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Issue Brief #387
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Introduction and executive summary

More than five years have passed since the federal minimum wage was raised to its current level of $7.25 per hour. Over that time, the value of a minimum-wage income has fallen nearly 10 percent due to rising prices. Yet this decline is small in comparison to the drop in value of the minimum wage over the past four decades. After rising in line with economy-wide productivity in the three decades following its inception in 1938, the federal minimum wage has been raised so inadequately and so infrequently since the late 1960s that today's minimum-wage workers make roughly 25 percent less in inflation-adjusted terms than their counterparts 45 years ago. Indeed, a full-time, full-year minimum-wage worker with one child is paid so little that income from her paycheck alone leaves her below the federal poverty line. 1

This failure to adequately raise the wage floor has contributed strongly to the stagnation of wage growth at the bottom of the wage distribution. This wage stagnation has, in turn, been the single greatest impediment to making rapid progress in poverty reduction in recent decades. Indeed, all of the decline in poverty in recent decades can be accounted for by safety net and income-support programs (Bivens et al. 2014). In fact, managers at some of the largest and most profitable corporations in the United States today actively encourage their employees to seek public assistance to supplement meager paychecks (Eidelson 2013). All of this has led many to conclude that American employers are too often dodging their responsibilities as partners in the social contract-the understanding that Americans who work hard should be paid enough to make ends meet. Instead, too many low-wage employers are leaving both taxpayers and, more importantly, low-wage workers themselves to pick up the slack.

Recent protests calling for higher wages at many of these companies have highlighted this widening rift between what businesses are paying and what workers need to survive. Among the protesters' demands is that employers begin paying workers adequately, instead of relying upon public funds to give their workers a decent standard of living even as corporate profits reach record highs.

This issue brief examines the use of public assistance programs by low-wage workers and assesses how raising the federal minimum wage to $10.10 over three years-as proposed by the Fair Minimum Wage Act of 2014, a bill introduced by Sen. Tom Harkin (D-Iowa) and Rep. George Miller (D-Calif.)-could affect utilization rates, benefit amounts, and government spending on these programs.

The key findings are:

About half of all workers in the bottom 20 percent of wage earners (roughly anyone earning less than $10.10) receive public assistance in the form of Medicaid and the six primary means-tested income-support programs, either directly or through a family member. These programs include the Earned Income Tax Credit (EITC); the Supplemental Nutrition Assistance Program (SNAP), also known as food stamps; the Low Income Home Energy Assistance Program (LIHEAP); the Supplemental Nutrition Program for Women, Infants, and Children (WIC); the Section 8 Housing Choice Voucher program; and the Temporary Assistance for Needy Families program (TANF) or equivalent state and/or local cash assistance programs.

Workers in the bottom 20 percent of wage earners receive over $45 billion in government assistance each year from the six primary means-tested income-support programs.

Roughly half of all public assistance dollars from means-tested income-support programs that go to working individuals go to workers with wages below $10.10.

If the minimum wage were raised to $10.10, more than 1.7 million American workers would no longer rely on public assistance programs.

Raising the minimum wage to $10.10 would reduce government expenditures on current income-support programs by $7.6 billion per year-and possibly more, given the conservative nature of this estimate. This would allow these funds to be repurposed into either new programs or expansions of existing programs to further leverage the poverty-fighting impact of this spending.

Safety net programs would save 24 cents for every additional dollar in wages paid to workers affected by a minimum-wage increase to $10.10.

The research in this issue brief is part of a forthcoming report that examines the relationship between raising wages for low-wage workers and reliance on public assistance programs in greater detail.

Key background: The erosion of the inflation-adjusted value of the minimum wage

Every year that the minimum wage is not raised, inflation slowly erodes its real (i.e., inflation-adjusted) value, meaning that minimum-wage workers cannot afford to buy as much as they could in previous years. As shown in Figure A, the current minimum wage of $7.25 is worth roughly 25 percent less than the minimum wage in 1968, when it equaled $9.58 in today's dollars.

Real value of the federal minimum wage, 1968-2014 and 2014-2017 under an increase to $10.10 by 2017, compared with its value had it grown at the rate of various benchmarks

The figure also depicts what the minimum wage would have been had it risen in tandem with two other relevant benchmarks. If the minimum wage had grown at the same pace as the average wage for typical U.S. workers, it would be $10.89 today and likely close to $11 per hour by 2017. Had it grown at the same rate as productivity-i.e., how much we can produce, on average, from an hour's worth of work-it would be more than $18 per hour today, and over $19 per hour by 2017 (under reasonable expectations for productivity growth). The dotted red line shows what the minimum wage would be (in 2014 dollars) under an increase to $10.10 by 2017. Such an increase would restore most of the value of the minimum wage lost to inflation over the past four decades-certainly a worthwhile improvement. However, as illustrated by the other two hypothetical scenarios, it would still be far lower than what the economy could sustain, given economic growth and technological progress over that time.

Renegotiation of the social contract

In failing to adequately raise the minimum wage, or to adopt policies to raise wages more generally, policymakers have allowed, if not encouraged, a steady renegotiation of the social contract that has benefited employers at the expense of workers and taxpayers. For generations of Americans, there was an understanding and expectation that with full-time work-regulated by reasonable labor standards and backed by a robust safety net that guarded against unexpected hardship-ordinary Americans would have the resources they need to achieve at least a modest yet decent standard of living. Unfortunately, the experience of millions of struggling American workers today suggests that this expectation is no longer a reality.

A large share of Americans work full time, or close to it, yet are not paid enough by their employers to support themselves or their families. Consequently, they often rely upon government support programs as regular supplements to their incomes. In fact, of all the workers receiving means-tested government assistance either directly or through their families, nearly half work full time. 4 There are other workers receiving benefits whose inadequate labor earnings stem from a lack of available work. Others receive benefits as a result of circumstances that prevent them from working full time, such as the need to care for a family member, and/or a lack of adequate work supports that would allow them to work full time (such as access to child care, paid leave, or flexible work schedules).

Yet for many workers, their hourly rate of pay is simply too low to provide adequate income to meet their basic needs.

Figure B shows the share of all wage earners within each wage decile whose families receive benefits from at least one of the seven primary means-tested public assistance programs: the Earned Income Tax Credit (EITC); the Supplemental Nutrition Assistance Program (SNAP), also known as food stamps; the Low Income Home Energy Assistance Program (LIHEAP); the Supplemental Nutrition Program for Women, Infants, and Children (WIC); the Section 8 Housing Choice Voucher program; Medicaid; and the Temporary Assistance for Needy Families program (TANF) or equivalent state and/or local cash assistance programs. 5 Overall, about 23 percent of all wage earners receive some form of public assistance from these programs, either directly or through a family member. Yet as the figure shows, more than half (54.2 percent) of workers in the bottom decile of wage earners (workers with wages at or below $7.63 per hour) receive assistance, and another 45.1 percent of workers in the second decile (with wages between $7.64 and $10.07) receive assistance. 6 Workers earning less than $10.10 per hour are almost all found in the bottom two wage deciles. Among these workers, approximately half rely upon at least one of these public assistance programs.

Share of wage earners in each hourly wage decile whose families receive means-tested public assistance

For all of these programs, eligibility is restricted to individuals with low total family incomes-often some percentage of the federal poverty line-and most programs are designed to "phase out" as family incomes rise. 7 Thus, we would expect the bulk of benefit dollars going to working participants in these programs to go to workers earning low hourly wages-and indeed, they do. Figure C shows each wage decile's share of all benefit dollars from means-tested income-support programs going to workers or their families. (Note that these figures, and all other dollar values throughout this brief, do not include the dollar value of Medicaid. 8) Almost half (48.9 percent) of all income-support dollars received by workers or their families go to those in the bottom two deciles of the wage distribution-again, roughly everyone earning less than $10.10 per hour. These workers receive over $45 billion in income support each year. Over two-thirds (67.5 percent) of all income-support dollars received by workers or their families go to those in the bottom three deciles of wage earners, i.e., workers with wages less than $12.50 per hour.

Share of income-support benefit dollars received by families of working individuals, by worker hourly wage decile

Even though Figure C shows some portion of total benefit dollars going to high wage earners, this is at least partially an artifact of the data source used in this analysis, and likely overstates the shares of benefits accruing to individuals with high hourly wages. 9 Still, there may be some workers with relatively high hourly wages who worked limited hours during the year, thus resulting in total family incomes that still qualify for benefits.

Utilization of public assistance among workers likely affected by a minimum-wage increase to $10.10

The Fair Minimum Wage Act of 2014 would raise the federal minimum wage to $10.10 per hour in three incremental increases of $0.95 per year over three years. Cooper (2013) has shown that such an increase would likely raise wages for more than 27 million workers throughout the United States. This includes both the large number of workers (16.7 million) with wages below $10.10 who would directly benefit, as well as a significant number of workers with wages just above $10.10 (11.1 million) who would also likely get a raise as employers adjust overall pay ladders as a result of the increase.

