July 24, 2009, 4:11 pm
Who Is Affected by a Higher Minimum Wage?
By
Catherine Rampell Today the minimum wage rose to $7.25 from $6.55. Whom will it actually affect?
First you must consider that not all states will be affected by today’s rate increase because they may already have a state minimum wage that is higher than the federal rate. When state and federal regulations differ, the higher of the two rates applies. According to the
Economic Policy Institute, a liberal research group, 19 states and the District of Columbia previously had wages higher than the federal minimum.
That leaves 31 states affected by the higher federal minimum wage: Alabama, Alaska, Arkansas, Delaware, Florida, Georgia, Idaho, Indiana, Kansas, Louisiana, Maryland, Minnesota, Mississippi, Missouri, Montana, Nebraska, New Jersey, New York, North Carolina, North Dakota, Oklahoma, Pennsylvania, South Carolina, South Dakota, Tennessee, Texas, Utah, Virginia, West Virginia, Wisconsin and Wyoming.
In some states, like New York, the state law is automatically reset to equal the federal rate.
Given all this, including the automatic increases in state minimum rates, here’s what the
state laws now look like:
Source:
Bureau of Labor Statistics
So how many workers will actually be affected?
The Economic Policy Institute estimates that about 4.5 million employees, less than 4 percent of the labor force, will see a bump in their hourly wages. But not all of those affected will actually be minimum-wage earners. Let me explain.
The bulk of these workers — about 2.8 million people — currently earn less than $7.25, and will receive an immediate raise. But the institute estimates that an additional 1.6 million workers earning slightly above the minimum will be “indirectly” affected because of “spillover effect” — businesses trying to preserve their wage structures.
There are finely gradated pay scales in many markets. Let’s say a business, like a restaurant, employs both a minimum-wage worker — like a drive-through operator — and a slightly higher-skilled worker — let’s say a cook — who earns 25 cents above the minimum wage. When pay increases for the drive-through operator, the restaurant may decide to slightly raise the pay of the cook to keep the same hierarchy and wage structure.
That pay raise may then have ripple effects. For example, raising the pay of the cooks at one restaurant with a drive-through may force other restaurants (even those without drive-throughs) to raise the pay of their cooks, in order to stay competitive.
Even further down the line, raising the minimum wage may lead employers to pass on their additional labor costs in the form of higher prices, which can in turn (at least theoretically) lead to higher prices and wages across the board.
So now that we understand the
quantity of people who are being affected, what about the individual people themselves? Who earns the minimum wage?
From a Bureau of Labor Statistics study based on 2008 data:
- Minimum wage workers tend to be young. Although workers under age 25 represented only about one-fifth of hourly paid workers, they made up half of those paid the federal minimum wage or less. Among employed teenagers paid by the hour, about 11 percent earned the minimum wage or less, compared with about 2 percent of workers age 25 and over.
- About 4 percent of women paid hourly rates had wages at or below the prevailing federal minimum, compared with about 2 percent of men. (Of minimum wage earners overall, 67 percent are women, and 33 percent are men.)
- The percentage of workers earning the minimum wage did not vary much across the major race and ethnicity groups. About 3 percent of white, black, and Hispanic hourly-paid workers earned the federal minimum wage or less. Among Asian hourly paid workers, about 2 percent earned the minimum wage or less.
- Among hourly paid workers age 16 and over, about 5 percent of those who had less than a high school diploma earned the federal minimum wage or less, compared with about 3 percent of those who had a high school diploma (with no college) and about 2 percent of college graduates.
- Part-time workers (persons who usually work less than 35 hours per week) were more likely than their full-time counterparts to be paid the federal minimum wage or less (about 7 percent versus about 2 percent).
- About 7 in 10 workers earning the minimum wage or less in 2008 were employed in service occupations, mostly in food preparation and serving related jobs.
- Among the states, Mississippi, South Carolina, Tennessee and Oklahoma had the highest proportions of hourly-paid workers earning at or below the federal minimum wage (about 6 percent). The percentage of workers earning at or below the Federal minimum wage was lowest (1 percent or less) in Alaska, California and Oregon.
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