million lost jobs.

One potentially negative impact that is less readily apparent is the possibility that a higher minimum wage would result in increased labor market competition for minimum wage jobs.

The net outcome of an increased minimum wage might be a large number of overqualified workers taking minimum wage positions that would ordinarily go to young or otherwise inexperienced workers. This could impede younger, less experienced entrants to the job market from obtaining work and gaining experience to move their careers forward.

How Does Minimum Wage Affect the Economy?

The impact of minimum wage on the economy is a complex issue. Supporters argue that increasing minimum wage can stimulate consumer spending and boost the overall economy by putting more money in the hands of low-wage workers. Critics, on the other hand, warn that higher labor costs might lead to job cuts, automation, and increased prices for goods and services.

Is Minimum Wage the Same for All Workers?

No, minimum wage laws often take into account different categories of workers. For example, there might be different minimum wage rates for adult workers, minors, or workers in specific industries. Tipped employees, like servers in restaurants, may also have a lower minimum wage due to the expectation of receiving tips.

Does Inflation Impact Minimum Wage?

Yes, inflation can erode the purchasing power of minimum wage over time. To address this, some governments index minimum wage to inflation rates. This means that the minimum wage is adjusted periodically to ensure that its real value remains relatively constant.

How Does Minimum Wage Affect Small Businesses?

The impact of minimum wage increases on small businesses can vary. Some small businesses might struggle to absorb the additional labor costs, potentially leading to layoffs or reduced hours. Others might adapt by increasing prices or finding operational efficiencies to mitigate the impact.

Do All Countries Have Minimum Wage Laws?

While minimum wage laws are prevalent in many countries, not all nations have implemented such legislation. The presence and level of minimum wage often depend on a country's economic structure, labor policies, and social priorities.

The Bottom Line

Raising the federal minimum wage to $15 an hour is a policy goal for many lawmakers. Increasing the minimum wage is expected to lift individuals out of poverty and improve work ethic, however, it also comes with many possible negative implications, such as inflation and a loss of jobs.

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What Are the Pros and Cons of Raising the Minimum Wage?

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With the debate on wages continuing in Congress and in the public arena, here are some of the major pros and cons of raising the minimum wage.

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In both the UK and US, politicians are proposing significant, above-inflation increases in the minimum wage. The US is proposing an increase from $7.50 to $15 by 2024. The arguments for raising the minimum wages include - reduced in-work poverty, a reduction in inequality, an incentive to increase labour productivity and higher wages leading to increased economic growth. On the negative side, increasing minimum wages too fast could cause a rise in business costs, a rise in unemployment, and higher prices for consumers - problems exacerbated in depressed, low wage sectors and regions.

Pros of raising the minimum wage

Employment effects negligible. Free market economists, like M.Friednam feared the introduction of a minimum wage would cause unemployment because in competitive labour markets higher wages lead to less demand. However, there is significant evidence to dispute this. Since 2010, the UK minimum wage has increased far above the inflation rate - from £5.93 to £8.21 (27% increase).

UK Minimum wage

Low Pay Commission on history of minimum wage and its effects, 2019

UK employment rate %

UK Employment | Low Pay Commission on history of minimum wage and its effects, 2019

In the period (2010-2019), employment has increased sharply - despite significant increases in the minimum wage. A study by the Low Pay Commission into 20 years of the UK minimum wage found no strong evidence of falling employment due to minimum wage.

"Since 2000, we have commissioned over 30 research projects... overall none of the research that we have commissioned has shown strong evidence that minimum wages have led to falling employment."
Low Pay Commission on history of minimum wage and its effects, 2019

It is not just the UK, but a comprehensive US study into the effect of raising minimum wages found a similar negligible effect on employment.

"Overall, these findings suggest that the level of minimum wages that we study-which range between 37% and 59% of the median wage-have yet to reach a point where the job losses become sizable."
(NBER Working Paper No. 25434, Effect of minimum wages on low wage jobs, Jan 2019)

Counterbalance to monopsony. In the real world, labour markets are not perfectly competitive. Employers have a significant degree of monopsony power. This means they are able to pay wages below the equilibrium and take a higher share of profit. This is why increasing the minimum wage is compatible with the empirical evidence of no or little fall in employment.