As expected from the data in Figure B, workers with wages in the range likely to be affected by an increase in the federal minimum wage use public assistance programs at particularly high rates. Table 1 shows that roughly 45 percent of workers likely to get a raise from an increase in the minimum wage to $10.10 receive benefits from at least one means-tested public assistance program, either directly or through a family member. These workers report receiving more than $28 billion in public assistance each year-excluding Medicaid-with the average value of benefits received (among those receiving benefits) of $3,110. However, benefit dollars reported in the Current Population Survey (CPS), the data source used here, are known to significantly understate actual program expenditures. Researchers have been able to estimate the magnitude of this undercount in the CPS Annual Social and Economic Supplement (ASEC) for several of these programs-see Meyer, Mok, and Sullivan (2009). The last two columns in Table 1 show the estimated actual value of benefits going to these workers, after adjusting for this undercount, as well as the multiplier used to make this adjustment. After adjusting for the undercount, workers likely affected by a minimum-wage increase to $10.10 are estimated to receive nearly $39 billion in income support each year. Even with these adjustments, the values here still likely understate the true level of benefits going to these working individuals and their families because these values do not include the value of Medicaid, and because rates of underreporting have increased over time. 10

Receipt of public assistance among families of workers likely affected by a minimum-wage increase to $10.10

Type of assistance

Count

Share of workers receiving each benefit

Total benefits received (in millions)

Average value of benefits received (among those receiving each benefit)

Adjustment factor to total benefits received*

Total benefits received, adjusted for known CPS undercount (in millions)*

The effect of raising the minimum wage to $10.10 on benefit receipt and program spending

There are two methods researchers generally use for estimating how policy changes such as an increase in the minimum wage affect family incomes and public assistance program participation: quasi-experiments and microsimulations. The first, quasi-experimental design or "natural experiments," compare how incomes and benefit receipt change in labor markets that experienced a minimum-wage increase with similar labor markets that did not experience a minimum-wage increase-often a neighboring county across a state border. West and Reich (2014) use this approach to look specifically at the effect of past minimum-wage increases on SNAP enrollments and expenditures, finding that "a 10 percent increase in the minimum wage reduces SNAP enrollment by between 2.4 and 3.2 percent and reduces program expenditures by 1.9 percent." Dube (2013) also uses a similar approach to examine how past minimum-wage increases have affected family incomes and poverty rates. He finds that increases in the minimum wage significantly reduce poverty rates and increase family incomes, particularly for low-income families.

In the simulation method, researchers essentially take a snapshot of current benefit receipt, and try to estimate how those values would change if the reported hourly wages of individuals in the study were to change, holding all else constant. Giannarelli, Morton, and Wheaton (2007) use a microsimulation model of all U.S. tax, transfer, and health programs to estimate the effects of a package of labor and anti-poverty policies, including raising the federal minimum wage from $5.15-its level in 2007-to $7.25. They predicted that such an increase would decrease public assistance costs or raise federal revenues by over $2 billion (roughly $2.5 billion in 2013 dollars). Zabin, Dube, and Jacobs (2004) also used a simulation approach to estimate changes in California's 10 major means-tested public assistance programs that would occur if the state increased its wage floor, finding that if the state raised its minimum wage from $6.75, where it stood at that time, to $8 per hour, it would save $2.7 billion ($3.3 billion in 2013 dollars).

Natural experiments are unquestionably the gold standard for assessing the direct causal effect of exogenous policy changes; however, simulations are still useful for providing some insight into the magnitude of potential policy impacts. In this section, a simulation approach is used to compare benefit receipt among low-wage workers with receipt among higher-wage workers in order to estimate how lifting wages for those in the range likely to be affected by a minimum-wage increase to $10.10 might affect utilization of public assistance programs.

Simulation results

Raising the minimum wage to $10.10 would provide nearly $32 billion in additional wages to more than 27 million workers. 11 The resulting increase in family incomes would unquestionably improve living standards for millions of working families. At the same time, many families that were forced to rely on safety net programs may no longer qualify for assistance, or may see their benefit levels reduced. Most of the means-tested public assistance programs are designed such that benefits phase out gradually as incomes rise; therefore, benefit reductions are not so steep as to leave workers no better off than they were before their wage income increased. However, one could certainly argue that these results show a need to reduce the phase-out rates for public programs to provide low-wage workers the maximum income boost from legislated minimum-wage increases.

Table 2 describes how raising hourly wages is predicted to change public assistance utilization rates and benefit amounts among workers likely to be affected by a minimum-wage increase to $10.10. As the table shows, among these workers, a $1 increase in hourly wages is predicted to reduce the share receiving any government assistance by 3.9 percentage points. The share of workers receiving the Earned Income Tax Credit is expected to decline by 3.8 percentage points, and participation in SNAP is predicted to fall by 1.6 percentage points. The predicted declines in participation rates for the other public assistance programs are relatively small, but this is because even among low-wage workers, the number and shares participating in these programs are fairly small to begin with.

Effect of increasing wages on incidence and value of public assistance for families of workers likely affected by a minimum-wage increase to $10.10

The results also show that a $1 hourly wage increase is expected to reduce average annual benefit dollars received from all programs by $126 per affected worker. Spending on EITC and SNAP benefits is predicted to decline by an average of $56 and $41, respectively, for all affected workers. 12

Using these predicted effects, we can estimate the total reduction in participation and government spending on these programs that would result from a minimum-wage increase to $10.10. Table 3 displays these results. As previously noted, if the federal minimum wage were raised to $10.10 by 2017, over 27 million workers would get a raise-roughly one-fifth of all U.S. wage earners 13 -and affected workers would receive $31.8 billion in additional wages over the full phase-in period of the increase. The average affected worker would receive a raise of $1.61 per hour. Applying the predicted effects in Table 2 to this $1.61 average raise, we would expect that increasing the minimum wage to $10.10 would reduce the share of affected workers receiving public assistance by 6.3 percentage points, or more than 1.7 million workers. Similarly, the predicted effects in Table 2 imply that such a wage increase would reduce total benefit dollars from all government assistance by an average of $203 annually among all affected workers. This means that after adjusting for the noted undercount in the CPS data, increasing the federal minimum wage to $10.10 is predicted to save $7.6 billion annually in spending on income-support programs-and possibly more, given the conservative nature of this estimate. Put another way, these results imply that safety net programs would save 24 cents for every additional dollar paid by employers to workers under a minimum-wage increase to $10.10.

Estimated effect of raising the minimum wage to $10.10 by 2017 on wages of affected workers and utilization of public assistance

Estimated number of workers likely to get a raise

27,118,000

Share of all U.S. wage earners

20.5%

Total wage increase for all affected workers

$31.8 billion

Average increase in hourly wage for affected workers

$1.61

Predicted change in number of workers relying on public assistance

-1.7 million

Predicted annual change in total benefit dollars received among affected worker families

-$7.6 billion*

Implied government savings from each additional dollar in wages paid to affected workers

$0.24

Conclusion

For millions of Americans struggling to make ends meet, policies to boost incomes should always be a top priority. Yet the way we structure that boost-whether it is the result of higher wages, or of increased government assistance-is critical to how we define the social contract in America. Taxpayer-funded public assistance programs are vital components of a safety net that protects millions of families from undue material hardship, and if anything, these programs are in need of expansion. Many of the individuals and families who rely on public assistance would benefit greatly from increased investment in these programs-such as enacting the Medicaid expansion under the Affordable Care Act in all states, expanding EITC eligibility to childless adults, and increasing benefit amounts for food stamp recipients. Indeed, given the extraordinarily high rates of poverty and child poverty that persist in the wake of the Great Recession, there is every reason to think that current levels of spending on these programs are woefully inadequate to truly combat poverty and lift living standards for program participants.

Yet as American businesses achieve record profit levels, we have to question whether it is appropriate to rely more and more heavily on safety net programs as the sole policy tool to raise working individuals' incomes, or whether we should expect more from the businesses that employ them.

Raising the minimum wage would lift incomes for millions of working Americans and their families, while providing budgetary savings in means-tested public assistance programs-savings that should be repurposed into either new programs or expansions of existing programs to further leverage the poverty-fighting impact of this spending. Raising the minimum wage is one simple and long-overdue step toward rebalancing the social contract so that the private and public sectors are more equal participants in improving living standards for American workers.

- This research is supported by contributions from The Nick and Leslie Hanauer Foundation.

About the author

David Cooper is an economic analyst with the Economic Policy Institute. He conducts national and state-level research on a variety of issues, including the minimum wage, employment and unemployment, poverty, and wage and income trends. He also provides support to the Economic Analysis and Research Network (EARN) on data-related inquiries and quantitative analyses. David has been interviewed and cited by local and national media for his research on the minimum wage, poverty, and U.S. economic trends. His graduate research focused on international development policy and intergenerational social mobility. He holds a Master of Public Policy degree from Georgetown University.

