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The Impact of Proposed Minimum-Wage Increase on Low-Income Families

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Impact of Proposed Minimum-Wage Increase on Low-Income Families Impact of Proposed Minimum-Wage Increase on Low-income Families Heather Boushey and John Schmitt December 2005 We thank Ben Zipperer for helpful comments and assistance with the data. Center for Economic and Policy Research 1611 Connecticut Avenue, NW Suite 400 Washington, D.C. 20009 Tel: 202-293-5380 Fax: 202-588-1356 www.cepr.net Introduction and Summary In the nine years since Congress last acted to increase the minimum wage, inflation has eroded about 18 percent of its purchasing power. Meanwhile, low-wage Americans and their families enter the 2005 holidays facing high and rising costs for home heating (up 21.6 percent in the last year), gasoline (up 37.0 percent), air fare (up 9.1 percent), and other seasonal expenses.1 By our estimates, increasing the federal minimum wage to $7.25 per hour over the next 26 months as proposed in the “The Fair Minimum Wage Act of 2005,” would raise the annual earnings of the average full-time, full-year, minimum-wage worker2 by $1,520 per year.3 This raise would be enough to cover about seven months of expenditures on transportation for the average low-income family4, or nine months worth of groceries, or 11 months of home heating and utilities, or 22 months of clothing. For the typical part-time, full-year, minimum-wage worker, we estimate that the proposed increase would raise annual income by $1,050, or enough to cover about five months of average transportation expenditures, or six months of groceries, or seven months of heating bills, or 15 months of clothing expenditures. Holiday bills also often mean running up credit-card balances. For the average full-time, full-year minimum-wage worker, the proposed increase in the minimum wage would be sufficient to pay off about 23 percent of the average $6,500 credit-card balance held by families earning less than $35,000 per year.5 For a part-ti

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