In this diagram, a monopsony maximises profits at Q2, W2. A National minimum wage of W3, increases wages and employment stays at Q2.

Productivity increases. A rise in the minimum wage creates an incentive for firms to invest in automation and increased labour productivity. (For example, a switch to self-service tills, increased self-service at restaurants.) This investment will help increase overall productivity in the economy and enable firms to be able to afford the wage increases. It shifts the economy to be less labour-intensive. There is some empirical evidence that an increase in the minimum wage leads to fewer hours worked as firms seek to get a greater return from labour. Productivity growth is a key factor in determining the long-run rate of economic growth.

Reduces labour market turnover. A higher minimum wage reduces labour market turnover. Workers have a greater incentive to stay in a job where they get better paid. Similarly, firms have more incentive to train higher-paid workers. Lower labour market turnover helps to reduce the costs of firms.

Reducing in-work poverty. In recent decades, we have seen low wage growth, yet living costs, especially rent has been rising above inflation. This has led to a squeeze on living standards for those on the lower-income spectrum. Many western economies have also seen a growth in inequality with the gap between high-income earners and low-income earners growing. One study in California found that:

"Our estimates suggest a 10% increase in the minimum wage would reduce household poverty rates by 0.7 to 0.9 percentage points in the highest impact areas,"
Anna Godøy and Michael Reich. (2019). "Minimum Wage Effects in Low-Wage Areas". IRLE Working Paper 106-19r

Low-paid need the protection of the minimum wage. In recent decades, we have seen labour markets change and become more flexible - with a growth in part-time, temporary work and weak trade unions - therefore low-paid workers find it difficult to use collective bargaining to gain wage increases, and it is easy for firms to ignore wage demands. Therefore a minimum wage is playing an increasingly important role in protecting the living standards of the low-paid and minimising the gap between rich and poor. This has additional benefits for maintaining a more cohesive society and a sense of fairness.

Spill-over benefits. Most of the benefits of the minimum wage occur to the lowest-paid, but there can also be benefits to those who earn just above the minimum wage.

"For a wide range of lower-skilled workers, including those who make up to $5 an hour more than the new minimum"
The Effect of Minimum Wages on Low-Wage Jobs: Doruk Cengiz, Arindrajit Dube, Attila Lindner, Ben Zipperer (Jan 2019) NBER

Cons of raising the minimum wage

Negative employment effects. Previous increases in the minimum wage have been mostly absorbed by the economy without significant negative impacts on employment. However, there is a tipping point at which increases in the minimum wage will have a negative effect on employment. In particular, if minimum wages are increased over 60% of median wages, there is a concern that at this level, firms will not be able to absorb all wage increases through price increases and productivity gains, and therefore employment will fall.

National Minimum Wage causes a fall in employment from Q1 to Q2

The problem is that previous success in raising the minimum wage is encouraging a rapid increase in minimum wage above a sustainable rate of increase.

Higher prices. An effect of higher minimum wages is that firms respond to an increase in costs by passing some of the costs onto consumers. Restaurant prices in California have increased as a result of the rise in the minimum wage. A study looked at the effects of a 25% minimum wage increase in 2013 in the area of San Jose, California.

"Their findings suggest that nearly all of the cost increase was passed through to consumers, as prices rose 1.45% on average."
SYLVIA ALLEGRETTO AND MICHAEL REICH, ILR Review, 71(1), January 2018, pp. 35-63

Many labour-intensive industries, such as hairdressers, cleaners and health care workers will invariably see a rise in wage costs and prices for consumers.

In evaluation, whilst business may experience higher prices, if all restaurants increase price together, demand may prove inelastic.

Secondly, although costs may rise, the minimum wage does increase disposable income of poorest workers. These workers have a higher marginal propensity to consume and so may increase spending in precisely these service sector businesses.

Biggest costs in poor areas A nationwide minimum wage will have a greater impact on poor areas - regions of high unemployment and low wages. The problem is that a national minimum wage suitable for London may be unsuitable for a more impoverished area in the north. The effect on unemployment can be greater in the poorest areas.

