At $7.25 per hour, the federal minimum wage has not been raised since 2009. The real value of the minimum wage has been steadily decreasing and is now at its lowest point in more than 60 years thanks to higher-than-average inflation. If a minimum wage employee with at least one dependent worked full time all year, they would still be living in poverty.
For more than a decade, advocates have been fighting to raise the federal minimum wage to $15 per hour. Most Americans also support raising the minimum wage. Yet the issue has stalled in Congress with lawmakers unable to move legislation that would raise it to $15 per hour by 2025. President Biden has made a $15-per-hour federal minimum wage a core element of his legislative agenda, successfully requiring all federal contractors to pay workers this rate. Most action on raising the minimum wage has occurred at the state or local level. Certain large employers including Amazon and Costco have raised their minimum wage to $15 an hour, although many others still pay below $15 an hour to the majority of their employees.
The evidence shows that raising wages could result in several positive outcomes: more productive workers, greater racial equity in the labor market, and less reliance on public benefit programs. Yet other research shows that raising the minimum wage could lead employers to reduce hours, eliminate jobs, or raise prices to make up for higher labor costs.
A recent Urban Institute analysis explores the potential outcomes of raising the hourly minimum wage to $15 on three important outcomes: the number of people living in poverty, as measured by the Supplemental Poverty Measure (SPM); a family’s annual earnings; and their net resources, or income after taxes, transfers, and work-related expenses. Using the Analysis of Transfers, Taxes, and Income Security (ATTIS) microsimulation model, the analysis estimates the impact on the poverty rate and family earnings under three different scenarios that could result from a $15 per hour minimum wage increase, relying upon existing literature to make estimates about potential job losses:
1) no workers lose their jobs
2) workers earning less than $15 per hour are at some risk of losing jobs at some point in the year, with teen workers (ages 16–19) at higher risk than workers over 19
3) workers earning less than $18 per hour are at some risk of losing jobs at some point in the year, with teen workers (ages 16–19) at higher risk than workers over 19
The authors estimate that about one-third of all workers, or 56 million people, would be affected by a $15-per-hour federal minimum wage increase, including those earning less than $15 per hour and those who earn between $15 and $18 per hour. The authors note that workers earning more than $15 an hour may experience spillover effects since employers may need to raise their wages to maintain the existing wage hierarchy.
Among those workers, about 38 percent of affected workers earn less than $12 an hour, 23 percent of workers earn between $12 and $15 an hour, and 39 percent of workers earn between $15 and $18 an hour. These workers are also disproportionately young and identify as Hispanic, Black, or women. About 39 percent live below 200 percent of the federal poverty line, and nearly one-quarter receive some form of means-tested public assistance.
The authors estimate the following outcomes under three different employment scenarios, detailed in table 1. All three scenarios lead to an increase in family earnings and net resources as well as reductions in poverty—even if affected workers experience spells of unemployment as projected in scenarios 1 and 2.
- Scenario 1: Under the first scenario, the authors assume that no workers would lose their jobs as a result of a federal minimum wage increase. They estimate that the average family earnings would increase by $5,600 and net resources—income after taxes, benefits, and other expenses—would increase by $4,200. The new minimum wage would lift 7.6 million people out of poverty and decrease the poverty rate by 2.4 percentage points.
- Scenario 2: Under the second scenario, some workers earning less than $15 per hour would lose their jobs. The authors estimate 2.9 million workers would experience unemployment at some point during the year. Despite these job losses, annual family earnings would still increase by $5,100 and net resource gains would be $3,800 even among families experiencing job loss. About 7 million people could escape poverty, and the poverty rate would decrease by 2.2 percentage points.
- Scenario 3: Under the third scenario, 3.2 million workers earning less than $18 per hour would lose their jobs at some point during the year. Nonetheless, a $15-per-hour minimum wage would result in family annual earnings increasing by $5,000 and net resources gains of $3,700. About 6.9 million people would leave poverty, and the poverty rate would decrease by 2.1 percentage points.
In addition, the authors find the following:
- All racial and ethnic groups would experience declines in poverty in each scenario, with Hispanic workers experiencing the largest gains in earnings and net resources as well as the largest reductions in poverty. Compared to non-Hispanic workers, Hispanic workers are more likely to live in families with other workers who would be affected by a federal minimum wage increase.
- Workers with the lowest earnings stand to gain the most but are also at greatest risk of losing their jobs under a $15-per-hour federal minimum wage increase.
- Workers who would be affected by this policy change skew younger. More than one-quarter are under 25, and 55 percent are between 25 and 54. The majority of affected workers do not live in families with children.
- The impact would vary by state and municipality. The authors predict that minimal reductions in the poverty rate in high-wage states and larger reductions in poverty in low-wage states. Families in higher-cost areas would need more resources to leave poverty.
WorkRise’s perspective: Policy and practice implications
Based on the study’s simulations, WorkRise identifies the following implications for policy and practice:
- The study makes a compelling case that raising the minimum wage would reduce poverty and increase family earnings and income even if families experience temporary job loss. A federal minimum wage increase would lift more people out of poverty and disproportionately raise earnings for Hispanic and Black families, thereby improving racial equity.
- Raising the federal minimum wage to $15 per hour could lead to different effects on employment, business growth, and consumption in local labor markets, particularly in nonurban areas.
- Employers may be forced to raise wages to compete for workers, particularly in a tight labor market.
Raising the federal minimum wage would significantly improve the lives of millions of workers, particularly those who live in areas where wages have not kept up with the cost of living. Such actions or lack thereof will have direct and intergenerational consequences on the quality of life of workers and families.