The Impact of a $9.80 Federal Minimum Wage

Abstract

Congress is considering a series of proposals to raise the $7.25 federal minimum wage.

The “Fair Minimum Wage Act of 2012,” to be introduced by Rep. George Miller (D-CA), which would raise the federal minimum wage by 35 percent to $9.80 and index it for inflation; The “Rebuild America Act,” introduced by Sen. Tom Harkin (D-IA) and Rep. Rosa DeLauro (D-CT), which would raise the federal minimum wage by 35 percent to $9.80 and index it for inflation; and The “Catching Up to 1968 Act of 2012,” introduced by Rep. Jesse Jackson, Jr (D-IL), which would raise the federal minimum wage by 38 percent to $10 an hour and index it for inflation.

All three bills would also set the minimum wage for employees who receive tip income to 70 percent of the full minimum—a greater than 200 percent increase.

EPI’s analysis of these proposals, based on Census Bureau data, finds that they would be poorly targeted to the low-income families they’re intended to help. This is consistent with a wide body of economic research finding that minimum wages are a poor way to reduce poverty, and also reduce employment opportunities among the least-skilled.

Among the key findings:

  • The average family income of a beneficiary of a wage hike to $9.80 is $50,662—well above the $15,080 year-round income figure cited by proponents of wage hikes.
  • Well over half—nearly 57 percent—of the beneficiaries of a $9.80 minimum wage are either living at home with family, or have a spouse who also works. Less than 10 percentaresingle parents with children.
  • Beneficiaries of a $9.80 minimum wage tend to be young—41.5 percent of those directly affected are age 25 or under.
  • The two industries with the greatest number of impacted employeesare Retail Trade(e.g. grocery stores or gas stations),and Arts, Entertainment, Accommodations,and Food Services(e.g.restaurants or hotels.)
  • Earlier studies have projected at least 467,500 lost jobs following a wage hike of this magnitude. Accounting for the smaller labor force post-Recession, job losses in the range of 256,200 to 768,600 are projected based on results found in earlier economic literature.