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Democratic Staff of the Committee on Health, Education, Labor and Pensions Committee
United States Senate
July 1,  2004

The Decline in the Minimum Wage for America's Workers

Low-wage workers were hit especially hard by the recent recession, and they are left out of today’s economic recovery.  In the past four years, low-income workers have faced greater poverty and even growing hunger, while corporations and wealthy Americans reaped the benefits of multiple tax breaks and saw profits soar.   

Profits and productivity are at their highest levels on record, but for most Americans, wages still lag far behind—especially for minimum wage workers (see Figure 1 ).  Corporate profits have grown 62 percent since just before the recent recession began, while wages have decreased by 0.6 percent.[1]  And low-income workers have watched their wages fall even farther.  For seven years, the federal government has failed to increase the minimum wage by even a penny.  Instead it has remained $5.15 an hour while prices have continued to rise.  The federal minimum wage totals just $10,700 a year for a full-time, full-year minimum wage worker—$5,000 below the poverty line for a family of three (see Figure 2).

Furthermore, with the passage of time, today’s stagnant minimum wage has eroded in value (see Figure 3 ).  In the 1970s, the minimum wage amounted to about half of what the typical American worker was earning.  Today, it has fallen to only 38 percent.[2]   

The economy is taking its toll on a broad segment of low- and middle-income families.  As wages overall fail to keep up with the cost of living, even middle class families are finding it harder and harder to afford the American dream.  They may be the backbone of our economy, but they struggle each day to afford the basics: the mortgage or rent, the medical bills, child care costs, groceries, and electric bills, and sending their sons and daughters to college.

Health insurance premiums continue to soar at an alarming rate.  Employer-sponsored health insurance premiums increased by 14 percent last year, the third consecutive year of double-digit increases.  Total spending on prescription drugs increased 34 percent.  Today, nearly forty-four million Americans are without health insurance, and the number is growing. 

For minimum wage workers, the situation is even worse.  The federal government’s failure to maintain their wages has had a devastating affect on them and their families.  Nationwide, 30.4 percent of those below the poverty line lack health insurance.[3]  And in many of the states we examine, health insurance for the poor is significantly less common.

Child care costs have been rising as well.  Child care often costs up to $10,000 per year for one child – more than the cost of public college tuition.  Yet, one-quarter of America's families with young children earn less than $25,000 a year.  A family with both parents working full-time at the minimum wage earns only $21,400 a year, so child care can total almost half of their annual income.[4]

Gasoline prices are rising, too.  Americans spend 40 percent more on gas than they did just four years ago.[5]  Nearly three in four low-wage workers say high gasoline prices are causing financial hardships for their families.[6]  It costs a minimum wage worker more than half a day’s pay just to fill up a tank of gas.[7]

Raising the minimum wage to $7.00 an hour would benefit 7.4 million workers directly, and another 8.2 million workers indirectly.[8]  And with the federal minimum wage lagging behind, some states already have led the way with increases of their own.  Four states already have increased their minimum wages even higher than $7.00 an hour.[9]  Another eight states have minimum wages higher than $5.15 an hour, but lower than $7.00. [10]

Opponents of a raise in the minimum wage often make dire predictions about supposed adverse impacts on employment rates and the economy.  But study after study shows that there is simply no evidence that raising the minimum wage has led to higher unemployment, and there is substantial evidence that a responsible minimum wage increase does not affect employment rates at all.[11]

Raising the minimum wage can also help disadvantaged communities.  Minimum wage workers spend their paychecks quickly in businesses in their communities.  That additional money goes directly into the local economy as it is spent on food, rent and other necessities.    

In the seven decades since the federal minimum wage was established, Congress has provided regular increases to enable the wage to keep pace with inflation—until now.  By failing to increase the minimum wage for the past seven years, Congress has left millions of American workers without a raise for the second longest stretch on record.  Low-wage Americans work as hard as anyone else, and they have earned a raise. 

This report examines how minimum wage workers in twenty states have fared during the past four years since the beginning of the recent recession, and describes the benefits of raising the minimum wage to $7.00 an hour for workers in those states.

This report leaves no doubt that America’s minimum wage workers deserve a raise.  

[1] Josh Bivens, “When Do Workers Get Their Share?,” Economic Policy Institute, 2004.

[2] In 2003, the median wage was $13.62, which is $8.47 higher than the minimum wage.  Sylvia Allegretto and Jared Bernstein, “The gap between minimum and median wage earners continues to grow,” Economic Policy Institute, October 2003.

[3] Robert Mills and Shailesh Bhandari, “Health Insurance Coverage in the United States: 2002,” U.S. Census Bureau, September 2003.

[4] Karen Schulman, “Key Facts: Essential Information about Child Care, Early Education, and School-Age Care,” Children’s Defense Fund, 2003.

[5] Energy Department Survey, 2004.

[6] ABCNews/Washington Post Poll, April 2004.

[7] Prices from the American Automobile Association, June 2004.  This figure is based on a 40-hour workweek at $5.15 an hour, and a 12-gallon tank.

[8] Amy Chasanov, “No Longer Getting By,” Economic Policy Institute, 2004.

[9] The four states are Washington ($7.16), Alaska ($7.15), Connecticut ($7.10), and Oregon ($7.05).

[10] The eight states are California ($6.75), Massachusetts ($6.75), Rhode Island ($6.75), Vermont ($6.75), Hawaii ($6.25), Maine ($6.25), Delaware ($6.15), and Illinois ($5.50).  The District of Columbia also has a higher minimum wage ($6.15).

[11] Jeff Chapman, “Employment and the Minimum Wage: Evidence from Recent State Labor Trends,” Economic Policy Institute, 2004.  And in one of the most compelling studies, David Card and Alan B. Krueger find that the 1992 New Jersey state minimum wage increase had no negative effect on employment in New Jersey’s fast-food industry.  David Card and Alan Krueger, “Minimum Wages and Employment: A case study of the fast-food industry in New Jersey and Pennsylvania,” American Economic Review, vol. 84 (4), 772-793, 2004.  

This document is not necessarily endorsed by the Almanac of Policy Issues. It is being preserved  in the Policy Archive for historic reasons.

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Figure 1 - Real Wages and Productivity, 1960-2003

Source: Bureau of Labor Statistics, non-farm business productivity, annual averages.

Figure 2 - Real Wages and Poverty, 1960-2003

Source: CPI-adjusted value of the minimum wage.  The 2003 poverty line for a family of three is $15,260 per year, according to the Department of Health and Human Services.


Figure 3 - The Real Value of the Minimum Wage

Source: CPI-adjusted value of the minimum wage.