The House is moving forward with legislation that would gradually increase the federal minimum wage to $15 an hour by 2025. Should this legislation be enacted, the minimum hourly wage would jump to $9.50 from $7.25 and then increase to $11 in 2022, $12.50 in 2023 and $14 in 2024. Beyond 2025, the minimum wage would then increase in tandem with growth in the median hourly wage.
The question then is how many workers would be impacted by a higher minimum wage? While an exact number is difficult to assess, we can get a rough idea by looking at the Bureau of Labor Statistics’ Current Population Survey. Using employment and wage information from the 2019 survey, we are able to break down employment by various income brackets. Based on this exercise, the initial increase from $7.25 to $9.50 would impact roughly 6.6% of workers, but a $15-an-hour wage floor would impact around 35% of workers.
However, it is important to note that this 35% estimate is likely the upper bound of potentially impacted workers, as the wage distribution is likely to shift higher by 2025 due to inflation, even without a change to the minimum wage law. Further, it is important to use the word impact rather than raise when discussing an increased minimum wage as a higher minimum wage is likely to reduce employment to some degree. Granted, there is a robust debate around this, with the academic literature being mixed, but it’s reasonable to say that the truth lies somewhere in the middle: Many workers would see higher wages, but some job loss is inevitable.
As for the legislative process, the minimum wage provision still faces major hurdles in the Senate, as the Senate has stricter rules than the House. This means the parliamentarian could rule the provision ineligible for inclusion in the reconciliation process. Even if this doesn’t happen, moderate Democrats have already publicly opposed including a minimum wage increase in the current COVID-19 relief package. As such, it is likely that the provision will be watered down if not dropped entirely.
As a final note, global PMI data continues to point towards a widening of the manufacturing-services wedge as manufacturing remains strong but services, which are more impacted by lockdown measures, remain at a crossroad due to increased risk from new COVID-19 variants. Today’s PMI data also reinforces the narrative of US growth outperformance. US services and manufacturing PMIs remain solidly in expansionary territory whereas data from the EU, UK and Japan show manufacturing expanding at a slower pace with the services sector showing contraction. | |
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