For Americans earning the minimum wage, surging inflation is making their dollar the weakest it’s been in more than a decade.
On the surface, the labor market seems to finally be benefitting low-income workers. Wage growth surged to the fastest pace since the 1980s through April and May. Businesses are increasingly using signing bonuses and other incentives to attract workers. And quits soared to a record high in April, suggesting Americans are confident in their chances at finding a better job.
But that encouraging trend is reversed – and then some – by booming inflation seen through reopening. Price growth has accelerated to its fastest one-year pace since 2008 as a wave of pent-up demand runs up against widespread shortages and production bottlenecks. After accounting for the broad upswing in consumer prices, the minimum wage is the weakest it’s been since 2008.
The rate of decline has also accelerated through spring, suggesting the real minimum wage could soon breach multi-decade lows.
To be sure, economists largely expect inflation to cool as the country settles into a new normal and bottlenecks are resolved. President Joe Biden backed the outlook again on Thursday, saying he expects price growth to “pop up a little bit and then come back down.”
The size of that pop remains up for debate, and Federal Reserve officials are bracing for a larger upswing than previously expected. Members of the Federal Open Market Committee expect inflation to average 3.4% this year before falling to 2.1% in 2022, according to median projections published June 16. That compares to the March forecast of 2.4% inflation in 2021.
The faster rate of inflation and tumbling real wage could put new pressure on lawmakers and businesses to raise wages, Morgan Stanley economists said Monday. Despite average earnings soaring in recent months, 79% of industries are still seeing inflation outpace wage growth. And those who are benefitting most are middle- and high-income Americans, according to the bank.
The trend could intensify the push for higher wages, particularly for those at the bottom of the pay scale, the team led by Ellen Zentner said.
“While hard to know exactly how these political forces impact wage growth in the short term, we suspect this is a longer-term tailwind toward rising and broadening wage growth,” they added.
Sen. Bernie Sanders said Democrats would try to devise a backdoor to implement a $15 minimum wage after a pay hike was struck from the $1.9 trillion stimulus package on Thursday evening – a major setback for progressives.
Senate parliamentarian Elizabeth McDonough ruled that a $15 minimum wage violated the strict guidelines of the reconciliation process. It’s the legislative method Democrats are using to approve the package in a party-line vote without Republican support.
In a statement, Sanders criticized McDonough’s decision. “It is hard for me to understand how drilling for oil in the Arctic National Wildlife Refuge was compliant with the Byrd rule, but raising the minimum wage is not,” the Vermont Democrat said, referring to a part of the 2017 GOP tax law allowed through reconciliation.
Then he said he will work with other Senate Democrats on “an amendment to take tax deductions away from large, profitable corporations that don’t pay workers at least $15 an hour and to provide small businesses with the incentives they need to raise wages.”
There were early signs of Democratic support for the move on Thursday evening. Sen. Brian Schatz of Hawaii tweeted “COUNT ME IN” on the Sanders proposal.
Sen. Ron Wyden of Oregon, chair of the tax-writing Senate Finance Committee, also said in a statement: “I’m looking at a tax penalty for mega-corporations that refuse to pay a living wage.”
Democrats are rushing to approve the emergency spending package ahead of March 14, the deadline when enhanced unemployment insurance starts to expire.
Yet designing and gathering support for a new plan to raise wages could complicate the swift timeline Democrats are pursuing. Some centrist Democrats may be reluctant to raise taxes on large corporations during the economic downturn.
It’s also unclear whether the proposal would be supported by Sen. Joe Manchin, a key West Virginia Democrat. The provision would also have to clear the reconciliation process governed by the parliamentarian.
The Senate parliamentarian ruled on Thursday evening that a $15 minimum wage provision cannot stay in the President Joe Biden’s $1.9 trillion stimulus package, according to a Senate Democratic aide familiar with the decision.
