Revenue & Spending
American Workers to Congress: We Need a Raise
by Jessica Schieder, 3/25/2014
Polls show that more than three-quarters of Americans support an increase in the minimum wage. Approximately 76 percent support raising the minimum wage to at least $9 an hour, and as many as 73 percent support an increase to $10.10, the minimum proposed in the Fair Minimum Wage Act, sponsored by Sen. Tom Harkin (D-IA) and Rep. George Miller (D-CA). That bill would raise the minimum wage over two and a half years and then peg future increases to inflation. Raising the minimum wage enjoys broad bipartisan support: when polled, 58 percent of Republicans expressed support for increasing the minimum wage to $9 per hour.
The strong support for an increased minimum wage should not be surprising, since wages have been stagnant or in decline for the majority of Americans over the past 14 years. An analysis of Social Security Administration data by David Cay Johnston found that the annual median pre-tax wage of an American worker was just $27,519 in 2012. This represents a decline in pre-tax (inflation-controlled) wage income of $980 from 2007 and is the lowest level since 1998. And studies have shown that over the past 20 years, the top one percent have captured 68 percent of economic growth.
Increasing the Minimum Wage
Almost 30 million Americans would receive a raise if the federal minimum wage was increased to $10.10. These hard-working Americans contradict popular stereotypes. These workers are, on average, 35 years old, work full-time, and earn more than half of their household's income, according to the Economic Policy Institute. More than half of those affected are white, 55 percent are female, and – while most have only a high school diploma or less – more than 43 percent have at least some college credits. Despite working at least 35 hours a week, a minimum-wage worker makes only $15,080 annually, less than the poverty level for a family of two.
The current Harkin-Miller proposal would also increase the minimum wage for tipped workers from $2.13 until it reaches 70 percent of the minimum wage. (3.3 million people are tipped workers – the minimum wage for them has not been increased since 1991). The bill indexes both wages to inflation, meaning that as prices increase, the value of the minimum wage will be protected, reducing the need to reevaluate the minimum wage every few years.
Estimates are that an increase to $10.10 an hour would reduce the number of people living in poverty by 4.6 million, boost the incomes of those at the 10th percentile by $1,700, and drive a significant "increase in the quality of life for our worst off" – and not cost any public money. And the weight of the economics evidence shows "little or no employment response to modest increases in the minimum wage," according a comprehensive literature review by John Schmitt, senior economist with the Center for Economic and Policy Research. Instead, many argue that a higher minimum wage could spark some additional hiring if workers spend more of their increased income and stimulate more economic activity. The White House has embraced the $10.10 minimum wage proposal, which would grow the economy as measured by GDP by $32.6 billion and create approximately 140,000 new net jobs.
However, House leadership seems unwilling to pass minimum wage legislation.
Expanding the Earned Income Tax Credit
The Earned Income Tax Credit (EITC) has been praised by leaders across the political spectrum for its unique ability to reward low-income households for working without discouraging that work. Calculated according to family size and structure as well as income, approximately 28 million working families benefited from the EITC in 2011. (The EITC offsets a portion of federal payroll and income taxes through an end-of-the-year tax refund and disproportionately benefits households with children.)
The Obama administration has proposed expanding the EITC in a way that would increase income for 13.5 million workers. The proposal would both increase the EITC for Americans already qualified to receive the tax refund and expand the benefit to workers who had not previously qualified. It also includes an increase in the benefit for childless adults, who are often excluded or disadvantaged when seeking out assistance through anti-poverty programs.
The White House estimates that the increase in the credit would lift about half a million people above the poverty line and reduce the depth of poverty for 10 million more, and the administration proposes paying for the EITC expansion using increased revenues from closing tax loopholes, which disproportionately benefit corporations and the wealthy. This proposal is unlikely to move in the House.
What the Executive Branch Can Do
The Obama administration has proposed two ways to improve wages for a subset of workers: raising the minimum wage for the employees of federal contractors and raising the salary level that cuts an employee off from access to overtime pay.
Raising the Minimum Wage for Employees of Federal Contractors
President Obama has promised to increase the minimum wage that all new federal contractors must pay to their employees to $10.10 over the next two years. Among employees of federal contractors, there are currently approximately 560,000 Americans earning less than $12 an hour. In total, nearly 2 million people in publicly funded jobs are paid $12 or less per hour.
While the executive order comes as a relief to those contract workers, they represent only a fraction of the almost 30 million Americans who would receive a raise if Congress passed legislation.
Expanding Overtime Pay
Most Americans have a general understanding that an employee who works overtime beyond the standard 40 hours per week is guaranteed "time-and-a-half" pay for those extra hours, as required by the Fair Labor Standards Act of 1939. What many may not know is that only workers making less than $23,660 are legally guaranteed this benefit. A worker with a salary of more than this amount, who is classified as a manager or professional, is not guaranteed overtime. Assistant managers in fast-food restaurants and other retail establishments are often required to work more than 40 hours a week with no extra compensation.
Traditionally, the salary cap was periodically adjusted by the Department of Labor to account for inflation, but the cap has only been adjusted once since 1974 – ten years ago. The Obama administration has announced it will develop a rule that would raise the wage cap to $984 per week – meaning employees making less than $51,168 will be guaranteed "time-and-a-half" pay for overtime hours worked. As a result, as many as 10 million workers making less than this salary threshold could benefit. This could significantly improve incomes for this class of workers and move low-wage workers into the middle class.
Improving Jobs and Wages
For working America, the economy is broken. Wages have been stagnant for decades. The price of homes and a college education have been increasing faster than inflation or wages. It is harder than ever for families to make ends meet. The U.S. is no longer a country characterized by expanding opportunities and upward mobility.
By contrast, corporations and Wall Street have benefited from record-high stock market prices and soaring CEO pay, just a few years after being bailed out by taxpayers. The public sees the economy working for some Americans but not for their families and children. Increases in productivity haven't resulted in increased wages and salaries for average workers. The executive branch policies discussed above are just a down payment. To really improve wages and job quality for a majority of Americans will require the congressional action outlined above, as well serious efforts at job creation (major public infrastructure investments), paid sick days, improvements in pay equity, and access to affordable education and training. As the midterm elections loom, politicians of both parties seem to be searching for a populist economic reform agenda. Let's hope they settle on this one.