Endnotes

1. See Cooper (2013).

2. It is well known that the CPS-ASEC survey data used in this analysis significantly understate actual income received from public assistance programs. See Wheaton (n.d.) or Meyer, Mok, and Sullivan (2009) for details. Meyer, Mok, and Sullivan note that benefit receipt may be underreported for a number of reasons-such as interviewer error, a desire to shorten the interview, or the sensitivity of income information. Yet for the programs under study in this brief, they suspect that underreporting is driven by an increasing stigma associated with receipt of public assistance. Researchers will sometimes adjust the CPS-ASEC data to achieve consistency with administrative data that show actual program expenditures that are significantly higher. In this analysis, we do not make any attempt to correct for this undercount in the rate of receipt. Where noted, we do adjust the total benefit dollars in each program based upon the rate of underreporting for each program as measured in Meyer, Mok, and Sullivan (2009). Because we do not have rates of underreporting specifically for the data years used in this analysis, we use the average rate of underreporting across all available years for each available program. However, the authors find that rates of underreporting have grown over time-meaning that our adjustments are likely too conservative. For WIC, Meyer, Mok, and Sullivan provide the rate of underreporting only in the Survey of Income and Program Participation (SIPP), not the CPS-ASEC. Because the SIPP generally has higher reporting rates than the CPS-ASEC-i.e., there is less of an undercount-WIC benefit dollars are adjusted based upon the underreporting rate in the SIPP under the assumption that this is likely a conservative estimate of underreporting in the CPS-ASEC.

3. See the previous endnote.

4. Cooper (forthcoming, 2014)

5. This report does not include any data on participation or costs in the National School Lunch Program, the only other major means-tested public assistance program.

6. The wage deciles reported in this brief reflect imputed wage values from the Current Population Survey Annual Social and Economic Supplement (CPS-ASEC) microdata. They may not align perfectly with wage distributions from other sources. The CPS-ASEC describes respondents' annual incomes and income sources over the preceding year. Respondents are also asked to report the number of weeks they worked during that year, and the usual number of hours they worked each week for those weeks. With these three pieces of information, we can impute each individual's implied hourly wage for the time they were working-although these implied hourly wages are not the most robust sources of hourly wage information, as discussed further in Cooper (forthcoming). Nevertheless, the CPS-ASEC data are one of the only public datasets with information on income from means-tested public assistance programs, and while not ideal, we believe the implied hourly wages in the ASEC data are adequate for this type of analysis.

7. Certain programs may have additional requirements, such as the presence of young children in the family, income below some percentage of the median rental cost in the person's region, or total family assets below a certain threshold.

8. Due to changes in Medicaid resulting from the Affordable Care Act, the fungible value of Medicaid benefits is not included in any calculations throughout this brief.

9. The Current Population Survey Annual Social and Economic Supplement (CPS-ASEC) data set used in this analysis records the family's total public assistance benefits on each individual person record, thus for families with multiple wage earners, the total family benefits were distributed equally among all wage earners within the family to avoid double-counting. However, this may lead to cases where benefit dollars are spread across separate tax units within the same household and family, such as a child living at home but not claimed as a dependent by her parents. In these cases, some benefit dollars may be inaccurately attributed to workers at wage levels that would not be expected to meet the low-income requirements of the program. Also, as noted in endnote 6, the CPS-ASEC survey records wage income only in annual totals. Hourly rates must be imputed based upon workers' reported weeks worked per year and usual hours of work per week. This does compound measure error such that a worker receiving benefits could overstate annual wage income or understate annual hours of work, thus inaccurately falling into a wage decile above his true place in the hourly wage distribution.

10. See endnote two.

11. These numbers are updated from the original Cooper (2013) analysis to reflect changes in state minimum-wage policies since that analysis was published.

12. These declines reflect the average change in benefit dollars received as hourly wages rise, among all workers in the range likely to be affected by a minimum-wage increase to $10.10, including those workers who may not be receiving any benefits. In other words, the analysis includes workers receiving zero dollars in each program. This is necessary to predict the overall effect on aggregate spending in each program. The average effect on individual benefit dollars only for individuals who receive benefits in a particular program is larger in most cases, because the inclusion of zero values attenuates the predicted effects. This is explained in greater detail in Cooper (forthcoming). These values also do not reflect any adjustment for the known CPS-ASEC undercounting of benefit receipt explained in endnote 2.

13. Update of Cooper (2013).

References

Bivens, Josh, Elise Gould, Lawrence Mishel, and Heidi Shierholz. 2014. Raising America's Pay: Why It's Our Central Economic Policy Challenge. Economic Policy Institute, Briefing Paper No. 378. http://www.epi.org/publication/raising-americas-pay/

Bureau of Labor Statistics (U.S. Department of Labor) Current Employment Statistics program. Various years. Employment, Hours and Earnings-National [database]. http://www.bls.gov/ces/#data

Bureau of Labor Statistics (U.S. Department of Labor) Labor Productivity and Costs program. Various years. Major Sector Productivity and Costs and Industry Productivity and Costs [databases]. http://www.bls.gov/lpc/#data. (Unpublished data provided by program staff at EPI's request.)

Cooper, David. 2013. Raising the Federal Minimum Wage to $10.10 Would Lift Wages for Millions and Provide a Modest Economic Boost. Economic Policy Institute Briefing Paper #371. http://www.epi.org/publication/raising-federal-minimum-wage-to-1010/

Cooper, David. Forthcoming. How Raising Wages and Strengthening Labor Standards Can Improve the Safety Net (working title).

Current Population Survey Annual Social and Economic Supplement microdata. Various years. Survey conducted by the Bureau of the Census for the Bureau of Labor Statistics [machine-readable microdata file]. Washington, D.C.: U.S. Census Bureau. http://www.bls.census.gov/cps_ftp.html#cpsmarch

Current Population Survey Outgoing Rotation Group microdata. 2013. Survey conducted by the Bureau of the Census for the Bureau of Labor Statistics [machine-readable microdata file]. Washington, D.C.: U.S. Census Bureau. http://www.bls.census.gov/cps_ftp.html#cpsbasic

Dube, Arindrajit. 2013. Minimum Wages and the Distribution of Family Income. University of Massachusetts-Amherst, unpublished working paper. https://dl.dropboxusercontent.com/u/15038936/Dube_MinimumWagesFamilyIncomes.pdf

Eidelson, Josh. 2013. "Video: McDonald's Tells Workers to Get Food Stamps." Salon, October 23. http://www.salon.com/2013/10/23/video_mcdonalds_tells_workers_to_get_food_stamps/

Giannarelli, Linda, Joyce Morton, and Laura Wheaton. 2007. Estimating the Anti-Poverty Effects of Changes in Taxes and Benefits with the TRIM3 Microsimulation Model. Urban Institute Technical Report. http://www.urban.org/UploadedPDF/411450_Estimating_Effects.pdf

Meyer, Bruce, Wallace K.C. Mok, and James X. Sullivan. 2009. The Under-Reporting of Transfers in Household Surveys: Its Nature and Consequences. NBER Working Paper No. 15181. http://www.nber.org/papers/w15181

U.S. Department of Labor, Wages and Hours Division. 2013. "History of Federal Minimum Wage Rates Under the Fair Labor Standards Act, 1938-2009" [chart]. http://www.dol.gov/whd/minwage/chart.htm

West, Rachel, and Michael Reich. 2014. The Effects of Minimum Wages on SNAP Enrollments and Expenditures. Center for American Progress. http://www.americanprogress.org/issues/economy/report/2014/03/05/85158/the-effects-of-minimum-wages-on-snap-enrollments-and-expenditures/

Wheaton, Laura. n.d. "Under-Reporting of Means-Tested Transfer Programs in the CPS and SIPP." The Urban Institute.

Zabin, Carol, Arindrajit Dube, and Ken Jacobs. 2004. The Hidden Public Costs of Low-Wage Jobs in California. Center for Labor Research and Education, U.C. Berkeley. http://laborcenter.berkeley.edu/pdf/2004/workingpoor.pdf

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Raising the Federal Minimum Wage to $10.10 Would Save Safety Net Programs Billions and Help Ensure Businesses Are Doing Their Fair Share

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More than five years have passed since the federal minimum wage was raised to its current level of $7.25 per hour. Over that time, the value of a minimum-wage income has fallen nearly 10 percent due to rising prices. Yet this decline is small in comparison to the drop in value of the minimum wage over the past four decades.

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raising minimum wage

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Raising the minimum wage from $7.25 to $10.10 an hour would reduce federal food stamp spending by $4.6 billion a year, according to a report to be released Wednesday by the liberal-leaning Center for American Progress.

The proposal, a top legislative priority for President Obama and congressional Democrats, would reduce enrollment in the food stamp program by as much as 9.2 percent, the report said.

A report last month from the nonpartisan Congressional Budget Office said about 15 percent of the nation's workforce would see wages rise under Obama's plan to raise the minimum wage, adding that the increase would lift 900,000 people out of poverty.

The CAP report, which was written by University of California Berkeley researchers Rachel West and Michael Reich, is the latest in a line of research highlighting the connection between low-wage work and government support programs.

Last year, a report done by researchers at Berkeley and the University of Illinois asserted that taxpayers are spending nearly $7 billion a year to supplement the wages of fast-food workers, many of whom earn the minimum wage or close to it.

"What is the best way to make people independent and be able to sustain their standard of living without having to depend on government support?," Reich asked. "It turns out that raising the minimum wage helps make people more independent while saving the government money."