Lack of flexibility. In a recession, demand for labour falls and there is downward pressure on wages. It is in these moments when the negative effects of a minimum wage on employment are greatest and the costs of a minimum wage highest.

Is automation always desirable? One effect of a minimum wage is to drive society towards greater automation. This can have benefits, such as greater efficiency, but if we had a society dominated by robots, this would have negative social and emotional effects. A minimum wage could (in theory!) lead to restaurants employing robots to take out food, but then we miss out on the personal interaction with humans.
Evaluation
What determines the success/failure of raising a minimum wage?

How much is the increase? When wages are low, an increase in the minimum wage may have little effect on employment. But, that doesn't mean, there isn't a limit where increases in the minimum wage will cause unemployment. The trick is finding the optimal level (some suggest a rough rule of thumb 60% of median wages - but more research is needed)

How rapid is the increase? There is evidence that when annual increases in the minimum wage are planned, firms have time to plan - increases in automation, increases in prices and therefore it is easier to absorb the increase. The biggest costs come from unexpected one-off rises.

Do firms have monopsony power? If firms have monopsony power and are profitable, then they can afford to pay increases. If labour and product markets are more competitive, the pressure to cut jobs may be greater.

Related

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Pros and cons of raising the minimum wage - Economics Help

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Arguments for and against raising the minimum wages including effect on jobs, prices, poverty, productivity and economic growth. What is optimal level?

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Pro Con: Should the Federal Minimum Wage Be Increased?

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Pro Con: Should the Federal Minimum Wage Be Increased?

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Addresses all sides

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History of Minimum Wage
The federal minimum wage, introduced in 1938 during the Great Depression under President Franklin Delano Roosevelt, was initially set at $0.25 per hour. The federal minimum wage has been increased by Congress 22 times, most recently in 2009 from $6.55 to $7.25 an hour. Most states plus DC have a minimum wage higher than the federal minimum wage, though several states do not have minimum wage laws (which means workers in those states default to the federal minimum wage). Read more history...

Pro & Con Arguments

Pro 1

Raising the federal minimum wage would not only allow minimum wage workers to afford basic living expenses, but would also reduce income, gender, and racial inequalities.

The current minimum wage is not high enough to allow people to afford housing. According to the National Low Income Housing Coalition, "In 2022, a full-time worker needs to earn an hourly wage of $25.82 on average to afford a modest, two-bedroom rental home in the U.S. This... is $18.57 higher than the federal minimum wage of $7.25.... A full-time worker needs to earn an hourly wage of $21.25 on average in order to afford a modest one-bedroom rental home in the U.S."

Further, 35% of families with full-time year-round employment do not earn enough to pay for essentials including food and childcare. 59% of Hispanic families, 52% of Black families, 25% of white families, and 23% of Asian families that work full-time year-round cannot cover basic needs. Overall, families would need to earn $11 more an hour to cover basic costs, with Black and Hispanic families needing $12 more an hour.

Approximately 91% of workers who would benefit from a raised minimum wage are over 20 years old, with 68% over the age of 25. Most are the primary wage earners for their families, averaging about 52% of their family's income, and most are women and people of color. The current federal minimum wage prevents these individuals and families from meeting basic needs like shelter and food, as well as creating significant obstacles to healthcare, finances for an emergency, and other expenses such as car upkeep.

Increasing the minimum wage would not only bring relief to workers struggling to make ends meet, it would also raise the incomes of people who make slightly more than minimum wage. The Brookings Institution found that increasing the minimum wage would result in higher wages for the 3.7 million people earning minimum wage and up to 35 million workers who make up to 150% of the federal minimum wage.

The White House Council of Economic Advisors (CEA) found that an increase to just $10.10 an hour would raise wages for 28 million Americans-about nine million of those due to the ripple effect.
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Pro 2

Raising the minimum wage to match inflation and productivity would benefit the economy by increasing consumer activity and spurring job growth while lowering the federal deficit.

As journalist Megan Cerullo summarizes, "The federal minimum wage of $7.25 buys less today than it has at any point over the past 66 years.... The current value of the minimum wage in real dollars is at its lowest level since February 1956, when the lowest U.S. wage was 75 cents - the equivalent of $7.19 in June 2022 dollars." Raising the minimum wage and indexing it to inflation would ensure that low-wage workers could adopt a standard of living commensurate with the current economy.

