Quick Hit Ellyn Fortino Thursday April 30th, 2015, 4:02pm

Economic Experts Make The Case For A $12 Federal Minimum Wage

Experts from the Economic Policy Institute (EPI) argue that the U.S. economy could well afford a federal minimum wage increase to $12 an hour by 2020 -- a proposal that could impact nearly 38 million workers.

EPI researchers make their case for a $12 minimum wage in a report released Thursday, the same day the new "Raise the Wage Act" was introduced to Congress by U.S. Sen. Patty Murray (D-Washington) and U.S. Rep. Bobby Scott (D-VA,3).

Under the Raise the Wage Act, the federal hourly minimum wage would go up gradually from the current figure of $7.25 to $12 by 2020. Raise the Wage Act proponents are taking to social media Thursday afternoon for a "Twitterstorm" using the hashtags #RaiseTheWage, #12by2020 and #1FairWage.

"If you go to work and work hard for 40 hours a week, you should not be living in poverty in America," said U.S. Dick Durbin (D-Illinois), who joined Murray and Scott in introducing the bill. "The Raise the Wage Act will increase wages for 38 million workers -- more than one in four -- and lift millions out of poverty. In Illinois alone, 1.6 million workers -- 28 percent of the state's workforce -- will see an average increase in wages of $3,200 a year. That helps families get off government support programs and give them more money to spend and put back into our economy."

On a conference call with reporters, EPI president Lawrence Mishel called the Raise the Wage Act "bold policy," saying it would help "reestablish the minimum wage as the wage floor it was intended to be -- and the wage floor it was in 1968." That's the year when the value of the minimum wage was at a peak high, and the national unemployment rate was under 4 percent, Mishel explained.

Today's federal minimum wage would be $9.54 an hour if it had been linked to inflation in 1968, when the hourly base wage was $1.60. As such, a $12 federal minimum wage by 2020 would represent an increase of nearly 11 percent over the 1968 inflation-adjusted minimum wage.

Based on EPI's conservative estimates, a $12 minimum wage by 2020 would also equal 54.1 percent of the median wage. By comparison, the minimum-wage-to-median-wage ratio was 52.1 percent in 1968. It was only 37.1 percent in 2014.

To put this new Raise the Wage Act proposal in perspective, Mishel noted that a base hourly wage of $12 in 2020 would equal $10.58 in 2014 dollars.

He added that the federal minimum wage in 2014 stood 24 percent below the 1968 inflation-adjusted minimum wage.

"Twenty-four percent below really means that low-wage workers are in a huge hole compared to growth over the last 50 years," Mishel stressed. "If you look at minimum wage policy over the last 25 years, there have been increases, but not one of those increases ever really came close to restoring the minimum wage to higher than the 1968 value. And, essentially, minimum wage policy has never been able to overcome the dramatic erosion of the minimum wage in the 1980s, when there were no increases and there was relatively high inflation."

In comparing other measures, EPI experts point out that average productivity, or the output of goods and services per hours worked, has more than doubled since 1968. And low-wage workers are also more educated than their counterparts were in 1968.

"Today's more productive and better educated workforce means that raising the minimum wage to a level comparable to its 1968 value should be an easier lift for the economy now than it was then," said report co-author and EPI economic analyst David Cooper. "Additionally, wages in southern states were much lower than the rest of the country in 1968. They've since caught up, meaning that if low-wage state economies could handle the federal minimum wage in 1968, they shouldn't have any trouble going to similar levels today. This is a goal well within our historical experience."

Under the Raise the Wage Act, the federal minimum wage would be indexed annually to the overall median wage after it hits $12 in 2020.

"It's important to index to the wage, instead of to price level, because that allows workers at the bottom to share in overall gains in wages that workers experience at the middle and indirectly at the top," explained report co-author John Schmitt, an EPI research associate and senior economist at the Center for Economic and Policy Research. "So, we think that that's an important innovation in this bill, and I think it's one that is useful for combating wage inequality in the medium- and long-term."

The Murray-Scott legislation would also phase out the tipped minimum wage, which has been frozen at $2.13 an hour for 24 years. Overall, nearly 38 million workers could benefit either directly or indirectly from the Raise the Wage Act, according to EPI's estimates. Some 18.7 million children have at least one parent who would see a wage increase under the measure. 

The proposal piggybacks on another piece of legislation seeking to raise the federal minimum wage to $10.10 an hour. That legislation, the Fair Minimum Wage Act, failed to advance last year in Congress, where both chambers are currently controlled by Republicans.

While Congress has stalled on the minimum wage issue, many states and cities across the country have moved to lift wages on their own.

Twenty-nine states, including Illinois, and the District of Columbia have hourly minimum wages higher than the federal level. In Illinois, the minimum wage is currently $8.25 an hour.

"Certainly, there's a lot of states already above the federal level," Cooper noted. However, he added that a "federal floor of $12 would still have a significant impact in most states."

The Raise the Wage Act comes amid a growing push among low-wage workers for a $15 an hour minimum wage. That type of increase is likely more achievable at local levels of government, Mishel explained.

"I think that there are places in the country, cities and states, where by 2020 or soon thereafter a $15 minimum wage is quite appropriate," he said. "But I think this proposal for $12, [which] could be even somewhat higher, is a very bold proposal for a national minimum wage that would cover every state."


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