The U.S. minimum wage has a broad impact on employees, businesses, and the overall economy. The rate can determine the quality of life and spending capabilities for low-wage employees. For many business owners, budgeting for minimum wage is a critical part of their profitability.
The federal minimum wage is $7.25 per hour, meaning that employers must pay all of their employees that baseline amount.
Recently, many Democratic members of Congress have pushed for a $15 federal minimum wage, provoking opposition from Republicans and business owners.
Eight states already have plans to increase their minimum to $15 an hour over the next several years, including New York, Illinois, Florida, and California. However, 41 states would be legally required to ratchet up their rates, often considerably, if the $15 federal minimum is passed.
Here is the history and rundown of the current minimum wage debate.
A History of Minimum Wage Growth in the U.S.
In 1938, the minimum wage was originally set at $0.25 an hour under the Fair Labor Standards Act (FLSA). The country was recovering from the Great Depression, so in order to curb what he called “starvation wages,” President Franklin D. Roosevelt fought the Supreme Court and Congress repeatedly until the act passed.
The purpose of minimum wage was to create a base level to protect the health and well-being of employees, though some have argued that it was designed to protect the lowest-paid employees who have no bargaining power.
Until 1968, the minimum wage kept up with inflation and productivity growth. Since then, the minimum wage has not kept pace. The minimum wage has increased irregularly since 1938, usually after Congress chooses a new minimum and amends the FLSA.
Since 2009, the federal minimum wage has remained at $7.25.
The Department of Labor has provided a chart to track the history of minimum wage rates. See below:
The Fight for a $15 Minimum Wage
The Fight for 15 movement was launched in 2012 when a group of New York fast food workers went on strike, demanding $15 an hour and union rights. Sen. Bernie Sanders responded to the growing movement by introducing the Pay Workers a Living Wage act in 2015, which would have increased the minimum wage to $15 an hour by 2020. However, the bill never went to a vote.
In July 2016, the Democratic Party announced that a $15 minimum wage would be a part of its election platform. The issue was picked up again on a federal level in 2019 when the U.S. House passed the Raise the Wage Act, which would have enacted a $15 federal minimum wage. However, the act wasn’t passed by the Republican-controlled U.S. Senate.
Republicans and business groups oppose the $15 minimum wage law. According to a March 2021 poll from Politico and Morning Consult, about half of Republican voters favored an increase to the minimum wage, but only 16% supported a $15 wage. Thirty-five percent of Republicans instead favored an $11 minimum wage.
Since winning the 2020 election, President Biden has made the $15 minimum wage a central part of his administrative agenda. The Democrats reintroduced a new Raise the Wage act in January 2021, and the bill is pending further action.
Biden attempted to include a $15 wage rule into the American Rescue Plan Act of 2021, but it was ultimately removed by the Senate Parliamentarian, who ruled that it wasn’t an appropriate place for the measure.
While the debate has raged along party lines in Congress, Dawn McVea, senior state director of the National Federation of Independent Business (NFIB) in Louisiana and Mississippi, said in a phone interview with The Balance, for small businesses, minimum wage isn’t a party issue.
“This is not a partisan issue for us. It’s a labor cost issue,” said McVea.
Reasons People Advocate for a minimum-wage increase
Those who advocate for an increase to $15 offer the following arguments.
$7.25 Is Too Low To Survive
In 2021, the Department of Health and Human Services set the federal poverty level at $26,500 for a family of four, which amounts to $13.80 per hour for a full-time worker (or for an hourly worker who takes no time off for a whole year). The current minimum wage of $7.25 falls well below this poverty level and does not even provide for an adequate standard of living for a single adult without children, according to a March 2021 study from the Economic Policy Institute (EPI).
“$7.25 an hour is completely inadequate for a full-time worker trying to make ends meet in our country, let alone if that person has a family that they need to support,” said EPI economist Ben Zipperer via phone to The Balance.
$7.25 Does Not Account for Inflation or Productivity
According to the EPI study, the minimum wage would be $15 by 2025 if it had been adjusted for inflation.
