The Impact of the Minimum Wage Increase

The federal minimum wage of $7.25 per hour for nonexempt employees went into effect on July 24, 2009, and has not been increased as of February 2019. However, 29 states have a minimum wage higher than the federal rate, and employees always must be paid the highest of conflicting rates, whether they are based on federal, state, or local laws. The federal minimum wage always requires nonexempt employees to be paid 150 percent of the regular pay rate for any hours beyond 40 worked during the same week.

Exempt employees include salaried employees who typically are in management roles. As of 2019, an exempt employee's salary must be at least $455 per week, and the employee must meet other standards under the Fair Labor Standards Act, such as exercising discretion and judgment in a management role or supervising other employees.

The federal minimum wage for tipped workers is $2.13 per hour, but such employees still must earn at least $7.25 per hour (or the applicable state or local rate) in total wages once tips have been included. Some states also have a minimum rate higher than $2.13.

"Fight for $15"

About 200 fast-food workers walked off the job in New York in November of 2012 in an attempt to boost wages to $15 per hour, among other demands. The following year, more walkouts took place in other cities, and a national walk-out was held less than a year after the initial protest in New York.

These protests led to the beginning of Fight for $15, a worldwide organization representing retail employees, home health aides, child care professionals, airport employees, adjunct professors, and more.

Since the movement began, California and New York have enacted minimum wage laws that will raise their respective minimum wages to $15 incrementally, and several other cities have enacted similar laws.

California will be at $15 for all nonexempt employees by January 1, 2023. New York's law is more complex, increasing the minimum wage at different paces depending on where in the state employers are located.

Momentum

Perhaps the greatest impact of minimum wage increases at state and local levels and in the aftermath of the Fight for $15 movement is the momentum they have created for the issue. In addition to increases mandated by laws or ordinances, many businesses have taken it upon themselves to boost their wages. A prominent example in 2018 was Amazon's decision to raise its minimum rate of pay for U.S. workers to $15 per hour. Amazon's move was controversial because it also involved reducing stock options available to some employees, but it's still one of the most prominent examples of a company boosting its minimum pay.

Target similarly announced in 2018 that it would be raising its minimum rate of pay to $15 by 2020.

Pros and Cons of Minimum Wage Increases

Research can be found both supporting the economic impact of minimum wage increases and citing it as a cause for higher prices and lower employment. Some standard arguments in favor of a higher minimum wage include:

  • A better standard of living for entry-level employees. Lower wages require entry-level employees to work more than one job, leaving them with little free time and higher levels of stress.
  • Reducing reliance on public assistance. Walmart, in particular, is a common target for critics who argue that its low-paid workers cost the public money because of their reliance on public assistance to subsidize their low incomes. This claim comes from a 2013 study by a group called Americans for Tax Fairness that claimed Walmart costs taxpayers $6.2 billion annually in food stamps, Medicaid, and subsidized housing. Other studies have refuted this claim.
  • Putting money back into the economy. The more money entry-level employees have, the more they will spend, which is good for the economy.

Some standard arguments against a higher minimum wage include:

  • Higher prices. In order to support higher labor costs, businesses will need to raise prices, thus raising the cost of living, negating some of the effects of the wage hikes.
  • Lower employment. Some businesses that cannot afford the higher wages may lay off some employees or reduce hours for those they retain, negating the benefits of a higher hourly wage.
  • Forcing small businesses to close. Many small businesses have narrow profit margins, especially when they are just starting out. Mandated wage increases could be the final straw that forces some of them to close their doors.