- Raising the Minimum Wage Would Boost an Economic Recovery—and Reduce Taxpayer Subsidization of Low-Wage Work
- Stimulate the economy by putting more money in workers’ wallets
- Ensure that taxpayers aren’t subsidizing corporations for workers’ low pay
- Reducing inequality will lead to higher, more sustainable growth
- Reopening America: Low-wage workers have suffered badly from COVID-19 so policymakers should focus on equity
- COVID-19 JOB LOSSES HIT LOW-WAGE WORKERS AND PEOPLE OF COLOR THE HARDEST
- LOW-WAGE WORKERS AND COMMUNITIES OF COLOR ALSO FACE HIGHER HEALTH RISKS
- GOVERNMENT MUST TAKE A MUCH STRONGER ROLE ENSURING THE HEALTH AND SAFETY OF WORKERS
- GOVERNMENT SHOULD ASSIST WORKERS WHO CAN’T (OR SHOULDN’T) WORK
- GOVERNMENT NEEDS TO ASSIST WORKERS WHO LOST WORK OR INCOME
Raising the Minimum Wage Would Boost an Economic Recovery—and Reduce Taxpayer Subsidization of Low-Wage Work
President Joe Biden included a long overdue pay raise for millions of America’s minimum wage workers in his $1.9 trillion rescue plan rolled out last week.
Its inclusion immediately came under fire by those who argue it is extraneous to an economic recovery and divisive.
However, research from the Center for American Progress and many economists shows that getting money into the hands of those who are most ly to spend it will boost their communities and the national economy and also reduce federal spending.
Since 2014, CAP has demonstrated that an increase in the minimum wage would significantly decrease the use of the Supplemental Nutrition Assistance Program (SNAP), as millions of workers are currently paid so little that they must rely on the public social safety net.
Indeed, an increase to the federal minimum wage (and the elimination of the subminimum wage for people who work for tips and people with disabilities) would have broad benefits for the economy beyond the wages of affected workers.
Wage increases—particularly for those at the bottom of the income spectrum—increase community-level economic activity and support local businesses; reduce the amount by which taxpayers subsidize corporations for the low wages they pay; and reduce the pay inequalities for women and people of color that depress overall economic growth.
An increase to the minimum wage would be far from divisive: American voters have repeatedly signaled broad, bipartisan support for raising the minimum wage to $15.
In November, 61 percent of Florida voters supported a ballot measure to do just that, even as the state’s voters backed Donald Trump for reelection.
The percentage of Americans who say that they support raising the minimum wage has grown during the pandemic—66 percent of Americans supported raising the minimum wage in February 2020, while 72 percent supported it by August 2020.
The failure of the Senate in recent years to pass minimum wage legislation has meant real, tangible harm to American families. The last time Congress passed an increase to the minimum wage was in 2007, which fully phased in by 2009.
Since 2009, America’s minimum wage workers have endured the longest period since 1938 without a pay raise, while the rising cost of living simultaneously eroded the value of the minimum wage by more than 17 percent.
Last year, CAP put this into sharp relief by highlighting how much workers are losing each day the Senate fails to act:
While the Raise the Wage Act languishes in the Senate, workers lose $62 every eight-hour workday earning an hourly wage of $7.25 instead of $15.
That’s $310 a week, $1,348 a month, and $16,174 a year.
Eliminating these losses would also be a crucial step toward reducing existing pay gaps for women and particularly women of color, who disproportionately work in low-wage and tipped occupations.
As Congress works on coronavirus rescue legislation and a subsequent package to rebuild the economy, the minimum wage should not be dismissed.
Raising the wages of low-income workers will stimulate the economy; substantially lower the amount the country spends on social safety net programs such as SNAP; and reduce economic inequality, thereby unleashing additional economic growth in a period of recovery.
Stimulate the economy by putting more money in workers’ wallets
Phasing in a minimum wage increase between 2021 and 2025 would boost consumer spending and economic growth as the country recovers from the public health and economic crises.
Different methodological approaches predict varying aggregate effects of minimum wage increases. However, calculations uniformly point toward wage increases begetting stimulus, especially wage increases for low-wage workers:
- The most recent analysis from the Economic Policy Institute found that increasing the minimum wage to $15 by 2025 would generate $107 billion in higher wages. Their earlier analysis indicates that an increase from $7.25 to $9.80 per hour between 2012 and 2014 would have generated “approximately 100,000 new jobs.”
Broad consensus in the academic research over the past 30 years has debunked the idea that raising the minimum wage causes employers to employ fewer people. Economists found that a $15 minimum wage would not reduce employment even in areas that currently have the lowest wages.
