Minimum Wage Hike: Stimulus When We Need It

On July 24, the federal minimum wage increased to $7.25 an hour. At a time when getting money into the hands of workers—and thus consumers—is key to jump-starting the economy, a 10.7 percent wage increase will mean $1.6 billion in extra purchasing power for the estimated 4.5 million workers directly affected by the increase.

Here are some facts to remember, based on research from the Economic Policy Institute:

• An individual earning $7.25 an hour in a standard 2,000-hour work year would earn an annual income of $14,500—still slightly below the 2009 federal poverty level of $14,570 for a family of two.
• More than three-quarters of the workers who will be affected by the wage hike are 20 years old or older and more than half live in a family where the total family income is less than $35,000.
• For workers earning the minimum wage, even after the upcoming increase takes effect, their incomes will still be about 18 percent below the real value of minimum wage in 1968. Rather than getting ahead on July 24, they will only be partially catching up.
• An estimated 430,000 single parents with children under 18 will benefit from this minimum wage increase. Single parents will benefit disproportionately from an increase—single parents will make up 10% of workers affected by this increase, but they make up only 7% of the overall workforce. In addition, approximately 2.2 million children will benefit as their parents’ wages are increased.
• Women are 63 percent of workers who will benefit from the increase, the largest group that would benefit.
• People of color will get a disproportionate share of the benefit from a minimum wage increase. African Americans represent 11 percent of the total workforce, but are 18 percent of workers affected by an increase. Similarly, 14 percent of the total workforce is Hispanic, but Hispanics are 19 percent of workers affected by an increase.
• An additional 1.6 million workers who currently earn only slightly more than $7.25 an hour will likely see an increase too, as employers maintain internal wage ladders. This could serve as additional stimulus, further increasing the buying power of more Americans and putting more money back into the economy.

Learn more about the minimum wage though this Making Sense fact sheet.