Minimum wage — why Iowa is behind

When we start talking about raising the minimum wage in Iowa the most important point is that we’ve been at $7.25 since Jan. 1, 2008, more than a year before the federal minimum rose. And every year that goes by without an increase affects Iowa families who are struggling to keep their heads above water. Families that count on minimum wage income for a major share of their household budget have seen their costs rise dramatically over the past six years.

In both Iowa and in Congress, there are proposals to raise the minimum wage to $10.10. In both Iowa and in Congress, many issues are raised to cloud what is really a pretty straightforward issue.

As we have shown in our most recent Cost of Living in Iowa report, the current minimum wage doesn’t even come close to paying the bills. A single parent with two children working a full-time job would need to make $28.11 per hour just to be able to pay for a basic, no-frills monthly budget; $56,212 annually before taxes and credits. Two-parent families with two children would each need to make $16.93 an hour or a combined total of $67,724 a year before taxes and credits. A single parent with two children working full time making $7.25 per hour is making $4,700 below what the federal government deems poverty for a family of this size and nearly four times less than what is needed for a family supporting hourly wage.

Basic RGBThirteen states have already seen an increase this year and now 21 states and the District of Columbia have a higher minimum wage than the federal. As these states have shown, there is no reason to wait for Congress because it’s not guaranteed that they are going to act in the near future.

One of the myths we hear is that increasing the minimum wage would lead to serious job losses — but the weight of the evidence shows that the net employment effect is minimal and that any slight loss of jobs is compensated by the increase in income for those low-wage families. Low-wage workers who see a wage increase are more likely to spend that additional income immediately, which puts more demand on goods and services and more money in the hands of small-businesses owners who may need to hire more people to keep up with that demand.

A prominent study last year by the Center for Economic and Policy Research explains why this employment effect is so small. Employers can adapt to wage increases through various channels. Employers might reduce the number of hours worked, for example, but the higher pay can raise the standard of living for affected employees. Higher pay can make it easier to find and keep employees; less employee turnover reduces training costs. There could be reductions in non-wage benefits, improvements in efficiency, higher demand from increased consumer spending, and employers may start upgrading the skill level of their workforce rather than cutting the level of their staffing. Employers might pass on some added costs as higher prices to consumers, but this increase is estimated to be very small.

On one point there can be no dispute: A higher minimum wage will substantially lift the earnings of low-wage workers and families will be better off. Now at six years, how long will the minimum wage be held down for families facing higher and higher costs?

  IPP-gibney5464Posted by, Heather Gibney, Research Associate 

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