Personal Finance

How Raising the Minimum Wage Could Affect You

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President Biden signed an executive order in April which will raise the federal contractor minimum wage to $15 by January 30, 2022, and do away with the tipped minimum wage for federal workers by 2024.

Meanwhile, the Fightfor15 movement to raise the minimum wage to $15 continues to grow. And some states and companies have begun to take matters into their own hands. In June 2021, for example, the state of Delaware and Southwest Airlines announced $15 minimum wages for their respective residents and employees.

As businesses and states make these types of announcements, the pressure may continue to mount for our Capitol Hill legislators to pass a federal minimum wage hike. Let’s talk about how raising the minimum wage could affect you, whether you are a worker or a small business owner.

Who Would Benefit From a Minimum Wage Increase?

Contrary to what some may think, it’s not just teens or college students who would benefit from a minimum wage increase. While only 1% of Americans over the age of 25 are earning the minimum wage (BLS), many more are being paid less than $15 per hour.

The Economic Policy Institute (EPI) says that only one out of every 10 workers whose wages would increase as a result of a $15 minimum wage would be teenagers. Also, 59% of workers whose families have a total income that’s below the poverty line would receive a pay raise.

Let’s take a closer look at which demographic groups could benefit the most from raising the minimum wage to $15 by 2025.

Women

EPI also says nearly 60% of the workers who would benefit from a $15 minimum wage are women. That means approximately 19 million women would eventually receive a pay increase if the bill were to become law.

Of these 19 million women who would benefit from the wage hike, EPI says that more than half work full time and over four in ten have received some college education. Also, 28% of these women have children.

Workers of Color

Many supporters of raising the minimum wage argue that it would play a key role in advancing social justice. As it turns out, there’s a significant amount of data to support that viewpoint.

According to EPI, Black and Latino workers are paid 10% to 15% less than white workers in similar industries. But EPI says that nearly a third (31%) of all African Americans and more than a quarter (26%) of Latinos would get a raise from the proposed wage changes.

Tipped Workers

EPI says there are 1.3 million tipped workers in the U.S. who could be earning the federal tipped minimum wage of $2.13 per hour. Another 1.8 million tipped employees earn more than this minimum but still a lower amount than their state’s regular minimum.

It should be noted, though, that if tipped workers don’t make at least the federal minimum wage in wages + tips, employers are required to make up the difference.

However, many in the restaurant industry argue that ending the tipped minimum wage would just lead to fewer hours for tipped workers and higher prices for customers. And the Washington Post recently published an opinion piece from a D.C-area bartender who argued that eliminating the tip credit would ultimately limit upward mobility for herself and her fellow tipped employees.

Essential Workers

A recent Brookings study found that approximately half of the workers who were making $15 an hour before the COVID-19 pandemic were essential workers. The Brookings researchers suspect that number would be even higher today.

According to the BLS, several front-line workers would get a raise if the federal hourly minimum wage was $15. These include nursing assistants, home health aides, and substitute teachers. Retail sales employees, including grocery store workers, would also receive a pay increase.

Could Raising the Minimum Wage Hurt Parents?

The Heritage Foundation is one organization that has taken a strong opposing stance regarding a $15 federal minimum wage. In a report released in February 2021, it argues that such a wage change would significantly increase childcare costs for parents.

In its report, the Heritage Foundation says that childcare costs would increase by an average of 21% ($3,728 annually). And it says that in some lower-cost states, the new minimum wage could escalate childcare costs by up to 43% (over $6,000 annually).

Other studies have pointed out that raising the minimum wage would also increase family incomes at the bottom of the pay scale. Still, the Heritage Foundation fears that many families would be priced out of the childcare market by the change and may feel forced to leave their jobs or to turn to non-licensed care.

Related: How to Determine if Your Salary is Worth the Cost of Childcare

How Would a Higher Minimum Wage Affect Jobs and Employment?

Would a $15 minimum wage cause a massive number of workers to lose their jobs? It’s a complicated question and the answer you get from different groups will often depend on their own political leanings.

Those who support the minimum wage increase point out that when the federal minimum wage reached its inflation-adjusted peak in 1968, employment wasn’t negatively affected. Many also tout a study of 138 state minimum wage hikes from 1979 to 2016 which found that the overall number of low-wage jobs remained essentially unchanged over the five years following the increase.

But the Congressional Budget Office (COB) begs to differ. It says the Raise the Wage Act of 2021, which did not pass, would have expanded the federal cumulative budget deficit by $54 billion from 20212031. It also says that while 0.9 million people would be lifted out of poverty, a higher number of workers would lose their jobs 1.4 million.

Needless to say, other research groups strongly disagree with these projections. In a scathing reply, the Washington Center for Equitable Growth said: ...The recent analysis from the Congressional Budget Office unjustifiably discounts the new, more empirically rigorous research, leading it to underestimate the benefits and overestimate the harms of raising the minimum wage.

Can Small Business Owners Survive a Minimum Wage Hike?

The pandemic has already caused a great deal of economic harm to many small businesses. And many worry that increasing the minimum wage would just put more financial strain on the owners of these establishments.

It’s important to point out that no one is proposing that the federal minimum wage be raised to $15 right now. Even if the Raise the Wage of 2021 is passed, it would take five years to reach the $15 level. In the first year following its enactment, the minimum wage would be $9.50.

Nonetheless, many small business owners are concerned. The National Federation of Independent Business (NFIB) says that 92% of its members oppose a $15 minimum wage and are fearful it would force them to lay off employees or close their doors.

The good news is that history shows us that small businesses have survived (and even thrived) following past wage increases. And the Business for a Fair Minimum Wage is one group that believes business owners can actually benefit in the long run as the pay raises can lead to happier and more productive employees.

Bottom Line

The minimum wage hasn’t been raised since 2009. It will eventually need to be raised if, for no other reason, to merely keep up with inflation. However, there are many factors that legislators must consider when trying to decide how fast and how high the minimum wage should increase.

Ultimately, the hope is that our congressional representatives can adjust the federal minimum wage in a way that takes many workers out of poverty without drastically reducing their employment opportunities.


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