Last year, Americans voted to take the country in a much-needed new direction by electing Democrats to lead Congress. Democrats promised to seek better pay for working Americans, starting by raising the federal minimum wage to $7.25/hour. In May, after a decade-long battle, Congress, under Democratic leadership, accomplished that important goal. While the Senate passed H.R.2, the Fair Minimum Wage Act of 2007, earlier in the year, the wage was finally increased as part of P.L. 110-28, the U.S. Troop Readiness, Veterans’ Care, Katrina Recovery, and Iraq Accountability Appropriations Act, 2007 (2007 Emergency Supplemental).
The legislation will raise the federal minimum wage from $5.15/hour to $7.25/hour in three steps over two years, benefiting millions and helping to reverse years of wage stagnation. While more needs to be done, raising the minimum wage is an important step toward economic security for many Americans. As we continue our work on behalf of the American people, the nation can be assured that Democrats are as committed as ever to supporting workers and their families.
After ten years, Congress passed and the President signed legislation to raise the minimum wage. The Fair Minimum Wage Act of 2007 amends the Fair Labor Standards Act of 1938 to raise the federal minimum wage incrementally from the current $5.15 per hour to:
- $5.85 per hour, beginning 60 days after the bill’s enactment (the President signed the bill on May 25; this first step went into effect on July 24);
- $6.55 per hour 12 months, or one year, after that sixtieth day; and
- $7.25 per hour 24 months, or two years, after that sixtieth day.
American workers are long overdue for a raise. Despite the efforts of Democrats, Congress has not raised the minimum wage since 1997. At the current level of $5.15/hour, a person working full-time (40 hours per week, 52 weeks per year) makes only $10,712 per year before taxes, which is over $6,000, or 40 percent, below the federal poverty guidelines for a family of three. While the cost of living has skyrocketed, the value of the minimum wage has eroded by more than 20 percent since the last increase and, adjusted for inflation, is at its lowest since 1955. As an illustration, Congress has allowed the minimum wage to drop to only 31 percent of average wages, which is woefully out of sync with previous periods when the minimum wage was maintained at or around 50 percent of average wages. (Economic Policy Institute, “Minimum Wage Issue Guide,” 4/07; Jared Bernstein Testimony Before Senate Finance Committee, 01/10/07; “Hundreds of Economists Say: Raise the Minimum Wage,” 10/06)
The minimum wage has remained stagnant while Congress and the President have received raises. Since 1997, Congress has voted to give themselves eight raises, increasing their salary by $31,600. In 2001, Congress gave the President a raise as well, doubling his salary to $400,000. The time has certainly come to do the same for American workers, who are in desperate need of a raise.
Wages for average Americans have not kept up with productivity. Americans are working harder and expanding the economy but are not seeing a return on their efforts in the form of higher salaries. While productivity is up almost 19 percent, median household income has declined by 2.7 percent during the Bush Administration. Since 2001, entry-level wages for male and female high school graduates have fallen, down 3.3 percent and 4.9 percent, respectively. (Center on Budget and Policy Priorities Analysis 06/07; Census Bureau, 08/06; Economic Policy Institute, “Income Picture,” 08/29/06; New York Times, “Many Entry-Level Workers Find a Rough Market,” 9/4/06)
While corporate profits are up, worker earnings are down. Corporate profits have more than doubled under the Bush Administration; according to some estimates, profits have increased by more than 80 percent. Since 2001, corporate profits are at their highest share on record of national Gross Domestic Product (GDP) growth — an average of 46 percent. Meanwhile, wages and salaries — at an average of 34 percent — are at their lowest share on record, going back to 1929. Confirming a connection, a report by Goldman Sachs economists notes that, “the most important contributor to higher profit margins over the past five years has been a decline in labor’s share of the national income.” (Center on Budget and Policy Priorities, “Share of National Income Going to Wages and Salaries at Record Low in 2006,” 3/29/07; Bureau of Labor Statistics, “Output per Hour for Nonfarm Business;” Bureau of Economic Analysis, “Corporate Profits After Tax with Inventory Valuation Adjustment (IVA) and Capital Consumption Adjustment (CCAdj);” New York Times, “Real Wages Fail to Match Rise in Productivity,” 8/28/06)
Workers are being left behind. While the average American worker has not benefited from an increase in productivity and profits, and Congress had refused to raise the minimum wage, CEO salaries have soared. Since the previous raise, CEO salaries have increased by 73 percent. The average CEO earns 821 times more than the average minimum wage earner. That is, one CEO earns more before lunch on a single day than a minimum wage worker earns all year. (New Orleans CityBusiness, “CEO pay is 821 times minimum wage,” 06/27/06; Economic Policy Institute, “CEO pay-to-minimum wage ratio soars,” 6/27/06)
The cost of living has skyrocketed. Since September 1997, when the minimum wage was last increased, the overall cost of living has increased by 29 percent and the cost of essentials, including food, housing, gas, and health care, has soared.
