By highlighting the need to increase the federal minimum wage in his State of the Union address, President Obama breathed new life into a critically important issue. Wages for U.S. workers, particularly low-wage workers, have eroded not just in recent years, but over several decades (Mishel 2013; McNichol et al. 2012). This erosion has contributed to the growth of income inequality, leaving the economy less vibrant than if incomes were distributed more evenly. Raising the minimum wage and incorporating a system for automatic adjustment over time is key to reversing this erosion of low-wage workers’ earnings, and would help combat growth of income inequality.
Following the president’s expression of support for a $9.00 minimum wage, Sen. Tom Harkin (D-Iowa) and Rep. George Miller (D-Calif.) indicated their support for increasing the minimum wage to $10.10 (this proposal follows their 2012 effort to pass legislation supporting a $9.80 minimum wage). Their proposal—now formalized as S.460, the Fair Minimum Wage Act of 2013—would increase the minimum wage via three incremental increases of $0.95, and then index it to inflation, so that as prices rise, so would the minimum wage. Also, the tipped minimum wage (the minimum wage paid to workers who earn a portion of their wages in tips) would be increased in $0.85 increments from its current value of $2.13 per hour, where it has languished since 1991, until it reaches 70 percent of the regular minimum wage.
Raising the minimum wage would help reverse the ongoing erosion of wages that has contributed significantly to growing income inequality. At the same time, it would provide a modest stimulus to the entire economy, as increased wages would lead to increased consumer spending, which would contribute to GDP growth and modest employment gains.
This paper begins by examining the minimum wage in context, noting where the minimum wage would be today had it grown at the same rate as other important benchmarks over the last few decades. It then provides a demographic overview of the workers who would benefit from the proposed minimum-wage increase, examining characteristics such as their gender, age, race and ethnicity, educational attainment, work hours, family income, and family composition. Next, it details the estimated GDP and job creation impacts that would result from increasing the federal minimum wage to $10.10.
Key findings include:
- Increasing the federal minimum wage to $10.10 by July 1, 2015, would raise the wages of about 30 million workers, who would receive over $51 billion in additional wages over the phase-in period.1
- Across the phase-in period of the minimum-wage increase, GDP would increase by roughly $32.6 billion, resulting in the creation of approximately 140,000 net new jobs (and 284,000 job years) over that period.
- Those who would see wage increases do not fit some of the stereotypes of minimum-wage workers.
- Women would be disproportionately affected, comprising 56 percent of those who would benefit.
- Over 88 percent of workers who would benefit are at least 20 years old.
- Although workers of all races and ethnicities would benefit from the increase, non-Hispanic white workers comprise the largest share (about 54 percent) of those who would be affected.
- About 44 percent of affected workers have at least some college education.
- Around 55 percent of affected workers work full time, 70 percent are in families with incomes of less than $60,000, more than a quarter are parents, and over a third are married.
- The average affected worker earns about half of his or her family’s total income.