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Raising the minimum wage to $15 by 2025 will restore bargaining power to workers during the recovery from the pandemic

The 1963 March on Washington for Jobs and Freedom demanded a federal minimum wage that would, as economist Ellora Derenoncourt has observed, be the equivalent in inflation-adjusted terms of almost $15.00 an hour today.

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This article was originally published by Economic Policy Institute

The 1963 March on Washington for Jobs and Freedom demanded a federal minimum wage that would, as economist Ellora Derenoncourt has observed, be the equivalent in inflation-adjusted terms of almost $15.00 an hour today. While organizing efforts such as the “Fight for 15” have led to many minimum wage increases at the state and local level, the current $7.25 federal minimum wage stands at less than half of that 57 year-old goal.

In spite of national grassroots efforts, Congress has failed for more than a decade to raise the federal minimum wage. Most recently, opponents have argued that the pandemic means that we still can’t afford to raise the minimum wage to the level sought by the Civil Rights movement back when John Kennedy was president.

In 1963, the applicable minimum wage varied by industry between $1.00 and $1.25 per hour, and there was no minimum wage at all for agriculture, nursing homes, restaurants, and other service industries that disproportionately employed Black workers. The March on Washington’s demands were for a $2.00 national minimum wage “that will give all Americans a decent standard of living” and to extend its coverage “to include all areas of employment which are presently excluded.” A few years later, Congress expanded the policy’s coverage to some of the previously excluded sectors and significantly raised the minimum wage to $1.40 in 1967 and then $1.60 in 1968. Derenoncourt and Claire Montialoux demonstrated convincingly that these increases were responsible for more than 20% of the fall in the Black–white income gap during the Civil Rights Era.

But had policymakers met the original demands of the March on Washington, the minimum wage in 2020 would already be nearly $15 per hour. Concretely, as Figure A shows, if the minimum wage had been raised to $2.00 in 1963, with future increases tied to the cost of living, the minimum wage this year would be $14.79, more than twice its current value of $7.25. Instead, after rising to the inflation-adjusted high point of $10.43 in 1968, infrequent increases since then have dramatically eroded its value.

Figure A

Five years of regular increases, however, could reverse that trend. A $15 minimum wage in 2025 would be near the March on Washington’s target, in line with the goals of the current Fight for $15 movement, and consistent with existing national legislation already passed by the House of Representatives. That the wage targets of Fight for $15 and the 1963 March on Washington are similar is more than coincidental, given that both movements have as a core principle the elimination of poverty wages. A comparison of wage income and necessary expenses for families shows that anything less than $15 per hour will not fulfill the purpose of the 1938 Fair Labor Standards Act, which established the minimum wage “to protect this Nation from the evils and dangers resulting from wages too low to buy the bare necessities of life.”

Of course, some claim that five years is too fast for businesses to accommodate a minimum wage increase from $7.25 to $15.00. But this concern ignores that the minimum wage has been stuck at $7.25 for more than a decade, and at this point only a small share of workers regularly earn that rate at their job. In 2019, only about 5% of the workforce earned less than $9.00 per hour.1 Any multi-year schedule of increases can therefore substantially raise the minimum wage right out of the gate without imposing an undue burden on low-wage businesses.

Others argue that while we should raise the minimum wage in general, we should refrain from doing so during a recession because now is a particularly difficult time for businesses to pay more to entry-level workers. But research finds that the employment effects of the minimum wage on teenagers vary little across the business cycle. Besides, when unemployment is high, as is the case now, employers suppress wages because workers have especially low bargaining power. One clear example is the scant evidence of “hazard pay” during the current pandemic, highlighting the fact that low-wage workers have little bargaining power relative to their employers. Raising the minimum wage can help tilt the playing field back towards workers.

Finally, the main impediment to reducing unemployment next year will be too-slow growth of spending. Raising the minimum wage directly pushes back against the consumer demand shortfall by providing low-wage workers with money to boost the broader economy. Three academic studies published this year examined historical minimum wage increases and found they raised consumer spending, with sales rising the most in areas where there were many low-wage workers. While there is little consensus regarding whether the stimulative effects of the minimum wage are small or large, there is no debate about the direction: all of this recent research found evidence that the minimum wage has increased spending.

Exiting this recession on solid footing will require a broad range of policies to support workers, but raising the minimum wage to $15 by 2025 is a critical policy to restore the bargaining power of workers and strengthen the labor market.

1. Author’s analysis of EPI microdata extracts of the 2019 CPS ORG.

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