Minimum wage: Why Biden wants to raise it and its effect on the economy
President Biden is pushing to raise the minimum wage to $15. Here’s how that would affect the economy.
Just the FAQs, USA TODAY
This was the year that low-wage workers finally gained significant bargaining power and wielded it to snare big pay increases.
But that’s not stopping many states and cities from cementing at least some of those advances into law.
Twenty-one states and 35 cities and counties are set to raise their minimum wages on or about New Year’s Day, according to a report provided exclusively to USA TODAY by the National Employment Law Project (NELP), a worker advocacy group.
Base hourly pay will climb from $11 to $12 in Illinois; from $9.25 to $10.50 in Delaware; from $9.50 to $11 in Virginia; from $12 to $13 for most workers in New Jersey; and from $10.50 to $11.50 in New Mexico.
Since some governments will act later in the year, a total of 25 states and 56 localities – a record 81 jurisdictions – will lift their pay floors sometime in 2022, according to NELP.
A base wage of $15 an hour or higher, derided as the pipe dream of striking fast-food workers just a few years ago, is becoming commonplace. California’s minimum will reach $15 for the first time on Jan. 1 for large employers. New York state – already at $15 in New York City and for fast-food workers statewide – will extend that benchmark to Long Island and Westchester County on New Year’s Eve.
Four of the localities lifting their pay floors Jan. 1 will hit the $15 threshold for the first time: Denver, which is leaping from $14.77 to $15.87, and the California cities of San Diego, Oakland and West Hollywood.
An additional 27 cities and towns already at $15 will climb even higher in a couple of weeks, as California’s Mountain View and Sunnyvale both reach $17.10 and Seattle edges up to $17.27 for most employers.
Minimum wage in Oakland
In Oakland, Evelia Domingo, 23, works full time at a local Jack in the Box, earning the city’s $14.36 hourly minimum. She lives in a two-bedroom apartment with her father and two sisters, splitting the $3,000 monthly household expenses with her father, a construction worker.
Although they can pay the bills, Domingo says she has no money for discretionary spending such as dining out.
“I would like to go out and take my family out but I can’t because I don’t have enough money for anything that isn’t household expenses,” she said through a translator. “I don’t like to go shopping because I see things I want but can’t afford.”
On New Year’s Day, Oakland’s base wage will rise to $15.06, netting Domingo an extra $112 a month. She plans to give the money to her father to cover the electric and water bills so he can send more cash to Domingo’s mother, who is ill and lives in Guatemala. The slightly larger paycheck also could help the family put away some money to eventually move to a bigger apartment.
“I want to be able to help if I can,” she said.
But there will be no frills. Domingo says she would need an additional $5 an hour bump in pay to afford other things she’d like to do, such as saving up for a car, helping pay for her sister to attend college, going out and buying clothes. “Everything just feels impossible,” she said.
Yannet Lathrop, a researcher and policy analyst at NELP, says $15 provides just a living wage in much of the country.
“It’s becoming the default minimum,” she says
That may not be the case across the U.S. but it is in many higher-cost regions.
Where are $15 minimum wages?
Besides California and New York, nine states are headed to a $15 pay base over the next four years – Connecticut, Delaware, Florida, Illinois, Maryland, Massachusetts, New Jersey, Rhode Island and Virginia. They’ll join 50 localities at or on the way to $15, including Chicago, Minneapolis and Washington, D.C.
All told, by 2026, about 40% of the U.S. workforce will be covered by $15 minimum wage mandates, NELP figures show.
Separately, at least 100 or so mostly large companies already have raised their pay floors to $15 or higher, including Best Buy, Costco, Wayfair, The Container Store and Southwest Airlines, according to the NELP study.
Lathrop traces the $15 movement to Fight for $15, an alliance of fast-food and other low-paid workers that has staged walkouts across the country since 2012 and is backed by the Service Employees International Union.
“This is the result of that organizing,” she said.
Power shifts to workers
Then there are the ripple effects of COVID-19.
Pandemic-related labor shortages have handed U.S. workers unprecedented leverage. Several million Americans remain on the sidelines because they can’t find or afford child care, they’re afraid of contracting COVID or they’re still living off enhanced unemployment benefits or government stimulus checks. And many older people retired early.
Employers, in turn, are sharply boosting pay to attract and hold onto workers amid a reopening economy and strong consumer demand. In October, there were 11 million job openings and 4.2 million people quit, typically to take other positions that pay more, Labor Department figures show. Both totals are near records.
In November, wages overall rose 3.7% from a year earlier, the most since 2009, and pay for the bottom quartile of employees jumped 5.1%, the biggest gain in nearly two decades, according to the Atlanta Fed’s wage growth tracker. Average hourly earnings for employees at restaurants and bars surged 12.1% in October, the most on record, to $17.66, according to the Labor Department.
Workers’ newfound bargaining power has emboldened many to play hardball. The nation has seen a rise in strikes this fall at companies such as John Deere, Kellogg and Kaiser Permanente, with many employees winning higher pay and benefits.
The worker-friendly landscape has lessened the impact of the minimum wage hikes since most employees’ earnings already are close to or above the new pay floors, says Mark Zandi, chief economist of Moody’s Analytics.
Federal minimum wage remains $7.25
Lathrop, however, says the government-mandated increases are still critical to helping low-income households meet expenses, especially with inflation hitting a 39-year high last month.
“At some point, we’ll go back to an economy where workers don’t have the leverage and we’ll need to rely on laws,” she says. “It would not be good policy to leave wage floors to the discretion of the private sector.”
The federal minimum wage, however, has been stuck at $7.25 an hour since 2009, with Senate Republicans repeatedly blocking efforts to increase it.
Although 30 states with more than 60% of the U.S. workforce now have higher pay floors than the federal government’s, 20 states – mostly in the South and Midwest – rely on the federal minimum and are unlikely to set a higher base, Lathrop says. That has intensified the need for federal action, she says.
Many employers, though, say the minimum wage hikes will add to the cost pressures triggered by the worker shortages and supply-chain bottlenecks that have delayed product deliveries.
“In the current environment, where employers are trying to reduce costs by pulling labor out of the restaurant, the last thing you want to do is give them another incentive to do so,” says Michael Saltsman, managing director of the Employment Policies Institute, which is backed by the restaurant industry.
The wage increases, he says, will accelerate a trend toward more automation and fewer workers.
A Congressional Budget Office study in 2019 found that a $15 federal minimum wage would increase pay for 17 million workers who earn less than that and possibly another 10 million who earn slightly more. It would cause 1.3 million other workers to lose their jobs, according to the study’s median estimate.
Not all of the base pay hikes taking effect next month will be large. A handful of states and 27 localities will enact small, annual cost-of-living increases. Pay floors will rise from $12.32 to $12. 56 in Colorado, from $8.80 to $9.30 in Ohio and from $8.75 to $9.20 in Montana.
Later in 2022, an additional four states and 22 cities and counties will increase their minimum wages. Connecticut’s will climb from $13 to $14 on July 1 and Florida’s, from $10 to $11 on Sep. 30. Many cities such as Los Angeles and Tucson, Arizona, will bump up base pay more modestly to offset the higher cost of living.
Read More: Minimum wage is about to rise in 21 states, 35 localities as more embrace $15 an hour