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News from EPI The Economy Can Afford to Raise the Minimum Wage to $12.00 by 2020

Raising the minimum wage to $12.00 by 2020 is an achievable and economically sustainable goal, and stands within our historical experience, as shown in a new EPI paper, We Can Afford a $12.00 Federal Minimum Wage in 2020. In the report, EPI president Lawrence Mishel, economic analyst Dave Cooper, and research associate and senior economist at the Center for Economic and Policy Research John Schmitt find that increases in worker productivity and education levels, along with wage increases in regions that paid lower-than-national wages in the past, make returning to the 1968 norm in 2020 an achievable target. An increase to $12 would modestly raise the minimum wage’s purchasing power and roughly restore the relationship between the minimum wage and workers in the middle relative to 1968 levels, when the minimum wage was at its historical peak and the national unemployment rate was less than 4 percent.

The Raise the Wage Act, which will be introduced by U.S. Senator Patty Murray (D-WA) and U.S. Congressman Robert C. “Bobby” Scott (D-VA), updates the previous effort made by Senator Tom Harkin and then-Representative George Miller in 2013 to raise the minimum wage to $10.10 by 2016.

Raising the federal minimum wage to $12.00 per hour by 2020 would return the wage floor to the same position in the overall wage distribution that it had at its peak in 1968. In 2014, the minimum wage was equal to only 37.1 percent of the hourly median wage of full-time, full-year workers. Using a conservative projection of wage growth, a $12.00 minimum wage would equal 54.1 percent of the projected national median wage, returning it to its 1968 level (52.1 percent).

“The value of the minimum wage is now 24 percent less than it was in 1968, yet workers today are twice as productive as they were back then. They’re also older and more educated. To that extent, we would expect that low-wage workers would earn more, not less, than what they earned in 1968,” said Mishel. “The new proposal reestablishes the minimum wage as the wage floor it was in the late 1960s, reversing a 50 year period of a low-value minimum wage. It sets the minimum to roughly 11 percent above 1968 value, indicating that it is a modest proposal.”

Even at $12.00 in 2020, however, this increase would fail to reconnect the minimum wage to average productivity growth since 1968. If the minimum wage had grown alongside productivity, it would be $18.30 today and $18.96 by 2020.

“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 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.”

Significant increases in the productivity, education, and experience of low-wage workers mean that not only should wages be higher, but also that the economy can afford to pay those higher wages. In 1968, only 17 percent of workers in the bottom fifth of the wage distribution had some college education or more. By 2012, the percent of workers in the bottom fifth with at least some college education had risen to 46 percent. The productivity of low-wage workers has also doubled since 1968. Furthermore, more uniform wage distributions across individual states means that the federal minimum wage has less impact on low-wage states today than was the case in 1968.

In order to give employers time to adjust to the higher wage floor, the $12.00 proposal raises wages at a rate similar to past minimum wage increases—roughly 10 to 13 percent per year—but for a longer amount of time. The yearly increases in the proposal are sustained for five years instead of two (as in the 1996-1997 minimum wage increase) or three (as in 2007-2009).

“No matter how you look at it, today’s low-wage workers are making far less than their counterparts did in 1968. A $12.00 minimum wage by 2020 would raise the purchasing power of the minimum wage relative to its 1968 value and reconnect low-wage workers to the rest of the workforce,” said Schmitt.

This report is part of EPI’s Raising America’s Pay project, a multiyear research and public education initiative to make wage growth an urgent national policy priority. EPI President Lawrence Mishel and economic analyst David Cooper are available for interviews on the minimum wage and other topics.