Updated: Oct 15, 2021
A federal minimum wage was introduced during Franklin D. Roosevelt’s New Deal era as a mechanism to create a minimum standard of living that would protect the health and wellbeing of employees and stabilize the economy after the Great Depression. The federal minimum wage is a floor limit for state governments, meaning states are allowed to institute a minimum wage higher than the federal amount but never lower. The federal minimum wage was always supposed to represent the bare minimum salary considered humane and viable to live off.
The debate over the federal minimum wage has caught fire in recent years, with the House of Representatives in 2019 passing a bill to raise the minimum wage to $15 by 2025. The same reform was recently included in the preliminary version of the American Rescue Plan, a $1.9 Trillion Covid-19 Relief and recovery package. As of 2019, 67% of Americans support a federal minimum wage increase to $15; however, the figure has remained at $7.25 since 2009.
In the scope of the American political Overton window, or the range of politically acceptable mainstream ideologies, left-wing progressives such as Bernie Sanders have been the main driving force behind the movement to raise the minimum wage. Since 1993, he has advocated for progressive labor and wage legislation. His legislation has also garnered support from numerous accredited economists, who state that 76 million Americans stand to benefit from the proposed increase of the minimum wage to $15.
The motivation for all forms of government intervention can be tied back to the social contract theory, an implicit agreement recognized by the governed and the government. The theory states that in exchange for limitations of individual freedoms, the state must create the greatest welfare for the governed by acting in their best interest.
As previously mentioned, the minimum wage was created as a post-Great Depression reform to create a minimum standard of living, contrary to conservative and libertarian claims that the minimum wage was never intended to be a living wage. However, the current federal minimum wage of $7.25 fails to sustain hard-working Americans’ basic living costs. The federal minimum wage has remained stagnant since 2007. Since it hasn’t been indexed with inflation, its purchasing power has continued to decline. Achieving financial independence through living frugally simply isn’t an option for the working poor. The federal minimum wage isn’t sufficient to afford a one-bedroom rental apartment in 95% of United States counties,
without allocating an exorbitant figure of over 30% of an individual’s annual income. In addition, 40% of American households would not be capable of covering a $400 unexpected emergency expense with cash or savings, a category the vast majority of minimum wage workers would fall under.
The state of the minimum wage inhibits low-income Americans from accumulating savings or investing money in their or their children’s future, which creates a negative feedback loop of cyclical poverty. Inaction in raising the minimum wage proves to be highly immoral, as the current figure fails to give Americans free will in determining their financial future and results in a negative utilitarian output for the lowest-earning workers.
As long as capitalistic structures remain in place using the practice of wage labor, worker exploitation will continue to subsist due to the capitalist class viewing labor as a commodity and extracting the proletariat’s surplus-value. However, even for capitalistic standards, the level of exploitation of the American working class continues to skyrocket. Up to 1979, productivity growth and hourly compensation growth followed a strong linear relationship, with a correlation coefficient of almost one.
Yet from 1979-2018, due to increased employer resistance to labor unions and neo-liberal trickle-down economic policies, a 69.6% rise in productivity has resulted in a meager 11.6% increase in hourly compensation. The fruits of the labor of the American working class continue to be funneled towards exorbitant corporate profits. With the decline in collective bargaining power over the years, it appears improbable that this trend will waver without federal intervention.
Currently, Black people, women, and more specifically, Black women, are overly represented in unemployment rates. Black workers are more likely than their white counterparts to be unemployed at every level of education. Women are paid 22.6% less than men with similar education and experience, and Black women in the U.S. are paid 38% less than white men and 21% less than white women. However, according to an Economic Policy Institute (EPI) study, raising the federal minimum wage to $15 an hour would increase the compensation of 38.1% of Black workers, while raising white workers’ compensations by 23.2%.
Additionally, as observed in an EPI and National Employment Law Project study, 59% of the 19 million workers who would benefit from an increased federal minimum wage are women, which means that the same minorities disproportionately impacted by poverty and economic insecurity would be the ones benefiting the most from an increase in the minimum wage. Consequently, a $15 minimum wage is an important step in dismantling income inequality and occupational discrimination.
Economic Benefits, Common Rebuttals
A thriving economy is not one where its lowest-paid workers have little to no extra money for spending that will boost the economy. According to an EPI study, raising the minimum wage will allow low-income workers to put more of their earnings back into the economy, fueling a cycle where greater demand for goods will lead to job growth and higher productivity levels and GDP.
When San Francisco raised their minimum wage to $12.25 before tips, the leisure and hospitality and leisure industries saw job growth and greater earnings, suggesting again that a higher minimum wage is beneficial in expanding the economy.
It is reasonable to assume that our economy may be placed at a disadvantage when we mention the idea of businesses spending more to pay their employees. However, the reality is that the working class full of hard-working Americans who simply want to provide for their families is the backbone of our society. The data shows that economically uplifting, empowering, and supporting the working class will kick start a cycle of greater demand and greater productivity that benefits everyone.
One of the most prominent refutations to increasing the federal minimum wage is that, allegedly, due to an increase in worker payrolls, companies will be forced to lay off workers and pursue further automation. This claim has received backing from the Congressional Budget Office’s analysis of this year’s Raise the Wage act, stating that over one million jobs would be cut.
However, this report’s validity comes into question when considering some of its theoretical and practical limitations.
For one, the figure of job loss is not aggregated to account for adults who would be compensated enough to drop a second job and financially sustain themselves, or teenagers who would no longer need to hold a job out of family financial hardship. Furthermore, recent research conducted at the Institute for Research on Labor and Employment at U.C. Berkeley contradicts this conclusion. In six cities in the U.S. with minimum wages well over ten dollars, they estimate an interval of a 0.3% decrease to a 1.1% increase in employment in the fast food industry at a 90% confidence level. The data regarding minimum wage increases and effects on employment continues to be split, and lack consensus. However, both theoretically and empirically, there is a strong argument for benefits such as reduced worker turnover from increasing the minimum wage having the potential to cancel out higher labor costs for businesses.
Arguably the second most common refutation to a federal minimum wage increase is that it will put small business owners at a disadvantage, as it would likely be easier for larger companies to sustain themselves while paying their employees more. While this hypothetical makes sense, thea majority of survey data suggests that an increase in hourly wages would not be as detrimental to small businesses as the Right claims. 57% of small business owners expect no change to their business operations as a result of a wage increase, while only 22% expect less personal profit, 14% expect less business profit, 14% expect to cut worker hours, and just 8% expect to be forced to lay off workers, according to a CNBC survey.
The economic stimulation that would come as a result of a minimum wage will also serve to benefit small businesses. Putting more money into the pockets of the working class will directly lead to more money being pumped back into the economy in the form of higher spending at small businesses. Not only is there limited data to back up conservative claims that a higher minimum wage will drown small businesses, but economic theory also dictates that everyone in the economy serves to benefit when the working class is not struggling to stay afloat. A minimum wage increase isn’t just the humane, moral thing to do: it paves the way for economic prosperity.