Senate Democrats

A New Direction for America: Better Pay

In November, 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.  Earlier this month, the House of Representatives took the first step towards honoring that promise by passing H.R.2, the Fair Minimum Wage Act of 2007.  The bill would raise the federal minimum wage from $5.15/hour to $7.25/hour in three steps over two years, which would benefit millions of workers and their families and help reverse years of wage stagnation.  Today, the Senate begins its work on H.R.2, and as we do, the Nation can be assured that Senate Democrats are as committed as ever to giving workers their long overdue raise by increasing the federal minimum wage.

American workers are long overdue for a raise.  Despite the efforts of Democrats, Congress has not raised the federal minimum wage since 1997.  At $5.15/hour, a person working full-time (40 hours per week, with no vacation) would make only $10,712 per year before taxes, which is approximately $6,000 below the federal poverty guidelines for a family of three.  Moreover, while the cost of living has skyrocketed, the value of the minimum wage has eroded by over 20 percent since the last increase.  Adjusted for inflation, the minimum wage 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,” 11/06; Economic Policy Institute, “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 by more than 18 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. (Census Bureau, 08/06; Economic Policy Institute, “Income Picture,” 08/29/06; New York Times, “Many Entry-Level Workers Find a Rough Market,” 09/04/06.)  

While corporate profits are up, worker earnings are down.  Corporate profits have increased under the Bush Administration, by more than 90 percent over inflation.  Profits are at their highest share of the Gross Domestic Product (GDP) since the 1960s.  Median earnings, however, are at their lowest share since 1947, at least.  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.'” (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);” Economic Policy Institute, “Income Picture,” 08/28/06; New York Times, “Real Wages Fail to Match Rise in Productivity,” 09/28/06.)

Workers are being left behind.  While the average American worker has not benefited from an increase in productivity and profits, and Congress has refused to raise the minimum wage, CEO salaries have soared.  Since the last 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,” 06/27/06.)

The cost of living has skyrocketed.  Since 1997, the overall cost of living has increased by 26 percent, adjusted for inflation.  The cost of essentials food, housing, gas, health care, etc. has soared.

  • Food costs have increased by 23 percent. 
  • Housing costs have risen by 29 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).   
  • Gasoline prices have jumped 134 percent. 
  • Health care costs have increased by 43 percent.  The average health premium for a family of four is $10, 880 — more than a worker earning the minimum wage makes in an entire year. (Kaiser Family Foundation, 2005.)
  • The cost of raising children has increased by 52 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. (Children’s Defense Fund, “Increasing the Minimum Wage: An Issue of Children’s Well-Being,” 4/7/05.)
  • Educational costs, including books and supplies, have jumped by 61 percent. (Center for Budget and Policy Priorities, “Poverty Remains Higher, and Median Income for Non-Elderly Is Lower Than When Recession Hit Bottom,” 09/01/06.)
  • The cost of home heating oil has risen almost 120 percent. (, “Dobbs: Congress stiffs working Americans,” 06/21/06.)

Unable to make ends meet, millions of working Americans are living in poverty.  Nearly 37 million Americans live in poverty.  That is over 5 million more than when President Bush first took office.  Nearly 13 million of the poor are children.  An unacceptably low minimum wage is a key part of the problem.  Amongst 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.  (Census Bureau, August 2006; Center for Budget and Policy Priorities, “Poverty Remains Higher, and Median Income for Non-Elderly Is Lower than when Recession Hit Bottom,” 09/01/06; Census Bureau, History Poverty Tables, 12/14/05)    

An increase in the minimum wage to $7.25 would add nearly $4,400 to a minimum wage worker’s income.  In some areas, this additional money would be enough to cover 15 months of groceries, 19 months of utilities, 8 months of rent, over two years of health care, 20 months of child care, or 30 months of college tuition at a public, 2 year college for a low-income family of three. 

Millions of Americans would benefit from a raise in the minimum wage.  Nearly 13 million workers, 10 percent of the U.S. workforce, would directly or indirectly benefit from a raise in the minimum wage to $7.25 per hour. 

  • 5.5 million workers would benefit directly.
  • 7.4 million would benefit indirectly via resulting raises.
  • More than 60 percent of those who would benefit are women.
  • 18 percent of those who would benefit are Hispanic American.
  • 16 percent of those who would benefit are African American.

In addition to workers, millions of American families would benefit from a raise in the minimum wage, including nearly 6 million children who would see their parents’ earnings increase. (Economic Policy Institute, “Minimum Wage Trends, Understanding past and contemporary research,” 10/24/06; Economic Policy Institute, “Minimum Wage Issue Guide,” 11/06)

Most minimum wage earners are full-time, adult workers.  Despite misinformation promulgated by opponents of a wage increase, the majority of those who would benefit from a raise in the minimum wage are adults working full-time.  Nearly 80 percent are adults, ages 20 or over, not teenagers.  54 percent are full-time workers, and 30 percent work between 20 and 34 hours per week. (Economic Policy Institute, “Minimum Wage Issue Guide,” 11/06)

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 little or no negative impact on employment.  A raise in the federal minimum wage would 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 call for an increase in 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 would hurt their business.  Three-fourths of small business owners thought that a 10 percent increase would 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 would 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.)  

Tired of waiting for the federal government, dozens of states have raised their state minimum wage.  In the November election voters in six states – Arizona, Colorado, Missouri, Montana, Nevada, and Ohio – raised their state minimum wage, bringing the number of states with wages above the federal level to 29 plus the District of Columbia.  Many states, however, are still using the unacceptably low $5.15 federal standard.  The increase proposed by Democrats would raise the federal minimum wage for all Americans, regardless of where they live. (Economic Policy Institute, “Minimum Wage Issue Guide,” 11/06)