- Food costs have increased by 28 percent. (Center on Budget and Policy Priorities Analysis based on Bureau of Labor Statistics data, 06/07)
- Housing costs have risen by 33 percent (a worker earning the minimum wage would be unable to afford the rent on a two-bedroom apartment in any of 50 states or the District of Columbia). (Center on Budget and Policy Priorities Analysis based on Bureau of Labor Statistics data, 06/07)
- Gasoline prices have jumped by 140 percent. (Center on Budget and Policy Priorities Analysis based on Bureau of Labor Statistics data, 06/07)
- Health care costs have increased by 48 percent. The average cost of a family health care premium is $11,480 per year — far more than a worker earning the minimum wage makes in a year. (Center on Budget and Policy Priorities Analysis based on Bureau of Labor Statistics data, 06/07; Kaiser Family Foundation, Employer Health Benefits, 2006)
- Child care costs have increased by 58 percent. A recent report from the Childrens Defense Fund shows that a single parent working full-time at the current minimum wage earns enough to cover only 40 percent of the cost of raising two children. (Center on Budget and Policy Priorities Analysis based on Bureau of Labor Statistics data, 06/07; Children’s Defense Fund, “Increasing the Minimum Wage: An Issue of Children’s Well-Being,” 4/7/05)
- The cost of educational books and supplies has jumped by 72 percent. (Center on Budget and Policy Priorities Analysis based on Bureau of Labor Statistics data, 06/07)
Unable to make ends meet, millions of working Americans are living in poverty. Nearly 37 million Americans live in poverty, 5.4 million more than when President Bush first took office. Nearly 13 million of those in poverty are children. An unacceptably low minimum wage has been a key part of the problem. Among full-time, year-round workers, poverty has doubled since the late 1970s — from roughly 1.3 million then to more than 2.9 million today. For a minimum wage worker supporting a family of three, the earned income tax credit (EITC) and assistance programs, all designed to help low-wage workers, still do not raise the family above the poverty line. (Economic Policy Institute, “Minimum wage increasingly lags poverty line,” 01/31/07; Census Bureau, August 2006 and History Poverty Tables, 12/14/05; Center for Budget and Policy Priorities, “Poverty Remains Higher, and Median Income for Non-Elderly Is Lower than when Recession Hit Bottom,” 9/1/06)
Raising the minimum wage to $7.25/hour will help some low-income families out of poverty. An increase in the minimum wage to $7.25/hour will add nearly $4,400 to a full time, year round minimum wage worker’s income. In some areas, this additional money will be enough for a low-income family of three to cover months of groceries, utilities, or rent or nearly two years of child care or college tuition at a public two-year college. More importantly, when combined with the EITC and assistance programs, the additional income could lift a family of four above the poverty line, even afterpayroll taxes. While still not good enough, raising the minimum wage to $7.25/hour is a move in the right direction toward ensuring economic security for working Americans. (Center for Budget and Policy Priorities, “A $7.25 minimum wage would be a useful step in helping working families escape poverty,” 1/5/07)
Millions of Americans will benefit from an increase in the minimum wage. Nearly 13 million workers, 10 percent of the U.S. workforce, will directly or indirectly benefit from a raise in the minimum wage to $7.25 per hour.
- 5.6 million workers (four percent of the workforce) will benefit directly.
- 7.4 million workers (six percent of the workforce) will benefit indirectly via resulting raises.
- 59 percent of those who will benefit are women.
- 10 percent of those who will benefit are single parents and 26 percent are parents.
- 18 percent of those who will benefit are Hispanic American.
- 16 percent of those who will benefit are African American.
