A Detailed Analysis of the Economic Effects of Raising the Minimum Wage   

1.3% of hourly employees were making the minimum wage or less in 2022, the lowest percentage before agencies started collecting this data in 1979. A minimum wage worker, who is making the hourly minimum of $7.25 for 40 hours a week, would only make around $15,000 a year. What’s more, that would be before taxation! The federal minimum wage is still at that level in 2024 and has remained unchanged since 2009. 

In 2023, the poverty level for a single individual under 65 years of age was $15,852, and the average gross pay for all US workers was just over $58,000 a year. What’s more, some people are making even less than the minimum wage. For instance, the federal minimum hourly wage for workers who receive tips is just $2.13 if it would reach the minimum with tips.

The changes 

In 2021, the US House of Representatives introduced the Raise the Wage Act, under which the federal minimum wage would gradually increase, reaching $15 an hour as early as next year. According to research, this increase would result in a raise for 21% of the workforce, or 32 million workers nationwide. The lowest-paid workers will get an extra $107 billion in wages, coming to an additional $3,300 a year for the average affected worker. 

The first minimum wage increase will be in July 2024. As per the government’s targets, it will reach $17 an hour by July 2029. 

In late 2023 and early 2024, 23 states raised their minimum wages. As of January 2024, the highest state minimum was in Washington: $16.28 per hour. The highest rate overall is in Washington, DC, at $17.00 an hour. The state increase affected around 9.9 million workers. In total, state minimum increases resulted in an additional $6.95 billion for workers. 

On January 1, 38 cities and counties also increased the minimum above their states’ thresholds, potentially affecting even more workers. Reliable payroll services can help you navigate the complex minimum wage changes and their impact on payroll. 

How the increase affects employment 

The minimum wage increase would lead to a corresponding increase in the cost of hiring low-wage workers. Some businesses would hire fewer workers than if the minimum wage were lower. However, employment rates might increase in some circumstances or for some workers. 

We would observe changes in the number of unemployed and jobless workers. Jobless workers are those who have stopped looking for jobs for whatever reason, while unemployed ones are searching for work.

The minimum wage increase will affect fewer workers directly because compensation for low-wage workers was higher than ever in the post-pandemic labor market, even after accounting for inflation. Low unemployment rates compelled employers to pay more to attract and retain workers.

The effect on unemployment: temporary or permanent? 

Some workers would be jobless indefinitely after an increase in the minimum wage. Others would be only temporarily unemployed, and when they had work, they would get higher wages. These are two extremes. In reality, most workers would be positioned in the middle. 

The effect on family income 

Raising the minimum wage would lead to an increase in some families’ real income; the income adjusted for inflation. Some of these families would then rise above the poverty level. However, other families’ income would drop because of unemployed members and because employers would have to absorb some of the higher labor costs. A minimum wage increase can often result in reduced family income on average.

When would family income drop below the poverty line?

Low-wage workers who lose their jobs after the minimum wage increase would see their earnings drop, and their family income could fall below the poverty line in some cases. Overall, however, fewer people would live in poverty. 

Recap

There are always two sides, in this case, people for and against increasing the minimum wage. The proponents say earnings need to keep pace with inflation and the higher cost of living, and millions of people would rise above the poverty threshold after raising the minimum wage. The opponents argue that higher wages could make businesses less competitive, lead to inflation, and result in job losses.