Conservative researchers disagreed with the conclusions of the CAP report. Citing research showing that roughly half of able-bodied adults who receive food stamp benefits do not work in both good and bad economic times, Rachel Sheffield, a Heritage Foundation policy analyst, said having work requirements for food stamps would do more to encourage self sufficiency than raising the minimum wage.

"A work requirement would also do more to reduce overall welfare costs in the long run," Sheffield said.

Raising the minimum wage is staunchly opposed by many Republicans who say it would impose unsustainable costs on business and slow job creation. Still, raising the minimum wage seems to be popular with the public, as polling shows that more than six in 10 Americans support the idea.

The Supplemental Nutrition Assistance Program, or food stamps, reaches about one in seven Americans and cost the government $78 billion in 2011, according to the report. Eligibility for the program is limited to households earning no more than 130 percent of the poverty threshold, or about $19, 530 for a family of three.

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Related:

In Florida, a food-stamp recruiter deals with wrenching choices

Food stamps put Rhode Island town on monthly boom-and-bust cycle

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Report: Minimum wage hike would cut food stamp spending by $4.6 billion a year

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Raising the minimum wage from $7.25 to $10.10 an hour would reduce federal food stamp spending by $4.6 billion a year, according to a report to be released Wednesday by the liberal-leaning Center for American Progress.

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Donald Trump, the real estate mogul and frontrunner-by-far in the Republican presidential primary, asserted callously at the Milwaukee debate that " wages are too high" in this country. Was he fantasizing or was he talking about his own wages? Lucky enough to be born into a millionaire family, how could he know what it feels like to keep one's head above water as the 1.3 million people working at the current federal minimum wage of $7.25 an hour do? Even if one can work full-time, after state and federal taxes and Social Security and Medicare deductions, one is lucky to retain $225 a week or $12,000 a year, which is precisely the threshold of poverty for a single person. Welcome to the world of the working poor. No chance of paying rent and taking care of dependent children on that kind of salary. As a matter of fact, you'd be barely surviving. That's not any more than the Russian serfs were able to do.

The billionaire fails to realize that the real minimum wage (that is, the minimum wage adjusted for inflation) has been declining steadily and precipitously. If adjusted for inflation, the minimum wage of 1968 would be $10.90 today. That is a whopping reduction of the federal minimum wage by a third. It's worth noting that the unemployment rate was 3.6 percent in 1968 with a higher real minimum wage. So the unemployment rate is higher today - at 5 percent - than it was in 1968, while the real minimum wage is lower today than it was in 1968.

Moreover, the minimum wage in the U.S. is well below that of other advanced countries. The Economist estimates that the minimum wage should be about $12 an hour in the U.S based on our GDP. That makes a lot of sense, especially because $10.90 would put it just where it was in 1968. If we add a little extra to the minimum wage for the growth in productivity, $12 seems to be a conservative estimate of where the lower bound of workers' wages should be. In addition to the 1.3 million people working at minimum wage, there are another 1.7 million working below minimum wage (tipped employees) and an additional 21 million employees who are working just above the minimum, but below $10 an hour. They would also be affected, because their pay is pegged to the minimum wage. So an increase in the minimum wage would affect a third of the labor force being paid an hourly basis.

Those against raising the minimum wage often argue that it will hurt young people the most and that they "need the experience" of working at the minimum wage. But notice that the youth unemployment rate in Germany is 7.8 percent, and in Switzerland, it is 8.5 percent. In contrast, youth unemployment is 15.5 percent in the U.S., even though the U.S.'s minimum wage ( using Purchasing Power Parities exchange rates) is below that of these Germany's and Switzerland's $10 and $9.20 an hour respectively. In other words, both have higher minimum wages, but much lower youth unemployment rates. Their overall unemployment rate is also lower: 4.5 percent and 3.4 percent, respectively. The minimum wage makes no difference on unemployment.

Sadly, the mogul and TV celebrity continued to reveal his ignorance by adding, "we cannot do this [raise the minimum] if we are going to compete with the rest of the world." That, too, is nonsense, because minimum wage workers are not engaged in the export sector. Do you have a Chinese McDonald's in your neighborhood? I don't think so. In fact, most of the people who work for under $10 an hour are working as cashiers at grocery and department stores (1.4 million), retail salespeople (1.1 million), cooks (1 million) and janitors, cleaners, waiters or waitresses (1.5 million) - none of whom work in the export sector. Raising their minimum wage would not hurt our exports at all. Their wages have nothing to do with competing with the rest of the world.

Trump's advice to low-wage workers was just as ignorant. "People have to go out; they have to work really hard and have to get into that upper stratum." He should tell that to the woman who was working so hard to make ends meet that she died from fumes in her car while napping in between shifts. Hard work used to be a means of social mobility, but not anymore. Not on $7.25 hour.

The brilliant neurosurgeon who is fourth in national polls in a field of 14 candidates weighed in on the discussion, saying, " Every time we raise the minimum wage, the number of jobless people increases." Myths dye hard. But the matter of fact is that there is no evidence to back that assertion, as Alan Krueger of Princeton University told the PBS NewsHour.

One of the reasons that increases in the minimum wage would not have an impact on unemployment is that in today's economy an increase in minimum wage would come mostly out of profits. And there is plenty of that to go around.

Think of it this way: You're running a McDonald's selling 1,000 hamburgers a day. You make, say, 75 cents on each Big Mac costing $3.99. Will you raise its price by a nickel to $4.04 in order to make up for an increase in the minimum wage? That would be silly, because $4.04 is not an attractive number, and you'd lose too many sales as a consequence. Rather, you'd be satisfied with a lower profit margin on a Big Mac of 70 cents. But you notice that the Big Mac Meal is selling for $5.69; that gives you the opportunity to raise its price to the next attractive number of $5.75 in order to make up for the increased cost of labor. Will the demand for Big Mac Meals decline? It is doubtful that customers will even notice that tiny increase in price. Hence, Krueger concludes, " The net effect is basically no change in overall employment." Profits might decline slightly, but not on every item. There are offsetting benefits as well: " decently paid workers tend to do a better job."

So profits would not be in great jeopardy. Anyhow, the one thing this economy is good at is generating profits with most of it, of course, going to the top 1 percent. Corporate (after-tax) profits are currently ringing the cash register at $1.8 trillion. This equals about all wages and salaries earned by those employed in the manufacturing sector and in all government employment (state, local, federal) combined. That's quite a lot. Adjusted for inflation, profits increased by a factor of 4.7 since 1968 while minimum wage decreased by a third. That is the best the free market could deliver for the men and women on Main Street.

Another luminary contending for the spotlight, the Florida whippersnapper Marco Rubio, currently the third runner up, had the brilliant hypothesis that, "If you raise the minimum wage, you're going to make people more expensive than a machine." Cashiers are already being replaced by self-checkout machines, but people still need a living wage, Marco! (Not to mention that a few occupations won't be displaced any time soon.) All you need to do is to channel some of the exorbitant CEO salaries toward the common worker.

CEO compensation these days is roughly $7,000 an hour (that is, assuming a 40-hour workweek). In fact, CEO-to-average worker pay has increased by a factor of 15 from the 1960s ratio of 20 to 1 to the present whopping 300 to 1. But in some companies it is astronomical. At Chipotle the ratio is 1,522 to 1. Yes, you read it right. That is not a typo. In some firms, the CEO makes nearly 2,000 times as much as the average worker. At Walmart the ratio is 1,133. Do these CEOs deserve their millions? Not by a long shot. Take the CEO of Coca Cola company. He still pockets $25 million. His rival, the CEO of Pepsico writes a check to himself for $22 million. Yet, I have not heard any of the Republican presidential hopefuls suggest that these millions are hurting our exports. A pittance to the coolies hurts the economy, but the millions to their bosses are quite all right.

Lest I forget to mention, three-quarters of the population support raising the minimum wage to $10 an hour. Even among Republicans there is a majority support for it. Yet, not one of the eight contenders on the podium expressed the slightest empathy for the downtrodden multitude, the American serfs of the 21st century. Not a single one.
Correction: This article previously stated that the CEO-to-worker pay ratio at Chipotle was 1,951 to 1. It's since been update to reflect the correct ratio of 1,522 to 1.

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Column: Why raising the minimum wage is good economics

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It's about time to raise the minimum wage, writes economist John Komlos.

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Strongest argument on raising the minimum wage

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Strongest argument on raising the minimum wage

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we should raise it

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Top Ten Arguments for Raising the Minimum Wage

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It is a myth that the minimum wage is only for teens and entry level workers. Raising the minimum wage to $10 would impact over 15 million workers.

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Minimum wage and how it was back then.

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History of the United States Minimum Wage | Minimum-Wage.org

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The minimum wage is a cornerstone of the United States' labor system, and has been a cutting-edge labor law topic among employers and workers alike for decades. However, the United States hasn't always had a minimum wage.

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Americans are broadly supportive of proposals to raise the minimum wage, although they can't agree on how high it should go, a new HuffPost/YouGov survey shows.