Further, while the estimates of how much the minimum wage should be increased vary, many economists agree that if the wage had kept pace with rising productivity and incomes, it would be higher than the current $7.25 an hour. [14] [17] [18]

With an economic boom and more securely employed workers, the federal deficit would decrease. According to James K. Galbraith, Professor of Government at the University of Texas in Austin, "[b]ecause payroll- and income-tax revenues would rise [as a result of an increase in the minimum wage], the federal deficit would come down."

Further, raising the minimum wage would help reduce the federal budget deficit "by lowering spending on public assistance programs and increasing tax revenue. Since firms are allowed to pay poverty-level wages to 3.6 million people - 5 percent of the workforce - these workers must rely on Federal income support programs. This means that taxpayers have been subsidizing businesses, whose profits have risen to record levels over the past 30 years," according to Aaron Pacitti, Associate Professor of Economics at Siena College.
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Pro 3

Increasing the minimum wage would have numerous social benefits including reducing poverty and crime, and increasing school attendance and the healthy population.
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Con 1

Raising the minimum wage would increase housing and consumer goods costs for everyone and greatly disadvantage minimum wage workers.

Raising the minimum wage could decrease employee benefits and increase tax payments, further costing the employees. According to James Sherk, MA, Senior Policy Analyst at the Heritage Foundation, a single mother working full time and earning the federal minimum wage of $7.25 an hour would be over $260 a month worse off if the minimum wage were raised to $10.10: "While her market income rises by $494, she loses $71 in EITC [earned income tax credit] refunds, pays $37 more in payroll taxes and $45 more in state income taxes. She also loses $88 in food stamp benefits and $528 in child-care subsidies."

Raising the minimum wage also creates more jobs for more skilled workers, disadvantaging teenagers, young adults, and those with less education and experience. If employers have to pay an employee more, they will expect the employee to have a more experienced skill set, essentially removing the job from the tier of jobs available to minimum wage workers.
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Con 2

Raising the minimum wage, instead of allowing the free market to determine an appropriate rate, will decrease employee compensation, while forcing businesses to close, use automation, or outsource jobs.

Increasing the minimum wage increases costs for businesses. If a business cannot or will not support the increased cost, the first method of cost correction is to cut hours or lay off employees. Researchers found that "For every $1 increase in the minimum wage, ...the total number of workers scheduled to work each week increased by 27.7%, while the average number of hours each worker worked per week decreased [sic] by 20.8%. For an average store in California, these changes translated into four extra workers per week and five fewer hours per worker per week - which meant that the total wage compensation of an average minimum wage worker in a California store actually fell by 13.6%." The decrease in hours also meant erratic schedules that are difficult for employees to maintain and a decrease in eligibility for benefits such as retirement packages and healthcare.

Businesses that cannot or will not pay a higher minimum wage may also turn to more robots and automated processes to replace service employees. Oxford University researchers explain "robots are already performing many simple service tasks such as vacuuming, mopping, lawn mowing, and gutter cleaning" and that "commercial service robots are now able to perform more complex tasks in food preparation, health care, commercial cleaning, and elderly care."
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Con 3

Raising the federal minimum wage would exacerbate income disparities and the cycle of poverty.

Cost of living varies wildly in the United States. For example, living in New York, California, and Hawaii costs significantly more than living in Mississippi, Kansas, or Montana. If the federal government raises the minimum wage significantly, the wage will be proportionately much higher in lower income states, meaning employers will not be able to afford the costs of paying employees and residents will not be able to afford the cost of living increases necessary to make up the difference. Small rural communities would especially suffer from the disparity.
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Did You Know?

1. America's minimum wage law was signed in 1938. The minimum wage was set at 25 cents, which is equivalent to $5.19 in 2022 dollars.

2. 44% of minimum wage earners are under 25 years old.

3. 30 states and DC have set minimum wages above the federal minimum of $7.25 an hour. As of Jan. 12, 2023, the highest is DC, at $16.50 an hour, followed by Washington state at $15.74 an hour.

