The tax reform that will impact every U.S. socio-economic class, for better or worse, isn’t the only change in finances many Americans will see. In the new year, minimum-wage workers in 18 states and 19 cities will see a pay increase; approved wages will eventually range from $12 to $15 an hour. This is a major increase from the current national average, an unlivable $7.25 an hour. (Minimum wage referenced here is for non-tipped workers.)
Minimum wage was established as part of the Fair Labor Standards Act in 1938 and kept pace with cost of living until about 1968.
“The peak value of the minimum wage in real terms was reached in 1968. To equal the purchasing power of the minimum wage in 1968 ($10.69), the current minimum wage’s real value ($7.25) would have to increase by $3.44 (or 47 percent),” says Craig K. Elwell, specialist in macroeconomic policy at the Congressional Research Service in Washington. “Although the nominal value of the minimum wage was increased by $5.65 (from $1.60 to $7.25) between 1968 and 2009, these legislated adjustments did not enable the minimum wage to keep pace with the increase in consumer prices, so the real minimum wage fell.”
Though numerous states have approved an increase in minimum wage, the full impact will happen gradually. For example, Arizona has approved state minimum wage at $12 an hour, but the 2018 minimum wage will be $10.50, a 0.50 cent increase from last year. In 2019, the amount will increase to $11 and in 2020 it will reach $12 an hour. Starting in 2021, minimum wage in Arizona will increase every year based on cost-of-living calculations.
According to a report from the National Employment Law Project, after full implementation of minimum wage increases in 18 states and 19 cities, approximately 13,101,000 workers will be impacted.
This is a great step toward financial independence for millions of minimum-wage workers, notes Carey Nadeau, founder and CEO of Open Data Nation Inc., in Washington, D.C., and Amy K. Glasmeier, professor of economic geography and regional planning at the Massachusetts Institute of Technology in Boston.
“The minimum wage does not provide a living wage for most American families,” they said. “A typical family of four (two working adults, two children) needs to work nearly two full-time minimum-wage jobs each (a 77-hour work week per working adult) to earn a living wage. A single parent with two children needs to work the equivalent of three and one half full-time jobs (139 hours per work week), more hours than there are in five days, to earn the living wage on a minimum wage income.”
These statistics help paint the bleak landscape of financial struggle minimum-wage workers face, so why not raise wages? Opponents feel that a substantial pay increase will negatively impact job growth.
Those challenging pay raises say that higher wages may mean fewer jobs, particularly those categorized as entry-level. Michael Saltsman, research fellow at the Employment Policies Institute in Washington, says that a wage hike may make automation more attractive to businesses looking to cut or control costs.
“Automation saves you money because it reduces the need for companies to pay people to serve you, but it also decreases the number of jobs to go around. And, over time, business owners have seen that consumers will trade lower prices for less service, putting more jobs at risk as employment costs escalate beyond productivity levels,” said Saltsman.
The doomsday ideologies of naysayers appear to pale in comparison to recent literature reviews and evidence-based research. A great majority of the literature shows little to no negative correlation between wage increases and business outcomes.
As research continues, especially now that many states are enacting their own minimum-wage policies, it will be interesting to see who comes out on top – businesses, workers or both. In the meantime, HR leaders should keep an eye on state policies and cost-of-living estimates, to ensure equity across the continuum of business.