Benefits of Raising the Minimum Wage

It benefits workers and benefits the economy.

3.8 million workers were paid at or below the federal minimum wage of $7.25 in 2011. Since minimum wage, in many cases, does not cover basic necessities of life, many people that survive on minimum wage spend all – or virtually all – of the money that they make.

Raising the minimum wage from $7.25 an hour to $8.50 an hour, would inject an amazing $9.5 billion extra spending power into the economy (this assumes all 3.8 million workers are making exactly $7.25, that each additional dollar earned is spent, and that none of the 3.8 million are earning wages below the federal minimum wage – even though there are 9 states that are below this level or which have no minimum wage law).

If the minimum wage were instead raised to where it should be, at least $10 per hour (which would still put it below the minimum wage in 1968), this would release at least $60 billion over two years into the economy..

On top of this, an increased minimum wage may also lead to an increase in the hourly pay of other low-wage workers that only make slightly more than the federal minimum wage. This increased purchasing power across the board helps stimulate the economy and benefits small businesses, many of which were hardest hit by the recession.

Beginning to Level the Playing Field – Income and Wage Inequality Has Been Skyrocketing

At a time when the issue of income inequality has been elevated in political discourse, it is surprising that a plight of millions of workers throughout the country hasn’t been addressed: the need to raise the minimum wage.

Wage inequality has been increasing over the past few decades. Today, it is not uncommon to hear statistics like the following: the richest 1 percent control more financial wealth than the bottom 95 percent. Wall Street executives’ bonuses have reached gut-wrenching heights when Bloomberg News can, in a recent article, portray annual pay of $10 million to $23 million as “normal.”

We live in the land of the absurd. These Wall Street executives are being paid, conservatively, one thousand times what someone on minimum wage earns. In a society where one person can bring home such an outrageous amount of money, it is mind-boggling that others are expected to raise their families on so little. Raising the minimum wage would be a first step toward greater equality and revitalizing our economy.

Less Tax Dollars May Be Needed on Government Programs

Someone trying to support a family on today’s minimum wage does not even reach the federal government’s poverty line for a family of three. They would make about $14,500 per year. The federal poverty line for a family of three is $18,123. If the minimum wage was increased to a level at which families could sustain themselves, fewer people may end up needing government assistance for housing, food, or health care. This would be a significant benefit to taxpayers and to states’ budgets.

Workers’ Pay Remains Stagnant for Past 25 Years:

For more than 25 years, the minimum wage has remained stagnant, creating even more hardship for the families and individuals that rely on these wages. In fact, today’s minimum wage is lower than at any point between 1956 and 1985.

See chart.

Who is the Typical Minimum Wage Worker?

In 2011, 3.8 million workers were paid at or below the federal minimum wage of $7.25.

Women are impacted more than men. Nearly two thirds of all workers being paid at or below the federal minimum wage are women. On top of this, a larger proportion of women workers that are paid hourly wages were paid at or below the minimum wage than men: nearly 6.5 percent of all women paid hourly wages were paid at or below the federal minimum wage compared to less than 4 percent of men. This means that 67 % more women work minimum wage jobs than men.

The minimum wage disproportionately impacts minorities. Blacks or African Americans make up slightly more than 11.5 percent of the civilian labor force, yet over 15 percent of all minimum wage workers are black or African American. The same can be said of those of Hispanic origin. The civilian labor force is composed of nearly 15 percent Hispanic workers, whereas Hispanics are nearly 19 percent of the minimum wage workers.

Over half of all minimum wage earners are over the age of 25. Thirty percent of those workers are over the age of 34, and twenty percent are over the age of 44. This issue is not just about young people and summer or part-time jobs.

Less than 20 percent of these minimum wage employees work 40 hours or more in their jobs. This makes it that much harder to get by on a minimum wage job.

(Source: Bureau of Labor Statistics, Characteristics of Minimum Wage Workers: 2011. March 2, 2012.

What is Life Like on Minimum Wage?

Let us walk in the shoes of an individual trying to support a family on the minimum wage for a moment. The average worker, working 250 days in a year (50 work weeks) and 40 hours per work week will earn about $14,500 on minimum wage.

