Updated: May 2, 2021 7:47:15 am
US President Joe Biden has signed an executive order that will require government agencies to pay $15 an hour to all contractors starting January, 2022.
This move comes as Biden continues to press the US Congress to pass federal legislation for higher minimum wages across the country.
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The US President had attempted to insert the $15/hour minimum wage in his $1.9-trillion Covid-19 relief bill, but the Senate blocked the efforts saying it did not qualify under the special budget rules.
The current federal minimum wage, which stands at $7.25/hour, has not been raised by the US Congress since 2009 despite the majority of Americans supporting higher wages.
A survey conducted by Pew Research Center in 2019 concluded that 67% or two-thirds of the American population favour raising the minimum wage to $15/hour.
Though some US states have raised the minimum wage through state legislations, the fight to increase the federal minimum wage faces its own set of political and economic challenges.
What are the political challenges to raising the minimum wage?
US economic policy is dependent more on political power than on economic sensibilities.
Democrats have been in favour of raising the minimum wage. In 2013, the then President Barack Obama called for an increase in the wage to $9/hour. The same year, the Democrats introduced a bill to increase the wage to $10.10/hour, but the proposed legislation was not passed.
Republicans have been generally opposed to increasing the minimum wage and have continued to block efforts by Democrats to do so.
During the final years of the Obama presidency, with Republicans controlling both Houses of the Congress, the Democratic Party in their 2016 Democratic National Convention stated their target of increasing the minimum wage to $15/hour.
Jeannette Wicks-Lim, a political economy researcher at the University of Massachusetts, has quoted “under-the-dome” (i.e. US Capitol building) strategy to describe the lobbying efforts of organisations such as the National Federations of Independent Businesses, the US Chamber of Commerce and the National Restaurant Association opposing minimum wage provisions.
More than three-quarters of these organisations’ political contributions go to Republicans. This financial pull is reflected in partisan voting — in 2019 when the House voted on Raise the Wage Act of 2019, 97 per cent (228 out of 235) of the Democrats voted in favor of the Act while 98 per cent (192 out of 197) of the Republicans voted against it.
Jeannette Wicks-Lim has hinted that lack of union membership explains the dry spells without rise in wages. Unions in the past had been fundamental in ensuring a strong bargaining power for better wages, working conditions and benefits.
What is the opinion of voters on this issue?
The demand for higher minimum wage is extremely popular among voters from both parties. But this popularity hasn’t been able to yield results due to extreme partisanship among legislators.
Since 2013, the United States has seen widespread protests for increasing the minimum wage, which has led 29 states and DC paying higher wages than the federal minimum.
In 2014, when people in Republican-controlled states of Alaska, Arkansas, Nebraska and South Dakota voted in favour of increasing the minimum wage, it was clear evidence that the idea had support across party lines.
One agenda that brought the Democrats and Biden to power in the 2020 election is the $15 minimum wage. Many people were disappointed and had expressed their outrage after the motion failed in the Senate when the Covid-19 relief bill was passed.
What are the arguments for a higher minimum wage?
Minimum wage is meant to be a living wage. However, even though the cost of living has gone up over the years, wages have stagnated, resulting in millions of minimum-wage workers being unable to afford to pay rent and meet expenses. Many of them live below the poverty line.
Around 13% of American workers make minimum wage and one half of these workers provide essential services. CBS News has reported that as of October 2020, one out of four Americans is unemployed or living on poverty-level wages.
According to progressive think tank, Economic Policy Institute, gradually raising the federal minimum wage to $15 by 2025 will increase pay for 32 million American workers, lifting millions out of poverty. Higher wages would help stimulate the economy and business growth as people will spend more.
The Atlantic reported that low-minimum wages cost taxpayers over $100 billion a year as the government is forced to spend more on Medicaid, the Children’s Health Insurance Program (CHIP), cash welfare, food stamps and other welfare services.
A Brookings Institute research concluded that a $15 minimum wage would help 14 million struggling families achieve self-sufficiency — at present only 0.1% of minimum wage earners can afford a one-bedroom apartment in the US.
Higher wages would also help reduce racial and gender wage gaps as statistics have shown POC and women are being significantly underpaid than their white colleagues and also face more exploitation in the workplace.
What are the arguments against raising the minimum wage?
Raising the minimum wage could lead to a loss of about 1.4 million jobs, particularly for teens, young adults and less-educated workers as companies will shift to automation and prioritising higher-skilled workers.
Cato, a Libertarian think tank, argues that the pandemic has reduced profits for businesses and also the demand for workers. Therefore, since businesses are looking to recover from this crisis by opening up, now would be a bad time to increase the minimum wage as that would lead to inflated costs.
A high minimum wage will disproportionately impact small businesses — since they don’t generate enough revenue to afford a high minimum wage, this could lead to them cutting costs and even shutting down.
Moreover, large American businesses like Target, Amazon and Costco, which had earlier lobbied against minimum wage hikes, went on to voluntarily increase pay possibly out of concern for their brand image marketability.
Consumer demand and standards of living are not similar across the United States. Data assessed from the 29 states that have high minimum wages shows that in some states employers have cut back on the number of low-wage employees while in others there were no such consequences. Thus, a high minimum wage maybe necessary in New York City but not in rural Mississippi.
Cato also argued that there aren’t sufficient studies to show that employment is positively impacted by raising the minimum wage. Companies also adjust to a higher wage by increasing costs of their products and services, as well as by making things more expensive.
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