Dozens of careful studies have explored how minimum wage laws affect earnings and employment, influenced by the seminal 1994 work of David Card and Alan Krueger.
In spring 2019, prominent economists in the US and the UK published an analysis of 138 state-level minimum wage changes since 1979, finding that the overall number of low-wage jobs remained unchanged after the increase and that low-wage workers who were already earning above the minimum also saw modest wage increases. In fact, in 2014, the 13 states that raised their minimum wages added jobs at a faster rate than the states that did not, according to the U.S. Department of Labor.
New analysis from CAP Distinguished Senior Fellow Austan Goolsbee shows that individual consumer choices driven by fear of COVID-19 infection—not legal closures or stay-at-home orders—largely drove changes in consumer traffic and spending. This indicates that once vaccination rates increase and fear of exposure decreases, consumer spending patterns will readjust if consumers have sufficient funds to spend.
The post-pandemic economy will provide a strategic moment to ensure that those in low-income households (who are more ly to spend each additional dollar they receive in pay than higher-income people) will be able to increase their consumption as needed.
New research demonstrates that minimum wage increases have a particularly strong effect on households’ real spending on food, particularly food prepared away from home.
This category of increased spending would be particularly beneficial to a recovering restaurant sector.
Ensure that taxpayers aren’t subsidizing corporations for workers’ low pay
Paltry pay with ever-decreasing purchasing power ensures that many people who work full-time for minimum wage pay rely on programs such as SNAP and Medicaid to provide food and health care for their families. This effectively means that the federal government is subsidizing low-wage employers for their labor costs while their workers barely scrape by.
CAP has a body of work demonstrating how minimum wage workers use SNAP to keep food on the table for their families—requiring taxpayers to subsidize corporations who underpay their workers.
- A groundbreaking 2014 CAP report by University of California, Berkeley economist Michael Reich and Rachel West found that a contemporaneous proposal to raise the minimum wage to $10.10 per hour would reduce SNAP enrollments by 3.1 to 3.6 million people, resulting in an annual decrease in program expenditures of nearly $4.6 billion.
- Rachel West then updated these figures in a 2015 CAP piece for proposals to increase the minimum wage to $12 per hour. West found that SNAP spending would fall by an estimated $5.3 billion each year in today’s dollars, saving taxpayers more than 7 percent in overall SNAP expenditures. When fully implemented, West also found that savings would total $52.7 billion over the following decade.
- In this piece, CAP highlighted a subsequent University of California, Berkeley study that estimated U.S. taxpayers foot the bill for $152.8 billion in government assistance programs for low-wage workers each year in lieu of their employers paying adequate living wages and benefits.
In a 2019 piece, economist Arindrajit Dube examined the impacts of minimum wage hikes on workers in the bottom 30 percent of income, finding that increases confer significant income gains to these workers.
Dube also observed that when accounting for the effects of government assistance programs (noncash transfers, including SNAP, school lunches, and housing subsidies) and tax credits (EITC and child tax credits), those income gains were only two-thirds as large.
The offset represents a significant reduction in taxpayer expenditures, effectively substituting work-based earnings for public assistance. Dube also observes that a “reduction in public benefits SNAP can be efficiency enhancing, since in principle these programs are funded using taxation that can have deadweight losses.”
Reducing inequality will lead to higher, more sustainable growth
Over the past decade, CAP research and policy recommendations have documented how inequality slows growth, with a particular focus on economic inequality that stems from structural racism and sexism.
Decreasing income inequality and working toward the elimination of the wealth gap (another disparity that stymies overall growth) requires targeted policies to build economic security.
Raising the minimum wage is one tool for combatting this inequality—and therefore stimulating growth.
Women (and women of color in particular) are overrepresented in minimum wage work, and CAP research demonstrates that this is especially true in occupations in which people receive tips but are paid as little as $2.
13 per hour by their employer.
The National Women’s Law Center calculates that “for women working full time in states with a minimum wage of $10 per hour or more, the wage gap is 34 percent smaller” than the wealth gap in states with a $7.25 minimum.
CAP research shows that 64 percent of women were the sole or primary breadwinner for their family in 2017, and women account for most consumer spending in the economy. Nearly 59 percent of workers who are paid the federal minimum wage are women. Therefore, increasing the minimum wage is particularly ly to stimulate consumer spending.
Black and Latino workers are disproportionately represented in occupations with the lowest wages. Nearly one-third of all Black workers and one-quarter of all Latino workers would get a raise under a $15 minimum wage. Decreased income inequality would lead to an increase in overall economic growth, as economic growth in the United States is constrained by income inequality.