Fifty-three percent of all Americans say that raising the minimum wage will help workers, while just a third see the idea as a negative.

Proposals to raise the minimum hourly wage to $10.10, $12 and $15 are all popular, but there's more backing for a smaller wage hike. Sixty-six percent of Americans support a $10.10 federal minimum wage; 59 percent support $12 and 48 percent support $15.

Public support for a $15 minimum has remained roughly steady since last summer , although advocates have racked up legislative victories in New York and California, which both announced plans for a minimum wage hike .

Partisan agreement also falls apart for the more ambitious proposals. While majorities of both Republicans and Democrats support an increase to $10.10, Republicans largely oppose a higher raise.

Asked which proposal they most favor, a slim 30 percent plurality of Americans said they favored a $15 minimum wage, with 28 percent preferring a smaller rise to $10.10. Another 20 percent staked out a middle ground at $12, while 18 percent want to see the minimum wage unchanged or repealed altogether.

In the Democratic presidential primary, where support for a higher minimum wage is a given, the level of increase has become an ongoing point of contention. Sen. Bernie Sanders (I-Vt.) has made a $15 federal minimum wage a main plank of his campaign, while Hillary Clinton favors a $12 proposal.

Democrats are overwhelmingly supportive of both plans in the latest poll: 80 percent would like to see the minimum wage raised to $12 an hour, while 73 percent would like it raised to $15. When choosing from a range of options, 51 percent are most in favor of raising the minimum wage to $15, while 24 percent prefer $12, 18 percent favor $10.10 and less than 5 percent want to see it kept at $7.25 or abolished entirely.
The HuffPost/YouGov poll consisted of 1,000 completed interviews conducted April 8-10 among U.S. adults, using a sample selected from YouGov's opt-in online panel to match the demographics and other characteristics of the adult U.S. population. The Huffington Post has teamed up with YouGov to conduct daily opinion polls. Most surveys report a margin of error that represents some, but not all, potential survey errors. YouGov's reports include a model-based margin of error, which rests on a specific set of statistical assumptions about the selected sample, rather than the standard methodology for random probability sampling. If these assumptions are wrong, the model-based margin of error may also be inaccurate. for a more detailed explanation of the model-based margin of error. You can learn more about this project and in YouGov's nationally representative opinion polling. Data from all HuffPost/YouGov polls can be found . More details on the polls' methodology are available .

BEFORE YOU GO

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Raising The Minimum Wage Is A Really, Really Popular Idea

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Americans are broadly supportive of proposals to raise the minimum wage, although they can't agree on how high it should go, a new HuffPost/YouGov survey shows. Fifty-three percent of all Americans say that raising the minimum wage will help workers, while just a third see the idea as a negative.

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slandered acts of minimum wage

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Fair Labor Standards Act of 1938: Maximum Struggle for a Minimum Wage

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By Jonathan Grossman When he felt the time was ripe, President Roosevelt asked Secretary of Labor Perkins, ‘What happened to that nice unconstitutional bill you had tucked away?’

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Raising the minimum wage creates winners and losers. Those workers who receive higher pay benefit. But the money for that higher pay comes from somewhere. Advocates for a minimum wage hike usually argue that "somewhere" means profits. They present starting-wage increases as a way to redistribute wealth from business owners to low-wage workers.

Reality is not so simple. Economic research consistently finds that businesses pass minimum-wage costs on to their customers through price increases. Most minimum-wage employees work for small firms in competitive markets. These companies have small profit margins. They can only pay higher wages if they raise prices. Customers-not business owners-pay that cost.

Consequently, minimum-wage increases do little to redistribute wealth. Some low-income families benefit from higher wages, but many more low-income families are hurt by higher prices. Overall minimum-wage effects are more regressive than sales-tax increases.

Some advocates have produced studies claiming that mandatory $15-an-hour starting wages would only slightly increase prices in the fast-food sector. These studies contained numerous analytical errors, including the assumption that a large portion of the wage costs simply disappear. Correcting these errors shows that mandatory $15 starting wages would increase fast-food prices by at least one-fourth.

Minimum-Wage Costs Borne by Customers

Many Americans believe that minimum-wage increases transfer income from business owners to their workers. This impression is incorrect. Most firms employing minimum-wage workers are relatively small businesses, such as fast-food restaurants or "Mom and Pop" retail stores. These firms typically operate in highly competitive markets. As a result, they have fairly low profit margins. The typical fast-food restaurant, for example, earns between 3 cents and 6 cents of profit on each dollar of sales. Most minimum-wage employers could not take the entire cost of higher wages out of their profits, even if they wanted to. And if their profit margins fell significantly, many of these small business owners would seek different lines of work.When starting wages rise, these businesses pass the cost on to their customers and employees.

Most discussion of minimum-wage increases focuses on the employees: Some receive higher pay-at the cost of others being forced to work fewer hours, or being let go. Relatively little attention is paid to how minimum-wage increases affect prices. But customers provide the revenues that cover business expenses. When costs rise, businesses generally compensate by raising prices. Minimum-wage increases are no exception.

Of course, most firms cannot raise prices by themselves without losing business to competitors. A unilateral increase in McDonald's burger prices would send diners to Burger King or Wendy's. But when cost increases hit every firm in an industry, these firms can collectively raise prices. Though higher prices will drive some customers away, no single firm faces a competitive disadvantage.

As a result, most affected businesses respond to mandatory starting-wage increases by raising prices. As the federal Minimum Wage Study Commission found, "The most common types of [employer] responses to the increase in the minimum wage were price increases and wage ripples. No single type of disemployment response was reported with nearly the frequency of these." Customers, not business owners, pay for minimum-wage increases.

Research: Prices Rise

Economists have not studied the minimum wage's price effects as extensively as its employment effects. But the research they have conducted points to higher prices.

Sarah Lemos of the University of Leicester surveyed roughly 30 studies conducted before 2005 examining minimum-wage price effects. These studies found that minimum-wage increases have relatively small effects on the overall price level. They reported that a 10 percent minimum-wage increase raises overall prices by about 0.2 percent to 0.3 percent. Most businesses pay more than the current minimum wage, so minimum-wage increases do not affect their costs or prices very much. But Lemos found that studies of industries with higher concentrations of minimum-wage workers generally showed larger price effects.

This finding fits with economic theory. Southern manufacturers compete nationally and internationally. Higher effective Southern minimum wages do not affect their competitors in other states or countries. Affected manufacturers cannot raise prices without losing customers. However, services are local. Restaurants and hotels paying higher wages compete with local companies whose costs have also risen. Such companies can, and do, respond by raising prices.

More recent research comes to the same conclusion as the studies Lemos surveyed. Daniel Aaronson, Eric French, and James MacDonald, researchers at the Federal Reserve Bank of Chicago and the Department of Agriculture, published a study in 2008 examining how restaurants respond to minimum-wage increases. They used Consumer Price Index (CPI) data and examined the 1996-1997 federal minimum-wage increase. They found that a 10 percent increase in the minimum wage raises overall restaurant prices approximately 0.7 percent. Unsurprisingly, they found larger effects in restaurants that employ more minimum-wage workers. Prices increased twice as much-by approximately 1.5 percent-at fast-food restaurants. In lower-wage regions, fast-food prices rose 1.8 percent. Aaronson, French, and MacDonald concluded that their results are consistent with restaurants passing the full cost of minimum-wage increases on to customers, although their results were too imprecise to ascertain whether this actually occurred.

Their estimate was higher than that found by Aaronson and his coauthors. That difference may result from Fougère and his colleagues using a better methodology; it could also occur because France has a higher minimum wage than the United States. Consequently, French minimum-wage increases have a greater effect on restaurant costs. Fougère and his coauthors found somewhat less than full-cost pass-through, but they could not rule out the possibility that French restaurants passed on the entire cost of minimum-wage increases to their customers.

Even left-leaning researchers come to this conclusion. Sylvia Allegretto and Michael Reich are economists at the University of California at Berkeley. Both publicly advocate raising the minimum wage. These researchers examined how San Jose's 2013 starting-wage increase (to $10 an hour) affected restaurant prices. Using online menu data, they concluded that San Jose restaurants passed essentially the full-wage increase on to their customers.

Interestingly, most data show that fast-food restaurants spend only a quarter of their budget on wages and benefits. Basker and Khan's findings thus suggest that restaurants may raise prices more than what is necessary to cover costs.

Higher Prices Reduce Sales

Customers typically buy less at higher prices. This particularly applies to restaurants. Eating out is a luxury for most Americans; as it becomes more expensive, they cut back. Fast-food customers are especially price sensitive.

The following rows show every study conducted on fast-food price responsiveness since 1990. These studies (unsurprisingly) show fast-food customers to be even more price sensitive than restaurant customers overall. On average, they find that a 10 percent increase in restaurant prices causes fast-food sales to drop 9.5 percent.

This price sensitivity means that restaurants must raise prices by more than the amount by which minimum-wage increases raise costs. When they raise prices, they lose business. But restaurants must still cover fixed costs like rent, marketing, and utilities. That requires additional price increases.

