Center for American Progress

Minimum Wage Goes Up, But Families Still Squeezed by Rising Prices
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Minimum Wage Goes Up, But Families Still Squeezed by Rising Prices

The minimum wage goes up today, but it still won’t be enough to cover costs for those who need it most.

Antonio Tellez, a street vendor in Los Angeles, is one of an estimated 2 million Americans who will receive a raise today when the federal minimum wage rises $0.70, to $6.55 per hour. (AP Photo/Damien Dovarganes)
Antonio Tellez, a street vendor in Los Angeles, is one of an estimated 2 million Americans who will receive a raise today when the federal minimum wage rises $0.70, to $6.55 per hour. (AP Photo/Damien Dovarganes)

At least 2 million people are set to receive a raise today. They’re the American workers whose earnings will get a boost as the federal minimum wage increases $0.70 per hour, from $5.85 to $6.55. The wage will increase an additional 70 cents in 2009, to $7.25.

As the chart below shows, since the last minimum wage increase in July 2007, the average weekly cost of gas and food for a week for a family has risen by over $21—leaving less than $7 for families to spend on other necessities. With home energy prices rising by over 14 percent since last year, families will need much more than $7 to cover the rising costs of these and other necessary items.

Today’s minimum wage increase is a long-overdue development. Just one year and one day ago, the minimum wage was at its lowest level in 50 years, and it hadn’t budged for a decade. Meanwhile the costs of basic items such as food, home energy, and gasoline have increased markedly—for many items, at a pace greater than increases in the minimum wage. The minimum wage will complete its current phase-in in 2009, at which time an estimated total of 13 million people are expected to receive a raiseeither directly or indirectly.

But it’s still not enough. Since last year, the prices of nearly all goods and services have risen, while a minimum wage earner’s weekly income has increased by only $28. With high gas prices, increasing home energy costs, and continued food price inflation, that $28 will often be spent even before the first paycheck arrives.

Over 75 percent of the extra income minimum wage earners can expect to receive is already allocated to costs like food and gas—a family of four with one minimum wage earner would spend 56.6 percent of its income on food alone. Minimum wage-earning households can expect the purchasing power of their extra income to steadily decline over the coming year as prices continue to rise.

The result of a minimum wage that hasn’t kept up with inflation is evident in the poverty measure. Over the past year, a family of three supported by one minimum-wage earner still lived over $4,000 below the federal poverty line—earning just $12,168. That same family will now bring in $13,624 before taxes—well below the 2008 poverty line of $16,705. And when the wage reaches $7.25 in 2009, they’ll earn a little over $15,000—still 18 percent below the poverty line. Minimum wage-earning households with additional members are likely to live even further below the poverty line.

The federal minimum wage still lags behind inflation, but many states have set their own minimum wages to greater than the federal level, increasing earnings for workers and accommodating higher costs of living. Some states have even indexed their wages to inflation, so that as prices rise, so do the earnings of minimum wage workers. As of today, 25 states have established a minimum wage that exceeds the federal level. But without additional state action, only 11 states will maintain minimum wages above the federal rate in 2009.

The Center for American Progress’s Task Force on Poverty recommended in its report, From Poverty to Prosperity, that the federal minimum wage be set and maintained at a level that represents 50 percent of the average wage. Doing so will ensure that as wages rise for most Americans, minimum-wage earners can share in the prosperity.

Most of the minimum-wage gains from an increase would benefit families with incomes in the bottom 40 percent of the population, with families in the bottom quintile benefitting the most. A stronger and more prosperous working class can help build an America that improves the lives of everybody.

For more on the Center’s policies on the minimum wage and poverty, please see:

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