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Restoring Minimum Wage Would Strengthen Social Security

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Congress should restore the minimum wage to circa its 1968 level and then index it to inflation, as a new fact sheet from Social Security Works explains. This would be a small but important step away from decades-long growth in income inequality, and toward shared prosperity. In an economy characterized by historic levels of inequality, and a polity in which redistributing these highly unequal income gains is ideologically anathema, restoring the minimum wage is one of the few equity-enhancing measures realistically available to policymakers.

Decline of Minimum Wage Has Increased Inequality and Harmed Social Security's Finances

The federal minimum wage is lower today than it was in 1968: $7.25 today vs. $9.39 (in today's dollars) then. This 23 percent decline in the purchasing power of the minimum wage over the past four decades has contributed significantly to the broader decline of the wages of the bottom fifth of earners: their share of the total income pie has declined by 24 percent since 1968. At the same time, the nation as a whole has become much wealthier: average wages have increased in real terms by 24 percent over this span. Overall, this weak and unequal wage growth has caused about a third of Social Security's projected long-term funding shortfall.

Restoring the Minimum Wage Would Improve Social Security's Finances

Restoring the minimum wage, and indexing it to inflation, would improve Social Security's finances by increasing the wages of the 28 million workers directly affected, who would pay payroll taxes on an estimated $35 billion in additional earnings by 2016. Restoring the minimum wage would also percolate up the income scale. A study of Britain's experience found, for example, that the National Minimum Wage introduced there in 1999 has had "spillover effects" on wages throughout the bottom quarter of the earnings distribution, reducing wage inequality.

Some are concerned that employers faced with a higher minimum wage might respond by reducing hours and/or laying off employees. Yet the classic empirical study in this field refutes this claim, and the balance of research since then also suggests minimal employment effects. As the New York Times Editorial Board recently noted, "[s]cholarly studies and the experience of businesses themselves show that what companies lose when they pay more is often offset by lower turnover and increased productivity. Businesses are also able to deal with higher costs by modestly increasing prices and by giving smaller increases to higher-paid employees."

Beyond ensuring a decent wage floor that keeps pace with inflation, restoring the minimum wage would also:

• Reduce Elderly Poverty and Raise the Floor of Retirement Security
Today, 15.1 percent of seniors live in poverty (according to the most up-to-date measure), and nearly half (48.0 percent) are economically vulnerable. Projections of the future retirement income of today's workers suggest that even larger shares of tomorrow's retirees will be economically vulnerable in retirement. A lifetime minimum-wage worker with a 40-year work history receives a Social Security benefit of only $686/month if (s)he retires at 62, as most workers - often for health reasons - do, or $916/month if (s)he waits to retire until age 66; in both cases, this retirement income is below the poverty level. If low-income workers earn higher wages over their working careers, this will significantly enhance their retirement security.

• Reward Hard Work with Greater Retirement Security
The proposed increase in the minimum wage would empower workers to provide for their own retirement security through work. Since benefits are directly related to career average earnings, more earnings would yield higher benefits.

• Reduce Taxpayer Subsidies of Low-Wage Employers
A full-time minimum-wage worker earns $15,080 per year. Because minimum-wage workers do not earn a living wage, most have to rely on taxpayer-funded public assistance programs to make ends meet. A recent study of the fast-food industry found that a majority (52 percent) of front-line fast food workers - who earn a median wage of $8.69, well below the $10.10 rate proposed in The Fair Minimum Wage Act - are enrolled in Medicaid, food stamps, Temporary Assistance to Needy Families (TANF), the Earned Income Tax Credit (EITC), or other public assistance programs. The cost of these taxpayer subsidies of private employers - often quite profitable ones - is $7 billion/year. If minimum wage workers could earn a decent wage, taxpayers would be spared some of this expense. Over the long term, outlays for SSI would be reduced as well.

• Increase Disability, Life, Unemployment Insurance Protections of Low-Income Families
Social Security provides not only retirement, but also disability and life insurance protections. As with Social Security retirement benefits, its disability and survivors benefits are based on career average wages; higher wages lead to higher benefits. Unemployment insurance benefits are also proportional to previous earnings. All of these insurance protections, which are designed to replace lost income for a family when a breadwinner is unable to work, would be enhanced by a higher minimum wage.

Conclusion
Over the last four decades, income inequality has been eating away at the American social fabric. It is a core American value that those who work hard and play by the rules not be left to live or retire in poverty. For this reason, nearly 7 in 10 Americans support raising the minimum wage. They believe that government has a role to play in shaping the rules of the game so that hard work is rewarded with a degree of economic security and dignity. Restoring the minimum wage is a modest but critical step toward lifting low-income families out of poverty and enhancing their retirement security, as well as their life, disability, and unemployment insurance protections. No other anti-poverty policy targeting low-wage workers has these ancillary social insurance benefits. And contrary to such policies, raising the minimum wage not only spares taxpayers any additional expense, it would actually reduce government subsidies of low-wage employers, and modestly improve Social Security's finances in the process.