Rather than continuing to subsidize corporations that pay paltry wages to workers—which means that those workers must find necessary support in the social safety net—a higher minimum wage would boost millions of families poverty and further stimulate the economy.
As we move toward a post-pandemic economic recovery, increased money to families who are the most ly to spend any marginal dollar will have an outsize effect on consumer spending.
A minimum wage increase would give an overdue raise to workers and would be well-timed for an economic recovery.
Lily Roberts is the managing director of the Economic Policy Team at the Center for American Progress. Ben Olinsky is the senior vice president for policy and strategy at the Center.
Reopening America: Low-wage workers have suffered badly from COVID-19 so policymakers should focus on equity
Faced with the staggering economic fall the COVID-19 pandemic, state and local leaders are exploring how and when to lift stay-at-home orders and reopen local economies. Unemployment rates have skyrocketed and job losses rival those of the Great Depression.
Leaders are also confronting the health risks that reopening poses for workers, their families, and the community— risks exacerbated by inadequate testing, shortages of personal protective equipment (PPE), weak enforcement of workplace safety standards, and no readily available treatment or vaccine.
The rising death toll of essential workers such as nurses, bus drivers, and grocery workers is a grave reminder of what is at stake in these decisions.
As leaders across the country seek opportunities to put laid-off workers back to work, their decisions will have an outsized impact on lowwage workers and people of color, who shoulder some of the most severe financial and health burdens associated with the coronavirus and will be some of the first workers called back to the job site. Leaders must create the conditions for a more equitable next phase of the pandemic so that low-income and minority workers are not forced to make an impossible choice between surviving financially or surviving the virus.
COVID-19 JOB LOSSES HIT LOW-WAGE WORKERS AND PEOPLE OF COLOR THE HARDEST
Low-wage workers in America have suffered the worst economic pain of the pandemic. Social distancing measures taken in response to COVID-19 resulted in massive job loss concentrated among lower-wage workers.
Retail and leisure/hospitality, which typically offer lower wages than other industries, took the hardest hits. In April, retail posted a 17.1 percent unemployment rate, totaling 3.2 million people.
In leisure/hospitality, the unemployment rate was a staggering 39.3 percent, totaling 4.8 million people.
Workers with the least education have suffered the most. In April, unemployment rose to 21.2 percent for those with less than a high school degree—more than twice as high as the 8.4 percent unemployment rate for those with a bachelor’s degree or higher. Financial shocks and unemployment are widespread, but Black and Latino or Hispanic workers are disproportionately affected.
One of the reasons low-wage workers have suffered disproportionate job losses is their limited ability to telework. Low-wage workers are six times less ly to be able to work from home than high-income workers.
Fewer than 10 percent 31 of leisure and hospitality workers can telework, while a majority of workers in higher-paid fields such as the finance, business, professional, and information sectors can.
The vast majority of workers who held jobs just a few weeks ago in restaurants, bars, gyms, salons, movie theaters, and malls could not perform those jobs from home once the pandemic started and were laid off as social distancing requirements caused many of those establishments to close.
Low-wage workers in America have suffered the worst economic pain of the pandemic. Social distancing measures taken in response to COVID-19 resulted in massive job loss concentrated among lower-wage workers.
As cities and regions across the country start to reopen businesses, millions of laid-off, low-wage workers face a dual dilemma. To earn a paycheck, the vast majority will have to show up physically to work, risking exposure to the coronavirus.
But their pay could be less than the already low wages they earned before, and even less than what they were collecting through enhanced unemployment insurance at the beginning of the pandemic. Servers may return to half-empty restaurants and far smaller tips, for instance, and hours for low-paid retail and leisure workers may be cut.
As their eligibility for unemployment benefits expires, many may find themselves in the difficult position of choosing between their health and their (potentially even smaller) paychecks.
LOW-WAGE WORKERS AND COMMUNITIES OF COLOR ALSO FACE HIGHER HEALTH RISKS
The coronavirus is an unequal killer. Low-income and minority populations face a higher risk of dying from COVID-19 due to structural conditions, health inequities, and a higher prevalence of preexisting health conditions such as heart disease, asthma, and diabetes.
The mortality rate from the virus is nearly three times higher for Black Americans than for whites.
According to an analysis by the Kaiser Family Foundation, a far higher percentage of low-income, non-elderly adults have a serious risk of dying from COVID-19 than higher-income adults.
Community spread is also a real concern. As they risk exposure on the job site, low-wage workers are also risking the health of the family members they live with.
Low-wage workers are more ly than those with higher incomes to live in households of at least five people and with someone over the age of 60.
