Yes, raise the minimum wage, but don’t stop there

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Raising the minimum wage, which has been $7.25 an hour since 2009, is long overdue. A Congressional Budget Office analysis of legislation proposed by Senate Democrats reinforces this case. But the CBO raised a yellow flag. Dialing up wages at the bottom too fast and by too much would cause job loss and price increases.

The CBO estimates that gradually raising the minimum wage to $15 and pegging it to inflation would result in a net income increase totaling $333 billion ($509 billion in higher pay minus $175 billion in lost income from reduced employment) over 10 years. The effects, both positive and negative, would primarily affect lower-income people.

For many reasons, it is difficult to draw a one-size-fits-all line across the United States for pay sufficient to afford the necessities of life. Rising economic inequality has left widely varying income levels and costs of living in different places. A suddenly implemented $15 minimum wage would likely create shocks in many states while hardly registering in many large cities.

Twenty-nine states and D.C. have raised their minimum wage above the federal benchmark, and 45 localities yet higher. Though few workers actually earn the minimum, raising it tends to push up wages for low-wage people generally. Just before the COVID-19 pandemic, a Brookings Institution study characterized 44% of U.S. workers as low-wage: 53 million people with median hourly wages of $10.22 and annual earnings of $17,950. Researchers estimated the threshold for earning a “low wage” ranged from $12.54 an hour in Beckley, West Virginia, to $20.02 in San Jose, California, with a national average of $16.03.

As part of a project exploring economic inequality, I looked at economic differences in counties in two low-income states (Mississippi and West Virginia) and two high-income states (New York and California). I compared the “living wage” needed to cover expenses for four types of families. The analysis supports raising the minimum wage significantly, but carefully. It also reveals a need to increase financial support to help families raise children in tandem with increasing wages.

In-state differences in income and living costs make it difficult for many states to raise their minimum wage. New York opted to set a higher level of $15 an hour for the New York City and Long Island areas and $12 for the rest of the state. Many cities in California have pushed their minimum wage higher than the state’s $13 and $14 per hour rates, which are based on employer size. West Virginia raised its minimum wage to $8.75 statewide. The Mississippi legislature has not set a standard, so the federal minimum wage applies.

All states have low-income counties where an upward shift in the minimum wage would likely have the greatest effect on wages and employment. In 2019, West Virginia counties averaged $42,315 in per capita income, ranging from $29,348 in Webster County to $64,461 in Ohio County. California’s per capita income was $66,619, but eight of its counties averaged less income than West Virginia. Per capita income in New York was $71,717. Yet 13 of its 62 counties averaged less than West Virginia. Mississippi was the poorest state. Two counties had per capita income less than $28,000.

Setting a national minimum wage gets harder when taking the “living wage” into consideration. The living wage is what an individual must earn to support him or herself and their family. In families in which two adults work, the living wage for each can be about half of what a one-earner needs. While the living wage gives a clearer view of need, it’s impossible for lawmakers to impose different wage levels for different family structures.

MIT economists calculated that the living wage for single adults falls between $10 and $11.53 in all of Mississippi, most of West Virginia, and the poorest counties in New York and California. It’s about $12.80 for single people in Albany and Sacramento, and more in many large cities: $14.83 an hour in Los Angeles, $17.99 in Manhattan, and $20.82 in San Francisco, for example.

The living wage for one adult supporting one child is much higher. It ranges from about $20 an hour in Mississippi to $40 in San Francisco and rises with each additional child. These figures indicate that single-parent families need more income than even a $15 minimum wage can deliver — in all parts of the country and especially in the costliest areas.

A $10 an hour minimum wage would have minimal effect on the economy and a moderate effect on low-income areas. It would have little to no effect on most states that already have increased their minimum wage. A $12 federal minimum would still be below the living wage for single workers in cities such as Albany and Sacramento. Though it could cause significant effects in West Virginia and Mississippi, the positives would probably outweigh the negatives.

States could be given flexibility. Congress could set the national minimum at the high end of current proposals, say at $15 or $16, and allow states to adjust it downward by a certain margin, say 20% or 25%, but no lower. A national minimum wage corridor, rather than a line, could help California and New York build up and adjust down from a higher platform. Poorer states could choose lower levels in the corridor, say $12 to $13 an hour.

Policymakers also should consider how changes to the earned income tax credit and child tax credit can complement wages for working-class families. Members of both parties support higher subsidies to raise children. Such payments should be targeted to help the poorest the most. Yet the current child tax credit provides the most money to higher-income families.

Some conservatives argue that increasing child subsidies for low-income families would discourage parents from working. Others see it as pro-family and not much of a risk. The minimum wage cannot be increased enough to erase work incentives within the range of options now on the table.

The numbers show that low-income, one-parent families need financial help. And many families in which both parents now work for low wages might be better off if supplemental income, along with higher pay, allowed one or both to spend more time at home with their children.

Karl Polzer is the founder and CEO of the Center on Capital and Social Equity.





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