Should the Federal Minimum Wage Increase to $9?

In this week’s State of the Union address, President Barack Obama recommended the minimum wage be incrementally increased to $9.00 per hour and be tied to the inflation rate after that. Having the Federal minimum wage indexed to inflation would help make sure that employees are paid a wage that keeps up with increased cost of living.

All workers can benefit from increased minimum wage. Generally, other wages move up when the Federal minimum wage goes up.

The current Federal minimum wage of $7.25, which has been effective since 2009, is barely livable. Depending on family size, a person making minimum wage and working full-time may live below the poverty line. An additional $1.45 per hour would make life a little more affordable for those workers who only make the minimum.

States have the option of setting their own minimum wage. Many states laws set the minimum wage above the Federal minimum. For example, the minimum wage in Connecticut, the District of Columbia, and Illinois is $8.25; Vermont, $8.95; and Washington, $9.19. Federal minimum wage supersedes the state minimum wage in states where the minimum wage is lower than $7.25. For example, Georgia and Wyoming have a minimum wage of $5.15. Similarly, the Federal minimum wage applies in states that do not have a minimum wage law.

According to MinimumWage.com, the minimum wage in San Francisco, California is $10.55 per hour, the highest in the nation.

In some states, like Arizona and Oregon, the minimum wage is already tied to a consumer price index (that measures inflation). If the price index increases, so does the minimum wage in that state. So the minimum wage in these places rises to (somewhat) match the cost of living.

While raising the minimum wage sounds like a great idea for workers who are paid the rate, but not everyone believes an increased minimum wage is the best thing for the businesses or the economy. When businesses have to increase wages, they’ll have to make up the difference somewhere else. That may mean cutting hours for some employees, e.g. to less than part-time to avoid providing health benefits. Or, the business may pass the cost on to customers by raising prices on products and services.

People who make minimum wage may not be as bad off as we think. MinimumWage.com says that the majority of families with an adult who makes minimum wage have spouse who also works and the minimum wage salary counts for less than 20% of the family’s total household income. Based on census information, 40% of people making minimum wage were teens or young people living with a parent or another relative.

Just because you start a job making minimum wage doesn’t mean you’ll always make that wage. If you perform well on your job, you’re likely to get a raise within the first year on your job.

Not everyone is guaranteed to make the minimum. Independent workers and contractors are not employees of the company. Therefore, the company does not have to pay them the minimum. The types of workers who may not be entitled to the minimum wage include: sales employees who earn commission, certain farm workers, casual babysitters, workers who receive tips, young workers, student workers, and certain farm workers.

The President’s minimum wage increase plans are yet to be made law. The law has to be formally proposed, move through Congress, and finally be signed by the President before it can take effect.

Sources: United States Department of Labor, NOLO.com