In addition to workers, millions of American families will benefit from a raise in the minimum wage, including the 46 percent of affected families who have a minimum wage earner as their sole breadwinner and 6.4 million children who will see their parents’ earnings increase. (Economic Policy Institute, “Minimum Wage Issue Guide,” 4/07; Jared Bernstein Testimony before Senate Finance Committee, 1/10/07, “Minimum Wage Trends, Understanding past and contemporary research,” 10/24/06)
Most minimum wage earners are full-time, adult workers. The majority of those who will benefit from a raise in the minimum wage are adults working full-time. Nearly 80 percent are adults, ages 20 or over, not teenagers. 53 percent are full-time workers, and 31 percent work between 20 and 34 hours per week. (Economic Policy Institute, “Minimum Wage Issue Guide,” 4/07)
Moreover, most minimum wage earners are not new to the workforce. Indeed, it is increasingly difficult for minimum wage earners to move out of low-wage jobs. A recent report from the Center for Economic Policy and Research shows that more than one-third of adult minimum wage earners, ages 25-64, will still be earning the minimum wage three years later. (WorkingUSA: The Journal of Labor and Society, “No Way Out: How Prime-Age Workers Get Trapped in Minimum-Wage Jobs,” 12/05)
Increases in the minimum wage have very little or no negative impact on employment. Raising the federal minimum wage will not harm the economy or employment. In the four years after the last increase, the economy experienced its strongest growth in decades, more than 12 million new jobs were added (at a pace of 248,000 per month), and inflation was stable. The low-wage labor market saw improvements through lower unemployment rates, increased average hourly wages, increased family income, and decreased poverty rates. Recently, over 650 economists, including Nobel Price winners and past presidents of the American Economics Association, released a statement calling for a raise in the minimum wage. They confirmed that “a modest increase in the minimum wage would improve the well-being of low-wage workers and would not have the adverse effects that critics have claimed. . . ‘[T]he weight of the evidence suggests that modest increases in the minimum wage have very little or no effect on employment.’” (Economic Policy Institute, “Hundreds of Economists Say: Raise the Minimum Wage,” 10/06; Economic Policy Institute, “Minimum Wage Trends, Understanding past and contemporary research,” 10/24/06)
Moreover, numerous studies of state minimum wage increases show that the increases do not produce unemployment or slow job creation. In Wisconsin, job growth in the restaurant industry — the industry most affected by an increase in the minimum wage — grew three times more rapidly than the overall state rate. In Washington, home of the highest minimum wage in the country, job growth has exceeded that of the rest of the country since the last recession. Similarly, their most-affected industries suffered no negative impact on employment. (Economic Policy Institute, “Minimum Wage Trends, Understanding past and contemporary research,” 10/24/06.)
Small business owners support raising the minimum wage. A recent Gallup Poll revealed that 86 percent of small business owners surveyed do not believe that an increase in the minimum wage will hurt their business. Three-fourths of small business owners thought that a ten percent increase will have no affect on them. In fact, nearly half of those polled thought that the minimum wage should be increased. (Gallup Poll, “Minimum Wage Has No Impact on Small Business,” 03/2006; Sacramento Business Journal, “Gallup: Many little firms favor hike in federal minimum wage,” 04/21/06)
Recent research confirms that an increase in the minimum wage will not hurt small businesses. An extensive, 30-year study published in the Journal of Economic Issues found “no discernable correlation between minimum wage increases and a rise in business failures…” The Center for American Progress and Policy Matters Ohio released a recent report finding that states with higher minimum wages experienced more small business growth (9.4 percent) than states using the lower federal minimum wage (6.6 percent). The Fiscal Policy Institute has reached similar conclusions. New economic models observe that employers absorb the costs of wage increases with higher productivity, lower turn-over costs, decreased absenteeism and increased worker morale. (Economic Policy Institute, “Minimum Wage Trends, Understanding Past and Contemporary Research,” 10/24/06)
While studies show that an increase in the minimum wage will not hurt small businesses (and, in part, will provide tangible benefits to employers), the 2007 Emergency Supplemental included a tax package that offers assistance to many businesses that employ minimum wage workers.
Tired of waiting for the federal government, dozens of states raised their state minimum wage. In the November 2006 elections, voters in six states – Arizona, Colorado, Missouri, Montana, Nevada, and Ohio – raised their state minimum wage, bringing the number of states that have raised their minimum wage above the federal level to 30, plus the District of Columbia. Many states, however, are still using the unacceptably low $5.15 federal standard. Further, not all states that have increased their minimum wage have increased the wage to $7.25. The increase provided in the 2007 Emergency Supplemental will raise the federal minimum wage for all Americans, regardless of where they live. (Economic Policy Institute, “What a new federal minimum wage means for the states,” 5/25/07; “Minimum Wage Issue Guide,” 4/07)