The Low-Wage Labor Market: Challenges and Opportunities for Economic Self-Sufficiency. Does the Minimum Wage Help or Hurt Low-Wage Workers? . Will the Administration's Proposal Provide a Living Wage?


Two methods are employed to simulate the possible effect of the proposed minimum wage increase, from $5.15 to $6.15 per hour, on hourly wage rates. The first method assumes that the minimum wage increase has only a "direct" effect; that is, it raises the wages of those earning between the current level and the proposed new level up to the new level. Under this method, approximately 11 million workers who report hourly wages would receive a pay increase. However, a $1 (or 19.4 percent) increase in the federal minimum wage does not represent a $1 increase in the wage of all workers making less than the proposed minimum wage, $6.15 an hour. Table 2 shows that the 1.8 million hourly workers earning $5.15 an hour, the prevailing federal minimum wage, would receive the full $1 pay increase, assuming no disemployment effects and full compliance. The other 9.2 million workers making between $5.15 and $6.14 an hour would receive a smaller raise — on average, 51 cents or 9.5 percent.5 Almost 4 in 10 workers directly affected by the minimum wage increase would receive less than a 20-cent pay increase.

The second method assumes that there is also an indirect effect on workers earning below the current minimum and a spillover effect that boosts the earnings of workers in some low-wage sectors who are currently earning more than the minimum. Using this methodology, a minimum wage increase would significantly narrow the pay gap between middle-wage earners (at the median, or 50th percentile) and low-wage earners (at the 10th percentile) among both men and women.6 Moreover, higher minimum wage would also narrow the pay gap between college-educated women and those who do not complete high school.

Table 2. Distribution of Pay Increases with a $6.15 Minimum Wage
Pay Increase Number of workers (millions) Percent of workers
Total 11.166 100%
$0.01 to 0.09 0.134 1%
$0.10 to 0.19 4.185 39%
$0.20 to 0.29 0.082 1%
$0.30 to 0.39 0.168 2%
$0.40 to 0.49 1.185 11%
$0.50 to 0.59 0.202 2%
$0.60 to 0.69 1.419 13%
$0.70 to 0.79 0.291 3%
$0.80 to 0.89 0.336 3%
$0.90 to 0.99 1.370 12%
$1.00 1.794 16%

Note:  The mean and median pay increase was 51 cents and 45 cents, respectively.

Note:  Assumes no disemployment. Analysis is limited to workers who reported hourly wage rates between $5.15 and $6.14 per hour in the 1998 March Current Population Survey, Outgoing Rotation (CPS-OR) group.

Source:  These estimates are based on an analysis of respondents in the March 1998 CPS-OR group. The sample contains noninstitutionalized civilians ages 16 and over, who were employed in the public or private sector, and who reported hourly wage rates. These wage rates exclude overtime pay, tips, or commission. CPS-OR weights are used to make the sample nationally representative. Due to misreporting of wage rates, these estimates may underestimate the number of hourly workers directly affected by proposed increases in the minimum wage.