This story was updated on April 4, 2014.
Thirteen states opted to raise their minimum wage above the federal level, starting this past Jan. 1. And so far, nothing dire (or amazing, for that matter) has happened to employers’ or workers in those communities.
Anecdotally, businesses have not slashed jobs or laid-off low-wage workers en masse. Instead, paying up to $1 more an hour is simply the latest headache for business owners like 45-year-old Peter DeFelice. “The economy crashed. My taxes have gone up. The price of gas went up, and the [minimum-wage] increase will cost me more than $2,500 this year,” says DeFelice, the owner of two flower shops and a comic-book store in Sparta and Franklin, N.J. “We just keep changing the way we do business to become more efficient.”
And the minimum-wage workers themselves? Well, they’re grateful for the increase, but the boost is not enough to lift anyone out of constant financial distress. “It helps me pay more of my bills,” says 22-year-old Naquasia LeGrand, who works as a Kentucky Fried Chicken cashier in New York for $8 an hour, up from $7.25 in 2013. “But, I still can’t do a lot.” LeGrand has become an organizer and face of the multi-state campaign to raise minimum wages, appearing on “The Colbert Report” in January to talk about those efforts.
Roughly three months after the increases went into effect in more than a dozen states, including California, Connecticut, New Jersey, New York, and Rhode Island, this is the state-of-play for the minimum-wage debate. Economic data are not conclusive enough yet to give advocates hard evidence as to whether the increases were a wise or foolhardy decision. That has not stopped the political action from shifting largely to the state level, with Congress gridlocked and the president’s power waning.
New Jersey workers saw some of the greatest increases heading into 2014; there, the minimum wage jumped from $7.25 to $8.25 an hour and also pegged future increases to the rate of inflation, measured by the Consumer Price Index. President Obama and congressional Democrats continue to advocate for a higher national minimum wage of $10.10 an hour as a key theme for the 2014 midterm elections: a way to express the empathy for hardpressed American workers on an issue that also happens to poll well. And Connecticut lawmakers just voted Wednesday to increase its minimum wage to $10.10 by 2017, in line with the president’s economic agenda.
Now, states are engaging in their own mini-economic experiments in real time to try to settle the age-old economic debate: Does increasing the minimum wage lead to less job creation, or does it spur economic growth by giving low-wage workers more money to spend? Economists have been fighting over this for at least the past 20 years, increasingly producing more research on the topic and arguing amongst themselves.
A recent survey of minimum-wage research by the nonpartisan budget scorekeepers, the Congressional Budget Office, showed how inconclusive the academic debate remains. CBO estimated that 16.5 million workers would see a boost in their earnings if the federal government increased the minimum wage to $10.10 an hour (higher than any of the state increases that recently took hold). Such a move would also lift 900,000 families out of poverty, CBO says. At the same time, however, it could reduce the number of jobs that the economy creates by roughly 500,000 positions. “The problem is: There is no way to raise wages without winners and losers,” says Mark Killingsworth, a labor economist at Rutgers University. “It’s hard to do something that just involves winners.”
The academic research on the minimum wage remains as gridlocked as the debate within the halls of Congress, while the economic realities for American workers have certainly shifted. More and more adults now work low-wage, hourly jobs in retail stores, fast-food chains, airports, and as home health care aides to support their families than they did in years past. “Prior to the 1980s, it was typically teens who were the minimum-wage workers,” says William Rogers III, a professor of public policy at Rutgers University and a former chief economist at the Labor Department. “A typical minimum-wage worker now is not a teenager. This is how it fits into the income inequality conversation.”
The other, more subtle shift comes from the hollowing out of the middle class. American workers, particularly those without college degrees, are no longer as able to easily move from low-wage jobs to better-paying ones, thanks to the dearth of good manufacturing jobs and other blue-collar positions. This leaves workers stuck in a rut of minimum-wage work for longer than they perhaps imagined and without a clear escape ladder.