The parliamentarian, Elizabeth MacDonough, said the provision’s effect on the federal budget was “merely incidental,” the aide said. That violates the strict guidelines under the reconciliation process that Democrats are employing to approve the legislation in the Senate with a simple majority of 51 votes – and circumvent Republicans.
The decision deals a major blow to progressives and Sen. Bernie Sanders, who championed the $15 minimum wage as a pay raise to hourly workers. The federal minimum wage stands at $7.25 an hour and Congress hasn’t raised it in over a decade.
He played a critical role pushing the minimum wage increase through the complex process. Sanders chairs the Senate Budget Committee, which has jurisdiction over reconciliation.
Sanders released a statement on Thursday evening criticizing the parliamentarian’s decision. “It is hard for me to understand how drilling for oil in the Arctic National Wildlife Refuge was compliant with the Byrd rule, but raising the minimum wage is not,” the Vermont Democrat said, referring to a part of the 2017 GOP tax law.
He added he would introduce an amendment to “to take tax deductions away from large, profitable corporations that don’t pay workers at least $15 an hour and to provide small businesses with the incentives they need to raise wages.”
However, at least two Democratic senators opposed a $15 minimum wage, and their resistance would have dampened its odds of passage anyway. Sen. Joe Manchin of West Virginia said on Monday he would push to amend the wage increase to $11 an hour instead if it was included in the final package.
Senate Democrats are vowing to approve the bill ahead of March 14, the date when enhanced unemployment insurance programs will start ending for millions of Americans.
The House’s draft of the proposal would provide $1,400 stimulus checks and $400 federal unemployment benefits through August. It also includes $160 billion for vaccine distribution virus testing and significant aid for state and local governments.
Senate Democrats want to enact a new $1.9 trillion rescue package within weeks, but one major hurdle stands between them and the bill’s final passage: whether it will include a $15 minimum wage increase.
Once the House approves the legislation and sends it to the Senate, the wage provision is likely to spark some clashes among Democratic senators. The minimum-wage increase in the Biden rescue plan would be phased in over five years and eliminate tipped wages.
Sens. Joe Manchin of West Virginia and Kyrsten Sinema of Arizona have both said they oppose the measure. The resistance of these two lawmakers imperils the measure even if it clears all the hurdles required of a reconciliation package (the strict budgetary procedure that Democrats are employing to bypass Republicans). A looming ruling from the Senate parliamentarian will likely pose obstacles.
“There might be a few other Democrats with pretty significant concerns about the minimum wage increase,” Jim Manley, a former senior Democratic aide, said in an interview. “No matter how the parliamentarian rules, I’m not sure the votes are there in the Senate to increase the minimum wage to $15 an hour.”
The Senate parliamentarian serves as a neutral arbiter of reconciliation, a process that will allow Democrats to approve a bill with a simple majority of 51 votes in the upper chamber instead of the usual 60. Reconciliation requires every provision of a bill to be related to the federal budget, or else the parliamentarian can toss it out.
If the minimum wage doesn’t survive this process, that could complicate Democrats’ swift timeline for approval, targeted for mid-March. But even if it does survive, in an evenly divided chamber where Vice President Kamala Harris can break ties, every Democrat must support the final package.
Sen. Bernie Sanders, chair of the Senate Budget Committee with jurisdiction over reconciliation, told reporters on Tuesday a ruling may come in the next day or two. Progressives like Sanders are championing the measure as a boon to low-paid workers.
$11 an hour versus $15 an hour
The federal minimum wage hasn’t been raised from $7.25 since 2009, and labor advocates say a bill should lift wages for essential workers and others putting themselves at risk in the pandemic.
“To say that we can support jobless workers, teachers, caregivers, and medical professionals without supporting workers earning $7.25 an hour isn’t just bad policy, it’s inhumane,” Elizabeth Pancotti, policy director of Employ America, said on Twitter. “Economic relief must include raising the minimum wage.”
