2013 was a good year for supporters of a higher minimum wage. States including New York, California, and New Jersey passed hikes. Residents of SeaTac, Washington, voted to turn their tiny city into a living economics experiment by increasing its minimum to $15 an hour. Washington, D.C., seems poised to raise its own wage. And President Obama threw his support behind a bill that would increase the federal minimum to $10.10 an hour and require it to rise with the cost of living.
You can expect to hear more liberal agitating for a higher wage in 2014. And of course, you can also expect to hear conservatives shout back that the idea is a job killer. To prepare you for the inevitable policy battle, here's our FAQ.
Just tell me if the minimum wage kills jobs or not.
Patience, young grasshopper. We'll get to that question. But let's ease in with some basics first.
Fine. What is the minimum wage anyway?
Ah, good place to start. The federal minimum wage is $7.25 an hour, which means that depending on the city you're in, 60 minutes of work will just about buy you a Chipoltle burrito (without guac). By historical standards, it's fairly low. Thanks to inflation, the minimum today wage is worth a few dollars less than when its real value peaked in 1968. (Graph from CNN)
That said, the federal minimum is only part of the national story. Today, 19 states and the District of Columbia have a higher wage floor. Meanwhile, New Jersey just became the 11th state to index theirs to the cost of living. (Graph courtesy of The American Prospect's Sam Waldman, who has his own useful crash course).
And of course, some local governments take things even further, like SeaTac with its $15 minimum.
How many people earn the minimum wage?
The short answer is: Not many. But in a way, that's also the wrong question.
According to the Bureau of Labor Statistics, 1.57 million Americans, or 2.1 percent of the hourly workforce, earned the minimum wage in 2012. More than 60 percent of them either worked in retail or in leisure and hospitality, which is to say hotels and restaurants, including fast-food chains.
If you want to honestly debate the merits of raising the minimum wage, however, you need to think beyond who earns it today. After all, there are millions of workers making $8 or $9 an hour assembling burgers or changing sheets who might be affected by a hike. The Economic Policy Institute estimates that if Washington increased the minimum to $10.10 as Obama would like, some 21.3 million employees would eventually be guaranteed a raise, assuming they kept their jobs. (Another 11.1 million might theoretically benefit if companies adjusted their whole wage scales upwards, which is what the light blue section on the chart shows. But that might just be wishful thinking on EPI's part.)*
In the end, we're talking about a policy that would give somewhere around 11 percent of workers a raise.
I thought minimum-wage earners were mostly just suburban teenagers. Is that true?
The Heritage Foundation would certainly like you to think so. Conservative groups often argue that, contrary to the image projected by of liberals, most of the minimum wage workforce isn't really made up of desperate parents struggling to make ends meet. Instead, they say, it consists of middle-class teens and married women who live above the poverty line but might, for instance, want to work part-time while raising young children.
They're not all wrong. Almost a third of minimum-wage workers are teenagers, according to the Bureau of Labor Statistics. Meanwhile, Heritage finds, 62 percent of those under 25 are enrolled in school. They're not necessarily planning to make a career folding snack wraps.
But keep in mind: The vast majority of these workers aren't teenagers. And among minimum wagers older than 25, Heritage notes that the average household income is $42,000 a year. Is that poverty? Not unless you're a single parent with eight children. But is it rich? Of course not. In fact, it's still well below the median household income of $51,000.
We'll get more into who exactly would reap the rewards of a minimum wage increase later in the FAQ. But here's what you should remember for now: The beneficiaries wouldn't all be impoverished adults, but they wouldn't all be 17-year-olds saving up for the next "Call of Duty" sequel, either.
Do people really get stuck in minimum-wage jobs their whole lives? I'm skeptical.
This is another issue minimum wage critics sometimes bring up. Practically nobody spends their whole life flipping burgers or folding sweaters, they say, and we shouldn't make it expensive for companies to hire entry-level workers.
Are they right? In 2000, the Employment Policies Institute, a conservative organization that exists largely to fight against minimum wage hikes, published a paper showing that between 1977 and 1998, two thirds of minimum wage workers earned a raise within one year of starting their job. But the median raise for those lucky enough to get one was just 10 percent—which is to say, kind of a pittance, in terms of actual dollars and cents. Given the weakness of our present economy and the long-term erosion of middle-class jobs in this country, it might be even harder to move up today.
Ok, but seriously now: Does increasing the minimum wage kill jobs or not?
Researchers have been fighting over this question for a century—one of the first major government studies on it, involving Oregon's early minimum-wage law, was conducted in 1915—and the answer, I hate to tell you, is still murky.
On one side of the debate, you mostly have traditionalists who believe that increasing the minimum wage kills some jobs for unskilled workers, like teens, but isn't destructive enough to raise the overall unemployment rate. They commonly estimate that a 10 percent wage hike will reduce teen employment by somewhere around 1 to 3 percent. The problem, in their view, is that even if it doesn't create mass joblessness, legislating higher wages specifically hurts the young and unskilled workers they're meant to help.
On the other side, you have researchers who believe that increasing the minimum wage doesn't kill jobs at all and may even give the economy a boost by channeling more pay to low-income workers who are likely to spend it.
In the end, it's helpful to think of this whole argument as a competition between two stories about the economy. According to the Econ 101 model of the world, increasing the minimum wage should cost some people their jobs. If the price of low-skill labor rises thanks to meddling politicians, demand for it should fall. Employers might slash their payrolls to preserve profits. They might invest in new technology instead of people (think of the self-checkout kiosks at your local CVS). Or they might start hiring older, more experienced workers in lieu of teenagers to get more bang for their buck.
But some researchers believe the Econ 101 model is too simplistic. They say that instead of forcing businesses to cut staff, raising wages simply spurs them to become more efficient. The typical Burger King or McDonald's does not really run like a well-greased machine. Fry cooks slack off. There's lots of turnover, which bogs down operations. And when workers leave, say for the Taco Bell across the freeway, they often take jobs that would otherwise be filled by the unemployed, which is less than ideal for the economy.