Additionally, a National Bureau of Economics working paper finds positive effects of an increased minimum wage on incomes for those at the bottom of the income distribution. 12,13 It also estimates the act would provide wage increases for 27 million Americans, or 15% of the labor force, and an increase in total payroll of $509 billion over the first 10 years. The nonpartisan Congressional Budget Office (CBO) estimates that if the Raise the Minimum Wage Act were implemented, 900,000 Americans would be lifted out of poverty by 2025. Raising the minimum wage is one policy tool that can be used to help increase the wealth of families and individuals in financial need. As a wealthy country, the United States has the capacity to support poor working Americans. There is a stark difference between the federal minimum wage and a living wage. A single mother with two children earning the federal minimum wage would need to work 138 hours per week, essentially 24 hours a day for six days. 11 To reach this combined annual income, each adult would have to work 75 hours per week - essentially two full-time jobs - if employed at the current federal minimum wage. According to the Living Wage Calculator, a tool developed by researchers at MIT, the living wage in the United States in 2019 was $68,808 per year before taxes for a family of four (two working adults and two children). Estimates of this living wage vary depending on geography (e.g., New York City versus Indianapolis). However, as it stands today, the federal minimum wage does not provide many workers with a living wage, defined as the income needed to cover basic essentials such as food, childcare, housing, health insurance and transportation. Instituting a minimum wage is a mechanism by which to address poverty. 9 Introduction of this legislation, along with support from the Biden administration, has renewed the national debate about the goals, costs and role of the government in setting a minimum wage. The act proposes to increase the minimum wage from $7.25 per hour to $15 per hour by 2025, and institute automatic raises to keep pace with median wages. This past January, the Raise the Wage Act of 2021 (H.R., 603 S.53) was introduced in both the U.S. 7 Additionally, cities like Seattle are implementing their own minimum wages above even state requirements. have minimum wages above the federal requirement, with 18 of them including automatic adjustments to respond to inflation. 5,6 States and municipalities can institute their own minimum wage above the federal requirement. The most recent boost, in 2007, implemented a three-year phased increase to $7.25 per hour, where the minimum wage remains today. Since its inception, the federal minimum wage has been increased 22 times. 3 Among other things, the legislation codified a federal minimum wage of $0.25 per hour, with the purpose of creating “a minimum standard of living to protect the health and well-being of employees.” 4 However, it did not stipulate an automatic cost-of-living adjustment rather, it required an act of Congress to make such an adjustment. Roosevelt championed the minimum wage as a way to support laborers who suffered during the Great Depression, ultimately signing the Fair Labor Standards Act of 1938 (FLSA). The concept of a minimum wage began in Europe in the mid-19th century, making its way across the Atlantic in the early 20th century. 1 The Past and Present of the Federal Minimum Wage in the United States However, others contend that raising the minimum wage could have unintended consequences for workers and businesses, especially small- and medium-sized businesses still reeling from the pandemic. Some economists argue that now, more than ever, the federal government should increase the federal minimum wage, believing that higher wages will entice more workers to return. Of the many discussions being held in Washington and beyond about potential policy prescriptions, one long-standing debate has returned to the forefront: should the federal government increase the minimum wage, which hasn’t changed in a decade? In a previous Kenan Insight, we pointed to several factors that are potentially contributing to the current labor imbalance, including ongoing public health concerns, caregiving responsibilities and additional unemployment benefits. economy begins to recover from the COVID-19 pandemic, there has been widespread reporting of ongoing labor shortages, especially in lower-wage industries, such as food service, that were hard hit by the crisis.
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