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Minimum Wage - Pros & Cons - ProCon.org Skip to content More Issues About Us FAQs Teachers’ Corner Join Minimum Wage Should the Federal Minimum Wage Be Increased? Last updated on: 5/9/2019 | Author: ProCon.org The federal minimum wage was introduced in 1938 during the Great Depression under President Franklin Delano Roosevelt. It was initially set at $0.25 per hour and has been increased by Congress 22 times, most recently in 2009 when it went from $6.55 to $7.25 an hour. 29 states plus the District of Columbia (DC) have a minimum wage higher than the federal minimum wage. 1.8 million workers (or 2.3% of the hourly paid working population) earn the federal minimum wage or below. Proponents of a higher minimum wage state that the current federal minimum wage of $7.25 per hour is too low for anyone to live on; that a higher minimum wage will help create jobs and grow the economy; that the declining value of the minimum wage is one of the primary causes of wage inequality between low- and middle-income workers; and that a majority of Americans, including a slim majority of self-described conservatives, support increasing the minimum wage. Opponents say that many businesses cannot afford to pay their workers more, and will be forced to close, lay off workers, or reduce hiring; that increases have been shown to make it more difficult for low-skilled workers with little or no work experience to find jobs or become upwardly mobile; and that raising the minimum wage at the federal level does not take into account regional cost-of-living variations where raising the minimum wage could hurt low-income communities in particular. Read more background… Pro & Con Arguments Pro 1 Raising the minimum wage would increase economic activity and spur job growth. The Economic Policy Institute stated that a minimum wage increase from the current rate of $7.25 an hour to $10.10 would inject $22.1 billion net into the economy and create about 85,000 new jobs over a three-year phase-in period. [ 1 ] Economists from the Federal Reserve Bank of Chicago predicted that a $1.75 rise in the federal minimum wage would increase aggregate household spending by $48 billion the following year, [ 2 ] thus boosting GDP and leading to job growth. A 1994 study by economists Alan Krueger, PhD, and David Card, PhD, compared employment in the fast food industry after New Jersey raised its minimum wage by 80 cents, while Pennsylvania did not. Krueger and Card observed that job growth in the fast food industry was similar in both states, and found "no indication that the rise in the minimum wage reduced employment." [ 3 ] Their findings were corroborated by economists Hristos Doucouliagos, PhD, and T.D. Stanley, PhD, in a review of 64 minimum wage studies. The authors found "little or no evidence of a negative association between minimum wages and employment." [ 4 ] Read More Pro 2 Increasing the minimum wage would reduce poverty. A person working full time at the federal minimum wage of $7.25 per hour earns $15,080 in a year, which is 20% higher than the 2015 federal poverty level of $12,331 for a one-person household under 65 years of age but 8% below the 2015 federal poverty level of $16,337 for a single-parent family with a child under 18 years of age. [ 7 ] [ 8 ] According to a 2014 Congressional Budget Office report, increasing the minimum wage to $9 would lift 300,000 people out of poverty, and an increase to $10.10 would lift 900,000 people out of poverty. [ 5 ] A 2013 study by University of Massachusetts at Amherst economist Arindrajit Dube, PhD, estimated that increasing the minimum wage to $10.10 is "projected to reduce the number of non-elderly living in poverty by around 4.6 million, or by 6.8 million when longer term effects are accounted for." [ 6 ] Read More Pro 3 A higher minimum wage would reduce government welfare spending. If low-income workers earned more money, their dependence on, and eligibility for, government benefits would decrease. The Center for American Progress reported in 2014 that raising the federal minimum wage by 6% to $10.10 would reduce spending on the Supplemental Nutrition Assistance Program (SNAP, formerly known as food stamps) by 6% or $4.6 billion. [ 9 ] The Economic Policy Institute determined that by increasing the minimum wage to $10.10, more than 1.7 million Americans would no longer be dependent on government assistance programs. They report the increase would shave $7.6 billion off annual government spending on income-support programs. [ 10 ] Read More Pro 4 The minimum wage has not kept up with inflation. Because the federal minimum wage is not indexed for inflation, its purchasing power (the number of goods that can be bought with a unit of currency) has dropped considerably since its peak in 1968. The minimum wage in 1968 was $1.60, which is equivalent to $11.16 in Jan. 2016 dollars and which is 53.9% higher than today's $7.25 federal minimum wage. [ 7 ] [ 11 ] Between July 2015 and the last increase in the minimum wage in 2009, the federal minimum wage lost 8.1% of its purchasing power to inflation. [ 7 ] [ 12 ] According to Liana Fox, PhD, Senior Analyst at the Economic Policy Institute, "inflation indexing guarantees low-wage workers a wage that keeps pace with the rising costs of goods and services." [ 13 ] Raising the minimum wage and indexing it to inflation would ensure that low-wage workers could adopt a standard of living commensurate with the current economy. [ 14 ] [ 15 ] [ 16 ] Read More Pro 5 Improvements in productivity and economic growth have outpaced increases in the minimum wage. While the estimates of how much the minimum wage should be increased vary, many economists agree that if it had kept pace with rising productivity and incomes, it would be higher than the current $7.25 an hour. According to a study by the Center for Economic and Policy Research (CEPR), the federal minimum wage would have been $21.72 per hour in 2012, instead of $7.25, if the minimum wage had kept pace with increases in productivity since 1968. [ 17 ] The Institute for Policy Studies estimated in 2012 that personal income has grown by 100.6% since 1968, while the minimum wage has stagnated: "If our standard for minimum wages had kept pace with overall income growth in the American economy, it would now be $21.16 per hour." [ 14 ] The Economist stated in 2015 that "America as a whole is an outlier among advanced economies... one would expect America, where GDP per person is $53,000, to pay a minimum wage around $12 an hour. That would mean a raise of about 65% for Americans earning the minimum pay rate." [ 18 ] Read More Pro 6 Increasing the minimum wage would reduce income inequality. Among the 34 Organisation for Economic Cooperation and Development (OECD) member countries, the United States has one of the highest levels of income inequality, with only Chile, Mexico, and Turkey having higher levels of income inequality. [ 19 ] In 2012 the richest 1% of the US population earned 22.83% of the nation's total pre-tax income resulting in the widest gap between the rich and the poor since the 1920s. [ 20 ] A 2015 study found that the decrease in the inflation-adjusted value of the minimum wage since the 1980s has been a contributor to America's high levels of inequality. [ 21 ] Isabel Sawhill, PhD, Senior Fellow in Economic Studies at the Brookings Institution, stated in 2014 that raising the minimum wage would reduce income inequality, and Jason Furman, PhD, Chairman of President Obama's Council of Economic Advisers, stated in 2014 that the weakening value of the minimum wage "is one of the important [reasons]... for inequality at the bottom." [ 22 ] Read More Pro 7 A minimum wage increase would help to reduce race and gender inequality. Despite representing 47% of US workers, women make up 63% of minimum wage workers. [ 23 ] [ 128 ] African Americans represent 12% of the US workforce, and make up 17.7% of minimum wage earners. [ 25 ] [ 26 ] 16%...