Regressive Price Increases

Customers pay for higher starting wages through higher prices. This complicates many minimum-wage advocates' Robin Hood narrative. They often argue that raising starting wages redistributes income from wealthy business owners to poorer workers. But higher minimum wages actually transfer wealth from customers to workers. Many of those customers have low incomes, while many low-wage workers come from affluent families. The poor do not obviously benefit.

MaCurdy found that minimum-wage workers live in families across the income distribution. While they personally have low wages, many live with family members who earn considerably more. Just over 20 percent of the poorest fifth of American families include a minimum-wage worker. A similar proportion of families in the richest fifth do, too. About one in five workers in the second, middle, and fourth income quintiles also include minimum-wage employees. Some poor workers benefit from minimum-wage increases (if they keep their jobs). But a sizeable portion of the benefits go to middle-class and upper-middle-class families.

Price increases caused by minimum-wage increases may disproportionately hit lower-income families. For example, low-income and middle-income families eat more fast food than high-income families. To the extent a minimum wage increase raises fast-food prices, it will hurt the poor and middle class more than the wealthy. MaCurdy also investigated this, finding the minimum-wage increase disproportionately raised prices on the poor.

On average the 1996-1997 federal minimum-wage increase raised prices 0.59 percent on families in the bottom income quintile-slightly more than any other income quintile. Many economists believe that consumption measures living standards better than income. (Some families with low incomes nonetheless enjoy relative affluence, such as retirees drawing on substantial savings.) So MaCurdy also examined families by consumption quintiles. This showed the costs falling even more heavily on the poor. The minimum-wage increase raised prices for the poorest consumption quintile by 0.63 percent. Prices rose just 0.52 percent in the top consumption quintile.

Minimum-wage-driven price increases raise prices disproportionately on goods and services purchased by the poor. Viewed as a consumption tax, the minimum wage charges the poor higher rates than the middle class or the rich. This makes minimum-wage increases' price effects more regressive than sales taxes.

Table 3 shows MaCurdy's analysis of the net redistributive effects of minimum-wage increases. He optimistically assumed that minimum-wage increases eliminate no jobs. He then analyzed who gained and lost from wage and price changes.

MaCurdy found that even under this best-case scenario, the minimum wage only marginally transfers income to the poor. On average, the 1996-1997 minimum-wage increase raised annual incomes in the bottom and second quintiles by $60 and $16 (in 2010 dollars), respectively. It did this by lowering incomes by $40 and $154 in the fourth and top quintiles, respectively. The average family lost $23.The net redistribution occurred because upper quintiles spend more money in total than the lower quintiles. Consequently, they pay more of the price burden than lower-income families, even though the higher prices represent a smaller portion of their overall income.

MaCurdy also found that mandatory starting-wage increases hurt most low-income families: 78 percent of families in the bottom quintile had no minimum-wage workers. They did not benefit from the increase; however, they did face higher prices. On average, these higher prices cost them $74 a year. The average benefit occurred because the smaller number of winners in the bottom quintile gained more than the losers lost.

These figures represent an idealized scenario under which no employees lose their jobs. The net benefit for low-income families turns negative if significant job losses occur. Unfortunately, workers from low-income families are disproportionately likely to lose their jobs when the minimum wage rises. Economists have found that employers shift their hiring toward teenagers from affluent backgrounds (and away from unskilled adults) after the minimum wage increases.

MaCurdy concluded that minimum-wage increases are an ineffective anti-poverty tool. Even under the best-case scenario they transfer few net resources to low-income families. They also hurt more poor families than they help.

Unrealistic Price Forecasts

Even minimum-wage-hike advocates recognize their proposals will increase prices. Unfortunately, many have unrealistic expectations about how much prices would rise. Two widely reported studies estimated that $15 starting wages would only modestly affect fast-food prices. These studies make price consequences seem trivial. They are also deeply flawed.

Researchers at Purdue University's School of Hospitality and Tourism Management released the first study. They estimated the typical fast-food restaurant's sales and expenses. They then calculated how much costs would increase under $15-an-hour starting wages. Their conclusion: just 4.3 percent.

This finding received significant media attention. The Washington Post gave it a full write-up. CBS News covered it. Many papers reported on it nationwide. This reporting highlighted the conclusion that $15 minimum wages would barely raise fast-food prices-just 22 cents more for a Big Mac. Virtually no reporters examined how the researchers reached this conclusion. Had they looked deeper, they would have found two enormous flaws.

As a result, their derived expenses and profits come to just 92 percent of total sales. Fully 8 percent of total outlays disappeared. This hole in restaurant balance sheets absorbed much of the cost of $15 starting wages. It was a mathematical error that made $15 starting wages seem affordable.

Second, the Purdue researchers assumed that higher prices would not affect fast-food sales. Fast-food sales actually fall sharply when prices rise (as Table 1 shows). This means that fast-food restaurants cannot, for example, cover a 10 percent increase in costs by raising prices 10 percent. Their sales will drop at the higher prices. Consumer price sensitivity means that restaurants must raise prices by more than the amount by which their labor costs increase. The Purdue study ignored this dynamic entirely.

PERI Study's Problems

These flaws render the Purdue study essentially meaningless. Although that studyreceived widespread media coverage, economists have paid little attention to it. Instead, serious supporters of $15 starting wages point to the research of economists at the Political Economic Research Institute (PERI) at the University of Massachusetts at Amherst. In a 2015 working paper, Robert Pollin and Jeannette Wicks-Lim analyzed the consequences of a $15 mandate on the fast-food sector.

The PERI economists used a more sophisticated method than the Purdue researchers to estimate by how much $15 starting wages would cause fast-food prices to rise over four years. They accounted for customer price sensitivity and used reliable sources to estimate total costs. They concluded that fast-food restaurants could cover $15 starting wages with a combination of 12 percent higher prices and revenues generated by trend sales growth. Under their scenario, fast-food employment growth would slow down, but the fast-food industry would not lose jobs.

Advocates use this study to argue that requiring $15 starting wages would have only moderately negative side-effects. Unfortunately, Pollin and Wicks-Lim also made serious errors. Three main errors drive their conclusion.

First, they assumed that nationwide fast-food sales rise without fixed costs increasing as well. They modeled fast-food sales rising at a 2.5 percent annual rate. Pollin and Wicks-Lim then calculated by how much variable costs, such as for food and labor, would rise to cover those higher sales. But they assumed that fixed costs, such as rent and marketing, would not increase at all.

That assumption is wrong. Fixed costs must rise to achieve trend sales growth. That trend growth comes from opening new restaurants, increased advertising, and otherwise expanding the fast-food market. These activities increase fixed costs. If fixed costs stayed constant as industry-wide sales increased, fast-food restaurants would enjoy steadily rising profit margins. They do not.

This error creates a more sophisticated hole in fast-food balance sheets: By assumption, revenues rise while fixed costs remain frozen. In their model this difference between revenues and expenses helps pay for the wage increases. The PERI researchers, like the Purdue researchers, assume that much of the cost of a $15 minimum wage simply disappears.

Second, Pollin and Wicks-Lim greatly underestimate how much price increases affect fast-food sales. They calculate price sensitivity by averaging two of the estimates listed in Table 1, Okrent and Alston (2012) and Okrent and Kumcu (2014). But Okrent and Alston is an extreme outlier, estimating much lower price sensitivity than the other studies. Looking at just these two studies implies that 10 percent higher fast-food prices reduce sales by 5 percent-about half of what the other studies find. USDA economists estimated much greater price responsiveness across the entire restaurant sector. It seems unlikely that fast-food customers care less about prices than customers in traditional sit-down restaurants. The PERI model requires that they do.

Third, the PERI study assumed unrealistically large savings from reduced turnover. Higher minimum wages reduce employee turnover, saving employers costs associated with filling vacant positions. Accounting for this makes sense, but Pollin and Wicks-Lim exaggerated these savings. The PERI study relied on a study of hotel-staff-turnover costs. That study found that staff turnover costs hotels an average of $4,700 per position. Pollin and Wicks-Lim applied that same figure to fast-food restaurants.

They should not have done so. Replacing more-skilled employees costs more than filling less-skilled positions. The hotel-turnover study looked at several different positions. It found smaller costs when less-skilled positions turn over: $2,100 for a hotel line cook; $1,300 for room service wait staff. Moreover, cooking fast food generally requires fewer skills than hotel cooking. Assuming that fast-food restaurants pay more than double the turnover costs of hotel cooks seems implausible.

Significantly Higher Prices and Fewer Jobs

Had the PERI economists corrected these problems their analysis would have revealed that $15 starting wages have large negative consequences. Table 4 shows what the PERI model would show if Pollin and Wicks-Lim made three improvements to their calculations:

1. Assuming that fixed costs grow at the same rate as trend sales growth, instead of assuming that fixed costs remain unchanged when trend sales increase;

2. Using the average responsiveness of fast-food sales to price increases found by academic economists instead of looking at only two studies, one of which is an extreme outlier; and

3. Modeling turnover costs of $1,000 instead of $4,700 per fast-food employee vacancy.

The corrected PERI model shows that $15 starting wages significantly increase fast-food production costs. Turnover savings and balance sheet holes no longer absorb much of this increase. In response, the restaurants must raise prices. This causes sales volume to drop; food and labor costs fall proportionately as well. Nonetheless, the original price increase no longer covers fixed costs, such as rent and marketing, at the reduced sales volume. So the restaurants must increase prices yet more. Prices finally reach an equilibrium level where the slightly higher revenues from the price increases and the reduced variable costs (such as employment and food) from lower sales fully offset the higher wage rate.

