While Congress debates measures meant to get the pandemic-ravaged U.S. economy back on its feet, one of the initiatives being pressed by President Joe Biden and many Democrats is an increase in the federal minimum wage from its current level of $7.25 per hour, unchanged since 2009, to $15 per hour by 2025.
On Monday, activists in eight states and the District of Columbia rallied in support of an effort to attach the minimum wage increase to Biden’s $1.9 trillion economic relief package making its way through Congress. Organizers explicitly tied the increase to the “essential” workers who have been asked to remain on the job during the pandemic.
“Do not call us essential workers and then don't provide the essential things that we need. The time is now,” said the Rev. Dr. William J. Barber II, president of Repairers of the Breach, a social justice organization that helped organize the rallies.
Whether the minimum wage increase will make it into the final relief bill hinges on arcane procedural rules in the Senate and a reluctance among some centrist Democrats, including Senators Joe Manchin of West Virginia and Kyrsten Sinema of Arizona, to support the proposal. But whatever happens in the near term, the minimum wage will almost certainly remain a constant source of disagreement in Washington.
‘A decent living’
Although the current effort is being tied to pandemic relief, battles over the minimum wage rate -- and even over the very existence of a government-mandated wage floor -- are as old as the law that created it. The Fair Labor Standards Act of 1938 codified a number of worker protections, including uniform workweek standards, overtime pay requirements and the minimum wage.
The original purpose of a federal minimum wage was to establish a “floor” below which wages could not fall. Enacted during the Great Depression, the law was meant to address the imbalance of bargaining power between workers and employers at a time when widespread unemployment left job seekers desperate for employment of any kind.
Arguing in favor of the minimum wage in 1933, President Franklin Roosevelt said, “No business which depends for existence on paying less than living wages to its workers has any right to continue in this country. By living wages, I mean more than a bare subsistence level. I mean the wages of a decent living.”
From the start, the challenge a federal minimum wage law faced was the conflict between two values that Americans tend to see as foundational to U.S. society -- freedom and fairness.
“There’s some value to contractual freedom,” said economist Stan Veuger, a resident scholar at the American Enterprise Institute, a conservative think tank in Washington.
According to the Bureau of Labor Statistics, 1.6 million workers, or 1.9% of all hourly paid workers, earned wages at or below the federal minimum wage in 2019. That year, 82.3 million people were paid hourly rates, constituting 58.1% of all wage and salary workers in the U.S.
In the U.S., the government can’t, with rare exceptions, prevent consenting adults from agreeing to exchange labor for payment. However, Veuger said, proponents of a minimum wage argue that the kind of freedom their opponents imagine workers possess is illusory.
“The argument in favor of the minimum wage ... is that that's not how it really works,” he said. “There is a lot more bargaining power or market power on the side of the potential employers.”
Supporters of a minimum wage argue that a wage floor simply reallocates the economic gains from an employer-employee relationship, giving the worker a fair share. Opponents argue that what it does is destroy economic gains altogether, by making it too expensive for employers to expand to take advantage of new opportunities.
Years of stagnation
The arguments about the existence of a minimum wage in the first place are largely academic at this point in U.S. history, but the question of where that wage should be set remains very real.
The current rate of $7.25 has not changed since July of 2009, nearly 12 years ago. That’s the longest stretch without an increase in the history of the federal minimum wage, though not by much. Congress allowed the wage to remain stagnant from 1981 to 1990, and then from 1997 to 2007.
In the 1980s, the first time Congress allowed the wage to go years without an increase, states and municipalities began enacting their own minimum-wage requirements, frequently much higher than the federal minimum. Currently, nearly 30 states and dozens of cities and counties have mandated wage floors above the federal level.
Advocates point out that over the past 50 years, Congress has not only been slow to raise the federal minimum wage, but has also made the increases so small that the purchasing power of someone earning it has been sharply reduced.
The numbers can be deceiving at first glance. In 1968, the minimum wage was $1.60 per hour, which seems like a pittance, but was actually worth slightly more than the equivalent of $10 today, once inflation is accounted for.
“If you adjust for inflation, it's worth about 18%, less than what it was worth in 2009, when it was last raised, and over 30% less than what it was worth in 1968,” said David Cooper, a senior analyst with the Economic Policy Institute, a liberal think tank in Washington.
Bad outcomes for all
Allowing the federal minimum wage to stagnate for long periods of time creates bad outcomes for everyone involved. Workers see their purchasing power erode over time, causing economic hardship. But, when Congress is finally moved to act, employers suddenly have to account for sharp upticks in labor costs.
“It would be simpler for businesses to have a minimum wage that was gradually raised every year by some small amount, indexed to prices, or to wages. They could plan for that, and it would be a relatively easy adjustment,” Cooper said.
The measure being considered by Congress right now includes a provision to increase the wage by a small amount every year indexed to changes in the median wage. Cooper said this allows the federal wage floor to track standards of living, not just commodity prices.
“If there's sort of broader, economy-wide productivity improvements that are happening, that are leading to higher wages for middle-class workers, the thinking is, ‘Shouldn't the lowest-paid worker benefit from those improvements as well?’” he added.