But Republicans argue that raising wages during a pandemic would cause employers to shed jobs. Some Democrats share those concerns as well.
“I think small business has got to be kept in mind, and I think there are a number of different variations that are being proposed that help insulate the impact in terms of small business,” Sen. John Hickenlooper of Colorado told the Wall Street Journal.
A report from the nonpartisan Congressional Budget Office indicated the $15 minimum wage plan would cause 1.4 million job losses, but lift 900,000 people out of poverty.
There is some GOP support to raise wages. On Tuesday, Sens. Mitt Romney and Tom Cotton introduced legislation to raise the minimum wage to $10 over four years once the pandemic is over. They would also tie it to mandatory use of the E-Verify program so employers can keep tabs on the immigration status of their workers.
“If we don’t have the $15 proposal as part of reconciliation, we’ll need to sit down and work on a bipartisan proposal,” Romney told reporters on Tuesday. “And we’re open to considering other people’s points of view.”
But many Democrats are eager to press ahead on their own without Republican votes. Sanders recently expressed confidence that the pay bump would clear the stringent reconciliation process and garner enough Democratic votes for passage.
“I think we’re going to pass it as it is,” he told reporters on Monday. “The Democrats are going to support the president of the United States and the overwhelming majority of the American people want to pass this Covid emergency bill.”
But that’s not holding back some Democrats from pitching ideas about a lower wage increase in the final legislation. Manchin told reporters on Monday evening he would try to offer an amendment to the legislation.
“I would amend it to $11,” he said. “We can do $11 in two years and be in a better position than they’re going to be with $15 in five years.”
The $15 minimum wage enjoys strong public support. Over 60% of respondents in a new Insider poll published Tuesday would definitely or probably support a $15 minimum wage.
More than a decade since the last federal minimum wage increase, the country could be on track to see more than a doubling of the current rate by the year 2025, but only if Democrats can get the measure passed.
As part of President Joe Biden’s $1.9 trillion stimulus plan, he included a measure to raise the minimum wage from its current $7.25 to $15 an hour. Then last week, Democrats introduced the Raise the Wage Act of 2021, a separate bill proposal that would increase the rate to $15 an hour gradually by 2025.
Ben Zipperer, an economist at the Economic Policy Institute, said minimum wage raises are exceptionally popular among the public. A 2019 Pew Research Survey found that two-thirds of Americans supported raising the minimum wage to $15.
“When we see minimum wages actually put to a direct vote, say on a ballot proposal in a state, they overwhelmingly pass,” Zipperer said.
Though a number of states and cities have raised their own minimum wage in past years, the federal government hasn’t issued a national raise since 2009 – the last time Democrats controlled both chambers of Congress and the presidency.
“This sounds kind of blunt, but the main obstacle is Republican legislators,” Zipperer said.
Some Republican lawmakers have signaled support for adjusting the federal rate, though few support going as high as $15.
Now that Democrats have, albeit narrow, control over Congress and the presidency, lawmakers are eager to make the raise a reality – and fast.
Democrats want to pass the measure through budget reconciliation, a quicker process that doesn’t require Republican support
On Tuesday, the Senate voted along party lines to kick off the budget-reconciliation process, a special legislation maneuver that allows the majority party to speed through high-priority fiscal legislation without support from the minority party. Democrats could pass Biden’s plan with only 51 votes – all 50 Democrats plus Vice President Kamala Harris’s tie-breaking vote – instead of the 60-vote supermajority usually required for most bills.
The other problem? It’s still not clear if lawmakers can even raise the federal minimum wage this way.
Reconciliation can only be used to pass bills that impact the government’s spending, revenues, and debt-limit laws.
One report found that an increased minimum wage could have a significant impact on the federal budget
Zipperer said the uncertainties surrounding the possibility of passing minimum wage legislation through budget reconciliation motivated him, along with a team of fellow economists at EPI, to look at the possible effects of a raised minimum wage on the federal government.
