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Raising the minimum wage to match inflation and productivity would benefit the economy by increasing consumer activity and spurring job growth while lowering the federal deficit.

Because the federal minimum wage is not indexed for inflation, its purchasing power (the number of goods that can be bought with a unit of currency) has dropped considerably, hitting the lowest mark since 1956. [14] [15] [16] [204]

As journalist Megan Cerullo summarizes, “The federal minimum wage of $7.25 buys less today than it has at any point over the past 66 years…. The current value of the minimum wage in real dollars is at its lowest level since February 1956, when the lowest U.S. wage was 75 cents — the equivalent of $7.19 in June 2022 dollars.” Raising the minimum wage and indexing it to inflation would ensure that low-wage workers could adopt a standard of living commensurate with the current economy. [204]

Further, while the estimates of how much the minimum wage should be increased vary, many economists agree that if the wage had kept pace with rising productivity and incomes, it would be higher than the current $7.25 an hour. [14] [17] [18] [14] [17] [18]

If the minimum wage matched inflation as well as worker productivity and other incomes, worker productivity would increase while employee turnover decreased. Alan Manning, Professor of Economics at the London School of Economics, explains, “As the minimum wage rises and work becomes more attractive, labor turnover rates and absenteeism tend to decline.” [30] [31] [32] [33]

In turn, economic activity would increase, spurring job growth. The Economic Policy Institute stated that a minimum wage increase from the current rate of $7.25 an hour to $10.10 would inject $22.1 billion net into the economy and create about 85,000 new jobs over a three-year phase-in period. And economists from the Federal Reserve Bank of Chicago predicted that a $1.75 rise in the federal minimum wage would increase aggregate household spending by $48 billion the following year, thus boosting GDP and leading to job growth. [1] [2]

With an economic boom and more securely employed workers, the federal deficit would decrease. According to James K. Galbraith, Professor of Government at the University of Texas in Austin, “[b]ecause payroll- and income-tax revenues would rise [as a result of an increase in the minimum wage], the federal deficit would come down.” [43]

Further, raising the minimum wage would help reduce the federal budget deficit “by lowering spending on public assistance programs and increasing tax revenue. Since firms are allowed to pay poverty-level wages to 3.6 million people — 5 percent of the workforce — these workers must rely on Federal income support programs. This means that taxpayers have been subsidizing businesses, whose profits have risen to record levels over the past 30 years,” according to Aaron Pacitti, Associate Professor of Economics at Siena College. [42]

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