Just ask LeGrand, the KFC worker. After taxes, LeGrand takes home roughly $120 a week from working 15 hours at the fast-food chain on the outer edges of the Brooklyn, N.Y., neighborhood, Park Slope. She used to make more money by working a second job at a KFC branch in Queens until that store shut down in October 2013. Now, she needs to find another second job to better support herself, or pick up more hours in her current position: a route that she’s tried with little success. She says she’s one of the lucky ones because she at least lives with her grandmother and pays little to no rent.
“Nobody has any money to survive or buy anything,” she says about her fellow minimum-wage workers. “Obama is doing the right thing as a leader, even if he doesn’t have as much authority as I thought he would. That’s why some states are starting to change the minimum wage,” she adds.
One seminal minimum-wage study from the 1990s showed how raising the minimum wage does not necessarily cause huge fluctuations in local economies. The study, from economists David Card and Alan Krueger, compared fast-food restaurants in New Jersey in the 1990s (where the minimum wage rose from $4.25 to $5.05 an hour) with fast-food chains in eastern Pennsylvania (where the minimum wage did not go up that year). The economists found that the minimum-wage increase in New Jersey did not reduce employment, as conservatives and free-market thinkers often argue. (Krueger later went on to become a top economic adviser to Obama.)
More recently, a 2010 paper out of the University of California (Berkeley) expanded on the original New Jersey fast-food study by showing that slight increases in the minimum wage across 337 counties and a broader sector of industries also did not lead to significant job losses. For supporters of the minimum wage, economists, and low-wage workers, the question becomes: How much can the federal government increase that threshold without hurting the economy and businesses? Meanwhile, conservative economists like Michael Strain of the American Enterprise Institute and a handful of Republican lawmakers are focused instead on pushing the alternative of an expanded Earned Income Tax Credit, a break for working individuals.
The minimum-wage sweet spot, according to the CBO overview, may fall closer to $9 an hour than the president’s latest proposal. “The thing that is missing from the CBO study is what happens between the $9 and the $10.10 an hour before we start to encounter serious unemployment problems,” says Steven Pressman, a minimum-wage expert and a professor of economics and finance at Monmouth University in New Jersey.
Still, raising the minimum wage by small increments and state by state may not be a panacea for low-wage, less-educated workers. Twenty-year-old Tayzia Treadwell knows this as well as anyone, having graduated from earning $7.25 an hour at a Pizza Hut in Elizabeth, N.J., to making $10 an hour as a private security guard. (Like LeGrand, Treadwell has gotten involved in efforts to raise state minimum wages, lobbying politicians in her state when they debated the wage hike.) “It was such a big deal to get that $10-an-hour job,” she says. Treadwell supports her 2-year-old daughter and pays her for school fees, diapers, and food. She still must take care of herself and her bills, and she can’t even afford to live on her own. Instead, she saves money by living with her mother. Treadwell is grateful for the higher wage of $10 an hour but also very aware, as someone on the lower end of the economic ladder, that “$10 is still not enough.” That’s a tough message to hear for those hoping that any minimum-wage increase can solve a much greater share of our country’s current economic ills.
UPDATE: An earlier version of this story did not note that both Naquasia LeGrand and Tayzia Treadwell are involved as speakers and activists in the effort to raise minimum wages at the state and federal levels.
What We're Following See More »
President Trump today said he'll be releasing his tax reformpacakge next week around the 100-day mark of his presidency. He promised that "businesses and individuals will receive a 'massive tax cut ... bigger I believe than any tax cut ever."
Despite President Trump's announcement that his tax reform proposal would be released this week, Office of Management and Budget Director Mick Mulvaney now says it will be ready in June. This week's announcement will be limited to "specific governing principles."
Donald Trump is expected Monday to sign an executive order which will mark his administration's first action on offshore oil and gas drilling. The order is expected to call for a "review of the locations available for offshore oil and gas exploration and of certain regulations governing offshore oil and gas exploration."