Multigenerational households are also nearly twice as common in communities of color than among non-Latino or Hispanic whites.
GOVERNMENT MUST TAKE A MUCH STRONGER ROLE ENSURING THE HEALTH AND SAFETY OF WORKERS
The priority for policymakers and employers must be to keep workers safe and protected on the job. The federal government should have enacted enforceable safety requirements for employers, but it has not, and the administration appears unly to do so.
The Centers for Disease Control and Prevention (CDC) and the Occupational Safety and Health Administration have both released guidelines for workplace safety, but they are advisory in nature.
State and local governments should create and enforce their own requirements the guidance from those agencies.
So far, employers’ track record on worker safety during the pandemic is concerning. The shocking outbreaks in meatpacking plants across the country are a reminder of the potential hazards that workers face on the job.
A survey from the University of California at Berkeley revealed uneven and often inadequate safety procedures across major industries that employ lowwage workers, including retail, warehousing, restaurants, hotels, and pharmacies.
Several walkouts and strikes among gig workers and warehouse workers have highlighted urgent concerns about safety, but workers in general have limited ability to advocate more protection.
Many businesses simply will not take the necessary steps to protect their employees unless forced to by government, workers, or perhaps consumers.
Companies often treat low-wage or frontline workers as costs to be minimized rather than people and assets to protect.
In the absence of federal action, state and local leaders should strengthen protections for workers and create new avenues for them to report safety concerns without risk of retaliation.
Critical shortages of PPE have already impacted first responders and health workers, prompting the CDC to issue guidance acknowledging the “tremendous challenge” that shortages are posing to the U.S. healthcare system.
These shortages will become even more urgent as workers return to the job site and the demand for masks, gloves, and sanitizer grows.
The federal government should utilize the Defense Production Act to increase the PPE supplies.
GOVERNMENT SHOULD ASSIST WORKERS WHO CAN’T (OR SHOULDN’T) WORK
State leaders should take extra measures to provide a safety net to the workers who are at greatest risk from COVID-19.
No matter what safety measures employers put in place in the coming months, it may simply be too dangerous for some of the highest-risk workers to return to the workplace until a vaccine is available.
The CDC has identified higher-risk individuals as people over age 65, people with underlying medical conditions including lung disease and severe asthma, and those who are immunocompromised due to other medical conditions. Low-income workers and workers of color are more ly to have these underlying medical conditions.
State leaders can follow the lead of the Texas Workforce Commission and issue guidance clarifying that unemployed workers can refuse rehire and remain eligible for unemployment benefits if they or a household member is at especially high risk from COVID-19. According to the new Texas guidance, other approved reasons for refusal could include a COVID-19 diagnosis, quarantine, or lack of child care.
GOVERNMENT NEEDS TO ASSIST WORKERS WHO LOST WORK OR INCOME
Massive unemployment requires a proportionate response. Even as states reopen, the scope and pace of hiring will be nowhere near enough to compensate for the tens of millions of jobs lost in the past few months.
The federal government has taken important initial steps in the Families First Coronavirus Response Act and the Coronavirus Aid, Relief, and Economic Security Act, but the unemployment benefits they provide are too limited in length and exclude some of the most vulnerable working families, including immigrants. More needs to be done to provide direct relief to the millions of workers and families who risk financial ruin and could plunge deeper into poverty. One promising proposal in Congress calls for automatic extension of unemployment relief through the period of extreme social distancing and economic crisis.
The federal government should also enact a large scale, federally funded employment initiative to employ millions of people, and authorize such a program for at least three years.
The program could place subsidized workers at nonprofits and businesses, and directly employ people in the public sector in emergency response, public works, and infrastructure jobs.
It could place workers in jobs that aid the COVID-19 relief effort, such as contact tracing, making and distributing PPE, organizing food drives, and delivering groceries to those who are homebound. Of course, any of these employment opportunities should be safe, allowing for adequate social distancing as well as any necessary PPE.
The coronavirus has laid bare the inequities of our labor market and health system and the weaknesses of our safety net, leaving the country’s most vulnerable workers and families on the edge of financial disaster.
In the near term, the focus of policymakers at all levels of government should be on keeping workers safe and protected 34 on the job, extending the safety net for those who cannot or should not work, and providing economic relief and work to the millions of workers who lost jobs and income. In a heartening move, some states, cities, and regions are making explicit commitments to equity as they respond to the COVID-19 crisis. Addressing the inequities that existed long before the pandemic requires immediate policy responses, as well as long-term, structural change for a better, more resilient future for all workers.
Coronavirus (COVID-19) Economics Coronavirus (COVID-19) Economics