“When you raise the minimum wage, what you’re doing, and I think research is fairly clear on this, is that you raise the amount of wages that are earned by the overall low-wage workforce,” Zipperer said.
Because low-wage workers would be earning more, they would be less eligible for a lot of public assistance programs, like low-income tax credits or the Supplemental Nutrition Assistance Program, which provides benefits to supplement food costs for families in need, according to Zipperer. So by increasing the minimum wage, the country then reduces government expenditures on those programs, thus impacting the federal budget.
Zipperer said he hopes the study might provide the necessary proof to make increasing the minimum wage through budget reconciliation possible.
“I think a national minimum wage increase is well overdue and would do an enormous amount of good for the low-wage workforce, so anything that helps move that along is a good thing in my book,” he said.
But some other economists disagree with using reconciliation
Rachel Greszler, a research fellow in economics at the conservative-leaning Heritage Foundation said raising the rate through budget reconciliation isn’t a credible way to pass the measure.
“If federal policymakers think that it’s their purview to pose something across the entire US, then I think that should go through the regular process,” Greszler said.
She said the issue of minimum wages should be left up to individual states and localities because of significant variances in costs of living across the country.
Greszler said when one city wants to impose a $15 minimum wage, people who may lose their jobs or hours as a result, can still go outside the city limits to find work.
“This is a whole new ballgame talking about the entire United States,” Greszler said. “And I really just think it should be left to the state and local issue.”
Other economists say the timing couldn’t be worse for a national raise
Stan Veuger, a resident scholar in economics at the American Enterprise Institute, said the current economic downturn caused by the pandemic means it’s not a great time to try and raise wages across the country.
“We went through the same thing during the Great Recession when a number of minimum wage increases that had been legislated during the Bush Administration kicked in as we were going through a deep downturn,” Veuger said.
One study revealed there were significant job losses following the increases, which Veuger said makes sense.
“You’re in a downturn, so everyone’s output is a little bit lower, so you don’t want to pay the same wages you would pay during a high-output period,” he said. “People won’t hire as many additional workers as they would otherwise.
According to Veuger, we’re in the same situation now. In addition, this current pandemic-spurred downturn is particularly concentrated in businesses that pay relatively low wages, like hospitality and foodservice. He said the current unemployment numbers understate how many jobs are actually at risk of being lost forever if an increased minimum wage was imposed.
Greszler agreed, and called the proposed increase a naive approach to trying to increase incomes among lower-wage workers.
“I think this is the worst time and the worst scenario when you look at how the COVID-19 pandemic has impacted our labor market,” she said. “And it’s exactly the industries that employ the highest proportion of low-wage workers.”
Many such businesses have already reduced their employment by between 20% and 30% between December 2019 and December of 2020, according to Greszler.
“They are struggling to stay afloat. It’s not like they’re reaping in the profits and they have money they can just pull from to account for these cost increases, and yet they can’t jack up their prices significantly,” she said. “They just have very few options.
But proponents of the increase say many of the opposition’s fears are exaggerated and argue the benefits far outweigh potential negatives
Zipperer said fears about job losses are slightly overblown. He acknowledged people’s concerns that raising the minimum wage could make it more expensive for businesses to hire workers which could result in fewer jobs for low-wage workers, in turn hurting the people who need to be helped, but said that would ultimately be unlikely to happen.
Last month, Treasury Secretary Janet Yellen told Congress that raising the minimum wage would have minimal, if any, impact on jobs.
An independent analysis by the Economic Policy Institute found the raise would be particularly beneficial to people of color and women. Nearly a third of African-Americans and a quarter of Latinos would get a raise if the proposal was employed and nearly 1 in 4 of those who directly benefited would be Black or Latino women, according to the study.
“Whatever the employment effects are, they’re small enough that they’re kind of swamped by there’s more money for low wage workers,” Zipperer said.