On the whole, the corrected PERI model appears more reflective of the likely effect of mandatory $15 starting wages than this author's earlier analysis. Nonetheless, both models show large price and employment effects. Contrary to advocates' claims, requiring $15 starting wages would significantly raise prices and reduce employment in the fast-food sector.

Higher Prices Negate Anti-Poverty Effects

Consumers pay for higher minimum wages through higher prices. Large minimum-wage increases require large price increases. The burden of these price increases falls disproportionately on low-income and middle-income Americans. These price increases are more regressive than sales taxes.

This dynamic largely negates minimum-wage increases' anti-poverty effects. Everyone in society-not just business owners-pays the costs through higher prices. Meanwhile, the benefits go to families up and down the income distribution. On balance, minimum-wage increases provide little net benefit to the poor; in fact, more low-income families lose than gain. Minimum-wage increases do not accomplish what their supporters claim they will.
-James Sherk is Research Fellow in Labor Economics in the Center for Data Analysis, of the Institute for Economic Freedom, at The Heritage Foundation. A version of this paper will appear in a forthcoming report from the Employment Policies Institute
Appendix 1

The figures for the "Corrected PERI" in Table 4 come from the author's replication of the model presented in Robert Pollin and Jeanette Wicks-Lim, "A $15 U.S. Minimum Wage: How the Fast Food Industry Could Adjust Without Shedding Jobs," adjusted to use more realistic assumptions.

The model assumes total fast-food revenues of $232 billion in the first year (before any minimum-wage increase) and a total fast-food wage bill (including payroll taxes) of $56.3 billion. The model also assumes 2.5 percent trend growth in fast-food sales volume, a constant profit margin of 5 percent of revenues, and that a $15 wage mandate would increase average labor costs by 59 percent (before accounting for any reduction in turnover expenses). These figures come from Pollin and Wicks-Lim's estimates.

In the model, the $15 mandate raises labor costs (though these cost increases are partially offset by turnover reductions). To remain profitable, the industry raises prices, which causes sales volume to fall relative to trend. The reduction in sales volume reduces variable costs (both labor and purchases) by the same proportionate amount relative to trend, but fixed costs continue to grow at the trend rate. In equilibrium, prices must rise 24 percent while sales volume drops 13 percent relative to the first year, and 21 percent relative to the projected trend growth.

The corrected model differs from the Pollin and Wicks-Lim estimates principally in that:

1. It assumes that fixed costs grow at the same rate as trend sales volume instead of remaining unchanged at the year-one level;

2. It assumes a price elasticity of fast-food demand of -0.95 instead of -0.5; and

3. It assumes that fast-food restaurants experience a 100 percent (not 120 percent) annual turnover rate and that filling a vacancy costs $1,000 (not $4,700). Under these assumptions reduced turnover offsets 2.8 percent of the higher wage bill associated with a $15 mandate, not 20 percent.

The full model calculations are available from the author upon request.

Appendix 2

Sources for Table 1

Tatiana Andreyeva, Michael W. Long, and Kelly D. Brownell, "The Impact of Food Prices on Consumption: A Systematic Review of Research on the Price Elasticity of Demand for Food," American Journal of Public Health, Vol. 100, No. 2 (February 2010), Table 1.

Abigail Okrent and Aylin Kumcu, "What's Cooking? Demand for Convenience Foods in the United States," selected paper prepared for presentation at the Agricultural and Applied Economics Association's 2014 AAEA Annual Meeting, Minneapolis, MN, July 27-29, 2014.

Mark D. Jekanowski, James K. Binkley, and James S. Eales, "Convenience, Accessibility, and the Demand for Fast Food," Journal of Agricultural and Resource Economics, Vol. 26, No. 1 (2001).

Douglas M. Brown, "The Restaurant and Fast Food Race: Who's Winning?" Southern Economic Journal, Vol. 56, No. 4 (April 1990), pp. 984-995.

Timothy Richards and Lisa Mancino, "Demand for Food-Away-from-Home: A Multiple-Discrete-Continuous Extreme Value Model," European Review of Agricultural Economics, Vol. 41, No. 1 (2014), pp. 111-133.

Abigail Okrent and Julian Alston, "The Demand for Disaggregated Food-Away-from-Home and Food-at-Home Products in the United States," United States Department of Agriculture, Economic Research Service, Economic Research Report No. ERR-139, August 2012.

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$15 Minimum Wages Will Substantially Raise Prices

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Raising the minimum wage creates winners and losers. Those workers who receive higher pay benefit. But the money for that higher pay comes from somewhere. Advocates for a minimum wage hike usually argue that "somewhere" means profits. They present starting-wage increases as a way to redistribute wealth from business owners to low-wage workers.

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about minimum wage

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Education World Lesson Resource Roundup:

If you've been keeping an eye on the news recently, you've likely heard the buzz around minimum wage in the United States. State-by-state, worker protests and demonstrations argue the benefits and challenges around potentially raising the minimum wage for employees across the nation. The debate garnered even more attention following President Barack Obama's call for minimum wage increases during his 2014 State of the Union Address.

Surely, few would complain about having a little more money in their own pocket. However, there's a much larger argument at hand. And to truly understand the argument, one needs to understand the history of minimum wage, some basic economic concepts, as well as the major points being shared by the pundits. Today, Education World offers a solid roundup of resources to get students discussing the many complexities of the minimum wage debate in our country.

Building Prior Knowledge: The History of Minimum Wage

The actual idea of the government regulating workers' wages traces back to England's 1349 "Ordinance of Labourers", when King Edward III set a maximum wage law. In time, amendments to these laws led to the establishment of a living wage, fixed to the general price of food, which in turn ushered in the necessity of a minimum wage. The United States minimum wage story begins in Massachusetts in 1912, where a commission first recommended discretionary minimum wages for women and children.

However, nearly every attempt at establishing such wages has come under fire and intense scrutiny. Two years after the National Industrial Recovery act of 1933's attempt to establish the first national minimum wage, the United States Supreme Court declared it unconstitutional ( Schechter Poultry Corp. v. United States). When the Fair Labor Standards Act re-instituted it in 1938, it was again immediately challenged in the United States v. Darby Lumber Co. case of 1941. However, this time, the minimum wage and the Fair Labor Standards Act was upheld, initiating a highly-debated history of wage discussion on the political front. Today, the federal government sets a minimum wage, which some states meet, and some states choose to exceed. The video below, put together by TIME magazine provides a fascinating overview of the history of minimum wage and its evolution over time:

Students who are familiar with vlogger Hank Green and his brother young adult literature author/vlogger John Green might be interested in watching one of their popular YouTube Channels, CrashCourse. Below, CrashCourse tries to create context for the minimum wage and other economic concepts in a student-friendly manner:

Differentiating Minimum Wage With NewsELA

NewsELA allows teachers to access differentiated texts for the modern heterogeneous classroom. NewsELA allows students to access current events articles (updated daily), and choose the reading Lexile level that is most appropriate for them. Due to the recent rhetoric around wages, NewsELA has a lot of engaging content on the matter. Note: You will need a NewsELA account to access the content below.

The Associated Press discusses California's fight for $15. This piece does a great job at outlining the general pros and cons of wage raise.

The Los Angeles Times also creates a nice profile of the issues, discussing worker need, as well as some predicted complications with raising wages.

The Washington Post points out the mysterious absence of the subject of minimum wage in the current Democratic presidential primaries.

The Kansas City Star notes how attention on the pertinent issue of wage theft has stemmed from the larger discussion around minimum wage.

The Associated Press examines the President's arguments about income equality during the aforementioned 2014 State of the Union Address.

Remember, non-fiction texts come in a variety formats. Common Core reading skills apply to both the written word and a wide range of visual layouts. Infographics are a great way for students to visualize otherwise complex pieces of data, not to mention analyzing how they are related to each other. Check out some of the interesting ways minimum wage data has been compiled on the following infographics:
Who's Helped By Raising the Minimum Wage? Portrait of a Minimum Wage Worker Minutes of Minimum Wage Work to Buy A Big Mac
All Employers: If the Minimum Wage Was Increased to $10.10, Would You..?
Minimum Wage: Myth vs. Fact How Will the Minimum Wage Increase Affect the Economy? 3 Ways a High Minimum Wage Hurts People
Final Note: The key here, across the board, is providing a balanced argument. This is a hotly-debated issue and be sure to allow students to formulate their own conclusions on the data provided. The resources above represent only the tiniest sample of how rich this discussion could be in the classroom. Have fun, challenge all assumptions, and encourage inquiry!
Compiled by Keith Lambert, Education World Associate Contributing Editor Lambert is an English / Language Arts teacher and teacher trainer in Connecticut.