If we use the weightings that the Census uses for cost of living expenses, this means that 13 % of those earnings goes toward grocery items, 29 % toward housing, 10 % toward utilities, 12 % toward transportation, 4 % toward healthcare, and 32 % toward other miscellaneous items or emergencies. (

Using those proportions, this leaves the following amount of money for each expense:


These monthly expenditures don’t come even close to covering cost of living in most areas. The USDA releases estimates for the cost of food for various households. A monthly budget of $157.08 for grocery expenses does not even cover the “thrifty plan” estimate for an individual male or female between the ages of 19 and 50. This is not to mention that, according to the USDA, the estimated cost for a family of 2 – again using the “thrifty plan” – is more than double this expenditure at $376.60. For a family of 4 the USDA estimates between $550 and $630 would be necessary. (Source:

Expense Annual Budget Monthly Budget
Grocery Items $1,885 $157.08
Housing $4,205 $350.42
Utilities $1,450 $120.83
Transportation $1,740 $145
Healthcare $580 $48.33
Miscellaneous $4,640 $386.67


At $350.42 per month for housing, a family on minimum wage can forget about even considering owning a home or taking out a mortgage. In most places, it would be a stretch even to find apartment or rental options that are that low. According to the U.S. Department of Housing and Urban Development’s American Housing Survey in 2009, of those living below the poverty line and paying monthly rent, only 20 percent were paying monthly housing costs below $350 in 2009. The median monthly rental cost for individuals living below the poverty line was $629 in 2009 – nearly double what our budget above allows. These individuals were, on average, spending 53 percent of their income on monthly housing costs. (Source:

According to the U.S. Energy Information Administration, the average monthly residential electric bill in the United States is $103.67. This comes in just barely under the total budgeted above for utilities. However, this doesn’t include the cost of water, heat, phone service, or internet access (something that, though still considered a luxury, is becoming increasingly important in both Americans’ personal and work lives). Of the 30 cities that Circle of Blue (a non-profit that works on water issues) surveyed for water prices, the average monthly cost for a family of four (using 100 gallons per capita) was about $47.60. Add this to the cost of electricity and we have already exceeded our allotted budget for utilities. Then of course there is the seasonal expense of heating bills during the winter. These expenses differ depending upon how one’s home or apartment is heated – with electricity, natural gas, or heating oil. However, in all cases, this expense only serves to further break the bank for those earning minimum wage. Figures from the Department of Energy in 2005 (which have certainly increased since then) pegged heating costs for the winter at $763 for those using electric heating, $1,024 for those using natural gas, and $1,454 for those using heating oil. (Sources: & &

With gas prices skyrocketing, transportation costs of $145 per month is laughable. According to a 2009 National Household Travel Survey by the Federal Highway Administration, on average Americans commute about 12 miles to work every day. If we assume an average miles per gallon of 21 mpg, this adds to at least 120 miles of driving each week (making an unrealistic assumption that the individual does no other travel). This requires about 6 gallons of fuel at a cost of $3.90 per gallon that adds to $23.40 per week and totals to about $93.60 per month. This comes in under our budget. However, we know that Americans’ daily commutes to work are on average only about 28 percent of their total travel. So if we determine the total monthly cost for the distance we can reasonably expect an individual to travel, this totals to about $335 per month, bursting through the allowed budget. Of course, if the individual lives in an area that has access to public transportation, these costs can be cut significantly. However, not all areas have adequate access. (Source:

Lastly, we come to healthcare – something that is a human right in any civilized society, not to mention a necessity. According to our allotted budget, an individual on minimum wage has $580 annually to spend on healthcare costs. This is absurd considering that healthcare costs have been swelling to unprecedented levels. Most minimum wage jobs don’t provide health insurance to their employees. However, if we make the absurd assumption that this particular minimum wage job does, even then the budget does not come close to covering the average cost for healthcare. Kaiser Family Foundation estimated that employees paid $4,129 annually even with employer-provided healthcare. Taking a more realistic tack and assuming that this minimum wage earner does not have health insurance, the New York Times reported that the average annual premium for family coverage was $15,073. Slightly older figures from USA Today in 2009 peg the annual family premiums at $13,375 and the annual premiums for an individual at $4,824. Still prohibitively expensive for someone being paid minimum wage. (Sources: &

And none of these costs include out-of-pocket costs like rising deductibles or prescription drugs. In 2007, Americans spent $287 billion on prescription drugs. If we average this, conservatively, over all people in the country, this means that the average annual spending, for all 311.6 million Americans, on prescription drugs is over $921. Granted, health insurance, Medicaid, and Medicare often cover large portions of prescription drug expenses – but this practice is in decline. In 2002, Consumer Reports revealed that 65 percent of drugs that they surveyed were “mostly or entirely covered by insurance.” In 2008 when they asked the same question, insurance only covered 33 percent mostly or entirely and 5 percent weren’t even covered.

If we look at realistic figures for expenses incurred by a family of four, the annual budget tops out at about $37,057.56. Even with two minimum wage earners working 40 hours per week, this family cannot simply afford the basic necessities – in fact they end up in debt by slightly more than $8,000 each year. Aren’t we supposed to be a country in which the harder you work, the more likely you are to get ahead and succeed? When did this sort of thinking fly out the window?