Everything You Need to Know About the Minimum Wage Debate

Should we raise the minimum wage? On the surface, it seems like an easy question: only Ebeneezer Scrooge would suggest paying the lowest-earning, hardest-working employees a wage that won’t support their families. When we delve deeper, however, the issue gets more complex.

money bags

(Photo Credit: New Old Stock)

First things first: the minimum wage buys a lot less than it used to. In fact, all wages buy less than they used to. PayScale’s Real Wage Index, which measures the buying power of employed U.S. workers’ earnings, shows that today’s paychecks buy 7.5 percent less than they did in 2006.

For the lowest-paid workers, the stats are even worse.

Fast Facts About the Minimum Wage

From its creation in 1938 until its peak buying power in 1968, the value of the minimum wage rose steadily — only to drop off after that point. Only Congress can adjust the federal minimum wage, and it doesn’t necessarily increase with inflation. As a result, its buying power has diminished over time.

RaisetheMinimumWage.com, a project of the National Employment Law Project, charted the real value of the minimum wage over time. The minimum wage of $1.60 an hour in 1968 would be worth $10.90 per hour in 2013 dollars.

minimum wage

(Source: RaisetheMinimumWage.com)

The states can set their own minimum wages. While having a lower minimum wage than the federally mandated minimum doesn’t affect worker pay in that state, having a higher one does; as of 2016, 29 states and the District of Columbia have set higher minimums than the federal requirement. In addition, some cities including San Francisco and Seattle have mandated their own minimum wages, which may be higher than the state or federal thresholds.

Then there’s the issue of tipped workers. Federal law states that workers who make more than $30 a month in tips and earn an income that averages out to the federal minimum hourly wage can be paid a special minimum wage solely for tipped workers of $2.13 an hour — a rate that hasn’t changed in over 20 years. Other states and territories set higher wages for tipped workers, and some, like Alaska and California, require tipped workers to be paid the full minimum wage before tips.

In his 2014 State of the Union Address, President Obama announced that he was raising the minimum wage for federal workers to $10.10 an hour, and urged Congress to follow suit for all minimum-wage workers — without success.

Shortly after the president issued an executive order raising the minimum wage to $10.10 for federal employees, the Congressional Budget Office issued a report examining the effects of a proposed minimum wage hike for all workers. The findings were grim for advocates of a higher minimum wage.

Called The Effects of a Minimum-Wage Increase on Employment and Family Income, the report found that an increase to $10.10 per hour would lift 900,000 families out of poverty — but at a cost of 500,000 jobs. Economists found similar effects for a lower increase of $9 per hour: 300,000 fewer families living below poverty level, but 100,000 fewer jobs.

Whether those lost jobs would be honest cuts due to employers’ inability to pay higher wages or penny-pinching on the behalf of organizations who would prefer to keep their profits in their pockets is a matter of ongoing debate.

A Possible Middle Ground

In a political climate steeped in gridlock and partisan brinksmanship, it’s easy to forget that most economic debates don’t come down to either/or solutions. One possible approach, suggested by John Pepper, co-founder and former CEO of Boston-based restaurant chain Boloco, is to create more tiered minimum wage structures — a training wage, for example, for new hires, or a higher minimum wage but the end of time and a half for overtime. Others have suggested doing away with tipping altogether in favor of a livable minimum wage for all workers, including those in the service industry.

Finally, there’s the question of whether or not minimum-wage jobs should ever be the endpoint for most workers’ careers. If voters and leaders agreed to make education accessible to all, we might see a high percentage of those non-teenage minimum-wage workers heading to greener pastures.

In the meantime, the question of the best way to protect and support America’s lowest-earning workers remains open.

Tell Us What You Think

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Check out our update on the impacts of the federal minimum wage increasing potentially in 2021.