When my employer raised my wage to $7.70 per hour last year, I really thought, “This is living.” So when President Barack Obama proposed a $9 federal minimum wage during his State of the Union address last week, I nearly decided I could quit N.C. State and live perfectly well, maybe even better off than I would with a degree in the humanities.
This thought ceased when I soon remembered I am fortunate enough to still be financially dependent on my parents, and $9 is still hardly enough.
But why increase minimum wage now? Clearly it is in an effort to decrease the economic gap between the richest and poorest, but why $9?
Self-proclaimed “mainly Canadian” economics blog Worthwhile Canadian Initiative explained, “The actual state of knowledge of the impact that the minimum wage has on employment in North America … leads to the conclusion that a minimum wage that is greater than 50 percent of the average wage is harmful to small wage earners, and that a minimum wage that is less than 45 percent has very little risk for this group of workers.”
According to the United States Department of Labor, the average hourly wage of production and nonsupervisory employees is $19.97. If we use the equation explained by the Worthwhile Canadian Initiative blog and take 45 percent of $19.97, we find that the minimum wage should be two cents short of $9.
Tim Worstall, Forbes.com contributor, argues that Obama chose $9 “because that’s the rate at which pretty much nothing happens. There’s no major or appreciable effect on employment, either way.”
Though this may explain where we get $9, it still leaves the question of “why now?” Since the federal minimum wage was implemented in 1938, it has always increased, but not after fixed increments of time. For example, former President Bill Clinton increased the federal minimum wage from $4.75 to $5.15 in September 1997. The wage was not again increased until July 2007 — the first and only increase under George W. Bush’s presidency.
Additionally, federal minimum wage has not historically kept up with inflation, making it seem almost random. When we account for inflation, we see that minimum wage peaked in the 1960s and 1970s at more than $10 in today’s money. Annie Lowrey of The New York Times wrote that if Obama’s proposal is enacted, minimum wage will automatically adjust with inflation. Had minimum wage kept up with inflation since it peaked in real value in the late 1960s, it would be $10.52 today.
According to The New York Times, the White House said, “The $1.75 increase in minimum wage would be enough to offset roughly 10 to 20 percent of the increase in income inequality since 1980.” The White House added that families earning $20,000 to $30,000 yearly would earn $3,500 more under this proposal, set to be implemented in stages by the end of 2015.
But $9 is still hardly enough for most people. The Massachusetts Institute of Technology created a living wage calculator that takes into account how much a person must earn hourly to support his or her family in any given county. MIT found that a person only needs to earn $10.15 hourly to live in Wake County while someone living in Orange County, Calif., needs $13.12 an hour. These numbers account for monthly expenses such as food, child care, medical, housing and transportation, and the numbers increase based on how many dependents a person has.
Furthermore, a March study by the Center for Economic and Policy Research found that the minimum wage should have been $21.72 in 2012 if wages were correlated to worker productivity. This, along with the living wage data, raises concern about how we value our workers. The increase to $9 certainly helps, but ideally, workers should be paid enough to live — and should be paid even more for improved productivity.
