Raising the Minimum Wage Would Be an Investment in Growing the Middle Class

July 24 will mark 14 years since the last time the $7.25 federal minimum wage was raised—extending by yet another year the longest period in its history without an increase. This column charts what could happen to annual wages if all workers earned at least $15 per hour, a wage floor that advocates have long fought for, including in the Raise the Wage Act of 2021. New estimates from the Center for American Progress show that raising the floor to a $15 minimum wage could increase the wages of 1 in 4 workers—nearly 40 million—and lead to an annual wage increase as large as $8,000 for some of the lowest-wage workers. A $15 minimum wage would also help reduce stubborn gender, racial, and ethnic wage gaps for women, Black, and Latino workers, who are overrepresented among those earning less than $15 per hour. Most notably, if a $15 minimum wage had been in place in 2021, Black women would have experienced the largest reduction in their pay gap on record.*

For more than 10 years, advocates have sought to raise the federal minimum wage to $15, but even that standard has lost its purchasing power over a decade of inaction. More recently, advocates have begun calling on Congress to raise the minimum wage to $17. In 2021, a minimum wage of $17 would have benefitted 51 million workers—nearly one-third of all workers. It would have provided the typical worker with a wage boost of around $1,000, which would have equated to a typical household’s average expenditures on either their meats, poultry, fish, and eggs or medical services and supplies. But while a $17 minimum wage would produce far greater income gains, this analysis primarily examines the implications of a $15 federal minimum wage on 2021 wages, as $15 was the policy goal at that time.

Raising the minimum wage would be an investment in growing the middle class and a clear way to build the economic security of workers and their families. With higher wages, millions of Americans would be closer to economic stability and peace of mind. Policymakers must work to raise the federal and state minimum wages to benefit workers; help employers attract and retain them; boost consumption spending; and stimulate local economies. 

A $15 minimum wage could help workers meet emergency expenses

For the typical white, Black, and Latino worker,** a $15 minimum wage could increase their annual wage by an average of $800, with the largest gains for Black women, Black men, and Latinas. (see Figure 1) An $800 increase in annual wages could help workers cover their expenses, particularly those that are often unexpected. In 2021, 3 in 10 adults could not cover a $400 emergency expense, but if a $15 minimum wage had been in place, with the typical worker receiving an $800 increase in their annual wage, many more would likely have been able to meet unanticipated costs. For example, $800 is equivalent to what the median household spends on average on medical services or on vehicle maintenance and repairs.

1 in 4 workers earns less than $15 per hour

Working for less than $15 is extremely common in the labor market, even as states and cities raise their wages to partially compensate for federal inaction. In 2021, 1 in 4 workers—40 million—earned less than $15 per hour. Women, Black, and Hispanic or Latino workers are overrepresented among minimum wage earners as well as among those earning less than $15 per hour. (see Figure 2) In aggregate, about 1 in 5 white, non-Hispanic workers earns less than $15 per hour, while nearly 1 in 3 Black, non-Hispanic workers and about 1 in 3 Latino workers earns less than $15 per hour. Even more startling, about 2 in 5 employed Latinas earn less than $15 per hour, putting them at greater risk of poverty and financial hardship.

The fact that women and Black and Latino workers are overrepresented among low-wage earners is not an accident. Factors such as occupational segregation and gender and racial discrimination have played a role in creating and perpetuating these disparities. Additionally, there are many workers who are exempt from the Fair Labor Standards Act (FLSA): Workers with disabilities, workers who receive tips, the self-employed, farm workers, full-time students, and youth workers can be paid a subminimum wage. Historically, these groups have disproportionately been made up of Black people, women, and Latinos. Many of the groups excluded from the FLSA have also been excluded from other federal policies that protect workers, such as the National Labor Relations Act and the Occupational Safety and Health Act. 