4. The federal minimum wage has been increased by Congress 22 times, most recently in 2009 from $6.55 to $7.25 an hour.

5. The first state minimum wage laws, introduced between 1912 and the early 1930s, only covered women and minors. The first to cover men was introduced in 1937 in Oklahoma.

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Should the Federal Minimum Wage Be Increased?

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Proponents say raising the wage will increase economic activity. Opponents say raising the wage would force businesses to lay off employees.

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Advantages and Disadvantages of Raising Federal Minimum Wage to $15

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Advantages and Disadvantages of Raising Federal Minimum Wage to $15

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In January 2021, legislators introduced the " Raise the Wage Act of 2021," to increase the federal minimum wage from $7.25 an hour to $15 an hour by 2025. If passed, it would be the first increase in more than a decade, the longest stretch since 1938.

While the federal minimum wage has remained stagnant, many state and local governments have already implemented a $15 minimum wage. (For example, in 2014, Seattle required businesses to incrementally increase their minimum wage until it reaches $15 an hour. In 2021, the Seattle minimum wage is $16.69 an hour.) Nevertheless, such a massive overhaul at the federal level is sure to be contentious among many and will be debated intensely.

Below is a brief overview of some of the key arguments both sides will present.

Advantages

Raising the federal minimum wage to $15 an hour would improve the overall standard of living for minimum wage workers. These workers would more easily afford their monthly expenses, such as rent, car payments, and other household expenses. Representative Robert Scott, chair of the House Committee on Education and Labor, stated, "Today, a full-time worker cannot afford a modest, two-bedroom apartment in any county in the U.S." Senator Bernie Sanders has also taken the position that the minimum wage needs to be $15, as he believes full-time workers should not fall below the poverty line.

It has been argued that a second, less obvious, advantage to raising the minimum wage is increased employee morale. Not only will happier employees lead to a more cohesive, productive workforce, but also could result in higher levels of customer satisfaction. Additionally, if employees are satisfied with their job and their pay, they are less likely to leave, which in turn reduces the employer's hiring and training costs.

Proponents argue that increasing the minimum wage to $15 also will benefit minority workers and women. A $15 minimum wage would give 31 percent of African Americans and 26 percent of Latinos a wage increase. Additionally, a disproportional number of minority workers reside in one of the 21 states that maintains a minimum wage of $7.25 an hour.

Disadvantages

Opponents to increasing the minimum wage argue small businesses would be adversely affected by such a drastic increase in the minimum wage. Just as small businesses begin to bounce back from the worldwide Covid-19 pandemic, an increase in the federal minimum wage would significantly increase small businesses' operating costs and make margins tighter.

Raising the minimum wage to $15 also would increase childcare costs in the United States by an average of 21 percent. In 2019, the average early childcare worker the United States earned $11.65 an hour. Therefore, a federally mandated $15 minimum wage would increase the cost of labor for childcare providers by almost 33 percent.

Another argument against the Raise the Wage of Act is the vastly different state economies, with drastically different costs of living. A uniform minimum wage could disproportionally impact a small business in a state with a low cost of living. For example, to have the same minimum wage would be impractical in California and Oklahoma, as the average value of a home, according to Zillow.com, is $635,055 in California but only $143,173 in Oklahoma.

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As the federal minimum wage debate continues to spark strong opinions, advocates on either side will continue to assert many reasons in support of their positions. Those opposing a minimum wage at all argue market forces should control. If the competition is fierce for qualified employees, an employer may have little choice than to adjust wages to prevent departures. Employers and employees should be aware of positions on both sides of the debate and prepare for what is an almost inevitable change in the federal minimum wage law.

Please contact a Jackson Lewis attorney with any questions.

(Spring Clerk Logan Adams, in our Dallas office, contributed significantly to this article.)

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Advantages and Disadvantages of Raising Federal Minimum Wage to $15 - Jackson Lewis

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In January 2021, legislators introduced the "Raise the Wage Act of 2021," to increase the federal minimum wage from $7.25 an hour to $15 an hour by 2025. If passed, it would be the first increase in more than a decade, the longest stretch since 1938.