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Education World Resource Roundup: Minimum Wage | Education World

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Education World Lesson Resource Roundup: If you've been keeping an eye on the news recently, you've likely heard the buzz around minimum wage in the United States. State-by-state, worker protests and demonstrations argue the benefits and challenges around potentially raising the minimum wage for employees across the nation.

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should the federal government raise the minimum wage

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should the federal government raise the minimum wage

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To 15$

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Three MIT Sloan faculty experts weigh the implications

Should the U.S. government increase the hourly minimum wage from $7.25 to $15? The issue is nuanced: Raising wages would boost employee paychecks, but it could also cause cost-conscious companies to reduce hiring. But with many states taking independent action to increase wages-and with a $15 federal minimum wage "over time" added to the Democratic Party platform last week -we asked three faculty experts to discuss the implications.
Boost jobs through an earned income tax credit, better education, and reduced licensing requirements Erik Brynjolfsson
We've seen median wages stagnate for almost 20 years in the United States. How can we increase them while also boosting jobs?

Here are three ideas: One: expand the Earned Income Tax Credit, or EITC; Two: reinvent education; and Three: reduce occupational licensing.

Here's how the EITC works. Suppose that someone is earning $12 per hour, and we'd like to them to earn $15. With an EITC, they'd get an additional $3 per hour worked from the government. The money to pay for this would come from general tax revenue including income taxes, or ideally increased taxes on carbon dioxide emissions, congestion, and other things we'd like to discourage. One of the benefits of the EITC is that it encourages employers to hire more workers, unlike increasing the minimum wage. That's important because I've been convinced by sociologists like Bob Putnam that work has value beyond the dollars it provides. It's good for society to keep people engaged in the workforce, and we should be rewarding entrepreneurs and managers who come up with jobs.

Another way to increase both wages and jobs is by increasing the educational levels of our workforce. The wage gap between the most and least educated workers has grown enormously since the 1980s, and better-educated workers also have much lower unemployment rates and higher rates of workforce participation. But it's not enough to simply do more of the same. We need to reinvent education for an age where machines are increasingly doing cognitive tasks-the second machine age. That means a greater emphasis on skills like teamwork, project management, persuasion, leadership, coaching, and creativity. I believe these can be fostered in the right educational settings.

Last but not least, we need to reduce unnecessary occupational licensing. Over 25 percent of workers now require a license to do their jobs, a five-fold increase since the 1950s. While some licenses are important for safety or other reasons, research has shown that excessive licensing requirements reduce employment and mobility. Requirements vary widely across states: Michigan requires three years of education and training to become a security guard, while most other states require 11 days or less.

Having more people working and earning good wages is good not just for the people we help, but for all of us: People who work are more engaged in community, creating a virtuous cycle. If we do these three things, we'll be on track to becoming a richer, more engaged, and more dynamic nation.
A higher minimum wage, by region Simon Johnson
-- ErikBrynjolfsson, professor of information technology and director of the MIT Initiative on the Digital Economy

I'm in favor of an increased minimum wage, but there is a valid question of "by how much?" Would you lose jobs as a consequence of increasing the minimum wage above some level? Labor economists have studied this carefully, and while there is no consensus, it's not difficult to support an increase to $12 per hour on the basis of the available evidence.
-- Simon Johnson, professor of global economics and management A modest, stepwise increase over time Thomas Kochan
In areas with higher living costs, a higher minimum wage can make sense-and some states are already planning to phase in $15 per hour over several years.

However, especially in less heavily urbanized areas with a lower cost of living, a higher national minimum wage could have unintended consequences, in the sense of reducing hiring and potentially increasing unemployment.

It's clearly beyond time to increase the minimum wage. But it's a political stalemate: It has less to do with economics than politics. Congress has not acted positively on labor legislation for a long time. They block essentially all changes in labor policy, whether it's increases in wages, updating hourly wage legislation, or in other areas of labor relations law, all of which badly need to be updated.

The stalemate has led states to take action on their own. Half the states have recognized the need for an increase. It's time to catch up. We're at $7.25, which is ridiculous.

My view is that $15 is a reasonable target for the future, but we should raise it in steps at the federal level. An immediate jump to $15 would be too abrupt a change. It could have significant negative employment consequences. If we increased it step-by-step with a goal toward $15 over a period of years, it wouldn't have significant employment effects. We could start at $10, then go up to $15 over four years.

-- Thomas Kochan, professor of work and employment research, and co-director, MIT Sloan Institute for Work and Employment Research

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Should the federal government raise the minimum wage to $15?

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Should the U.S. government increase the hourly minimum wage from $7.25 to $15? The issue is nuanced: Raising wages would boost employee paychecks, but it could also cause cost-conscious companies to reduce hiring.

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Different Laws on Minimum wage

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Minimum Wage Laws in the States - Wage and Hour Division (WHD) - U.S. Department of Labor

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US Department of Labor: WHD's mission is to enhance the welfare and protect the rights of American workers by enforcing employment laws.

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for it or against it?

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The debate over raising the minimum wage has been a hot topic after President Obama explained in his 2014 State of the Union Address that he intends to raise the minimum wage from $7.25 to $10.10 per hour, an increase of over 40 percent. While the President and his supporters claim that this increase would greatly benefit the economy and result in no loss of jobs, the opposition claims that this would be detrimental to minimum wage employees, resulting in 500,000 fewer jobs. In the following article, we're outlining the pros and cons of raising the minimum wage.

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Economic Stimulus: Raising the minimum wage means minimum wage workers have more money to expend which means more money ripples throughout the economy as minimum wage employees are able to spend more.

More opportunity for jobs: If these minimum wage employees are spending more, then businesses are earning more and need to hire more employees to keep up with the increased sales from the minimum wage employees who are buying more.

Reduced Expense for Social Programs: Employees surviving at minimum wage are also often the same people who must rely on additional support of government run social programs to support themselves and their families on such a small amount of income. Raising minimum wage means some of these people would be able to better support themselves without leaning as heavily on social programs and this would ultimately mean lower taxes or a reallocation of those funds to support other needs.

Decreased Turnover Rate: Employees who are making a higher minimum wage feel more comfortable and satisfied in their minimum wage jobs meaning they are less likely to quit. This means there would be a lower turnover rate, which results in fewer expenses to hire and train new employees.

Inflation: The federal minimum wage needs to be raised in order to account for inflation, which raises every year and the minimum wage has only been risen three times in the past three decades.

Layoffs: If an employer has a tight compensation budget and the minimum wage is raised, it means they can no longer compensate the same number of employees at a higher rate and must make layoffs to remain within budget. So, while some employees may be making slightly more money, others will be left unemployed.

Price increase: Employers might raise prices of their product in order to generate enough income to support their more highly paid minimum wage employees, which could ultimately create a ripple effect for other shops and industries, resulting in a slightly higher cost of living, resulting in another push to raise minimum wage again.

Fewer Hirings: If business must pay their minimum wage employees more, they cannot afford to hire as many employees. According to a Federal Reserve Bank of Chicago study, "10 percent increase in the minimum wage lowers low skill employment by 2 to 4 percent and total restaurant employment by 1 to 3 percent." Or instead of hiring fewer employees, the company may start outsourcing jobs to employees in countries that are willing to work for much less than $10.10 per hour, resulting in fewer jobs for Americans.

Competition Will Intensify: If minimum wage increases, overly qualified individuals will be vying for minimum wage positions, pushing younger, inexperienced workers out of the running and robbing them of their opportunity to gain experience and knowledge to build a resume for themselves and enter the workforce.

Applied Inconsistently: Many states have their own set minimum wages, which are currently above $7.25 per hour already. As of January 1, 2014, 21 states (and D.C.) have minimum wages above $7.15 per hour (Washington being the highest at $9.32 per hour), so the amount the national minimum wage is set at varies in significance from state to state.

Studies from both sides of the debate make it relatively clear that increasing minimum wage will not make a significant impact on the poverty level. According to the Congressional Budget Office report on The Effects of a Minimum-Wage Increase on Employment and Family Income, increasing the minimum wage from $7.25 to $10.10 per hour will only reduce the number of people in poverty by 900,000, a relatively few portion of the 16.5 million people that would supposedly benefit from the raise. This is because of the number of minimum wage workers, relatively few are actually in poverty, and of families who live in poverty, only about 7 percent have a full-time worker in the family meaning poverty is not because people are not being paid enough, it is because they are not working or not working enough.

Some suggest that creating more jobs for people who need them rather than raising earnings for people who already have them is a better solution for reducing the national poverty rate. Of course, this does not mean that raising the minimum wage wouldn't be greatly beneficial to those earning it, but ultimately it does not help those who do not already have jobs to begin with.

What is your option about the national minimum wage? Should we raise it or not? How would that affect you? Join the conversation in the comments section below.
The Pros and Cons of Raising the Minimum Wage Chad Halvorson

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The Pros and Cons of Raising the Minimum Wage - When I Work

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The debate over raising the minimum wage has been a hot topic after President Obama explained in his 2014 State of the Union Address that he intends to raise the minimum wage from $7.25 to $10.10 per hour, an increase of over 40 percent.