The lowest earners would benefit the most from a $15 wage floor

A $15 minimum wage would logically provide the most benefit to those currently earning the least. On average, white, Black, and Latino workers earning in the bottom 10 percent of the wage distribution would see their annual earnings increase by more than 50 percent, from $9,700 to $14,970. (see Figure 3) A more than $5,000 increase in annual wages for the lowest-paid workers would make a tangible difference in their lives and go a long way to helping them afford the necessities. For example, $5,000 is close to what the average household in the bottom 10 percent spends on their food or transportation and twice as much as they spend on health care. In addition, if workers earning in the bottom 10 percent had been paid $15 per hour in 2021—the year for which wages were calculated—many workers in a one-person or two-person household would have moved out of poverty. Jobs that lead to greater economic security for workers and their families help grow the economy overall, and wages that allow workers to afford the necessities are a crucial component of that approach to growing the middle class.

On average, members of the bottom 25 percent of white, Black, and Latino workers would see their annual wages increase by about $6,000. (see Figure 4) Similar to the typical and lowest-wage workers, $6,000 would make a real difference to the lives of workers in the bottom 25 percent of the wage distribution, more than covering the typical food costs or rent for workers in a similar income bracket. Due to persistent wage gaps by gender and race—fueled in part by overrepresentation in low-wage work—gains would be even larger for Black workers in the bottom 25 percent, who would see the largest gains, with Black women’s and men’s annual wages increasing by $8,080 and $7,200, respectively.

Raising the minimum wage would reduce the gender, racial, and ethnic wage gap

A $15 minimum wage would have an important impact on the gender wage gap, which intersects with racial and ethnic wage gaps to harm Black women and Latinas as well as Black men and Latinos. (see Figure 5)

If a $15 minimum wage had taken effect in 2021, Black women would have earned about 66 cents for every $1 earned by white, non-Hispanic men, compared with 62 cents per $1 without a $15 minimum wage.* In the $15 minimum wage scenario, that would equate to a 7 cent reduction in the gap from 2020.* Looking at changes to the gender wage gap since 1979—the earliest year for which income data are available—this would have been the largest change in the gender wage gap for Black women on record.* This is particularly important for Black mothers, who are the mothers most likely to be their families’ breadwinners, with the gender wage gap not just limiting their economic security but also that of their families. While the Raise the Wage Act and state-level minimum wage increases typically structure increases as phase-ins over multiple years and would therefore produce more gradual closures to wage gaps, it is important to recognize the cumulative positive effect in this illustrative example.

Conclusion

Raising the minimum wage would be an investment in workers that could be life changing for some of the lowest-wage earners, providing them with additional income that would help build their economic security. Policies such as the Raise the Wage Act of 2021 would be especially helpful for women, Black, and Latino workers. It is up to federal and state policymakers to take steps to raise the minimum wage to not just help build economic stability for workers but also create a more equitable, sustainable vehicle for growing the economy.

The authors would like to thank Jessica Vela for her assistance.

Methodology

This column uses the 2022 Current Population Survey Annual Social and Economic Supplement—the latest available—to find the number of workers by race, sex, and Hispanic or Latino ethnicity who earned less than $15 per hour in 2021. The sample is limited to those aged 15 or older who were employed and who worked at least one hour in 2021. As not all workers are hourly wage workers, the authors calculated hourly wages using respondents’ total pre-tax wage and salary income, hours, and weeks worked. For all those earning under $15 per hour, the hourly wage was replaced with $15 to calculate annual earnings under a $15 minimum wage. This piece does not account for spillover effects to workers making slightly above $15 per hour, which would affect even more workers, according to research by the Urban Institute.

*Authors’ note: The authors used the Current Population Survey Annual Social and Economic Supplement from 1980 to 2022 to calculate the pay gap from 1979 to 2021 between Black, non-Hispanic women and white, non-Hispanic men over time using the same methodology as explained above. The income question is only comparable during this time period.  

**Authors’ note: Other racial groups are not included in this historical analysis due to small sample sizes.