The Center for Economic Policy Research found that the minimum wage is not keeping pace with productivity, which calculates not just the price of goods but the ability to produce them. If minimum wage had accounted for productivity gains since 1968, it would have steadily increased to $24 by 2020.
“Our economy’s productivity has improved. We can actually afford more stuff. The money is in the economy to support a minimum wage of higher than $20 an hour,” said Zipperer.
$15 an Hour Would Improve Conditions for People of Color and Women
Black and Latino workers are paid 10%-15% less than White workers, according to the EPI. If the minimum wage is increased to $15, the institute said:
- 31% of Black workers and 26% of Latino workers would receive a raise.
- The majority of beneficiaries (59%) would be adult women.
- 28% of those who would receive a raise have children.
- 23% would be a Black or Latina woman.
In 1967, an increase in the minimum wage was responsible for decreasing the Black/White wage earning gap by 20%, according to a 2020 study in the Quarterly Journal of Economics.
$15 an Hour Would Boost the Economy
The EPI study calculated that a $15 minimum wage would result in $107 billion in total higher wages by 2025, which would help stimulate the COVID-19-impacted economy.
“Low paid individuals spend their money immediately, and that's a much more efficient way of distributing consumption in the economy and will pay dividends in boosting consumption,” said Zipperer.
Full-Time Workers Shouldn’t Rely on Federal Benefits
A recent study from the Government Accountability Office found that 21 million workers (most of them full-time) are paid so little that they rely on Medicaid and/or the Supplemental Nutrition Assistance Program (SNAP) to meet basic needs. Many of the employees surveyed worked for large chains like Walmart and McDonald’s. The study was commissioned by Sen. Sanders, who argued that taxpayers should not have to subsidize these corporations.
Reasons People Advocate Against a Minimum Wage Increase
Those who oppose an increase to $15 an hour offer the following arguments.
It Will Kill Jobs
The more businesses are forced to increase minimum wage, the more low-wage employees they will have to fire, according to findings from the Congressional Budget Office. In a 2019 study, the nonpartisan organization found that 1.3 million people would lose jobs by 2025 if there is a $15 minimum wage increase. The lower the minimum wage increase, the lower the impact on employment.
“When you raise the minimum wage, businesses have three choices: Cut hours, cut people, or change how they do business,” said NFIB state director McVea.
Tom Essaye, president of financial research firm Sevens Report Research, said in a phone call to The Balance that businesses will also be forced to give more work to fewer employees. “If you suddenly decree that a mom and pop restaurant is going to make less money, they’re going to react by letting people go, or by making a few workers take on more hours,” he said.
It Will Disproportionately Hurt Small Businesses
According to Essaye, small businesses would lose considerable profitability if the minimum wage increases.
“Target can absorb a $15 minimum wage, but small businesses generally operate on much smaller margins and they don’t have the resources to continue as is,” he said.
Essaye adds that a minimum wage increase provides no relief for small businesses, such as additional funds for training employees or increasing their productivity.
The Market Will Take Care of Itself
It is in the best interest of business owners to pay their well-performing employees a decent wage and to increase their wages over time, according to McVea. Hiring, retaining, and training new employees is very costly. “Let the market handle itself,” she said. “A lot of these places are also family-owned businesses, and they’re going to treat their folks like family to the extent that they’re able.”
Cost of Living Is Different in Each State
The cost of living in New York City, where the median rent is $5,100 a month, is very different from, say, Boise, ID, where the median rent is $955, according to Payscale.
“It’s not a one-size fits all,” said McVea. “It’s different state-by-state, and it’s even different town-by-town. What works in Baton Rouge is not going to work in Tallulah, Louisiana.”
The Future of the Federal Minimum Wage
The Raise the Wage Act of 2021 will have to undergo Congressional review and vote. If it passes, the federal minimum wage will be $15 by 2025. Beyond that, though, there is no mandate assuring that the federal minimum wage will continue to increase. If the act does not pass, the minimum wage will remain $7.25 for the foreseeable future.