UC Berkeley study finds low minimum wage costs state, federal government billions

Photo of a minimum wage worker
Josh Kahen/Senior Staff
According to Jenifer MacGillvary, co-author for a study from the UC Berkeley Labor Center, economic recovery in a post-pandemic world will require consumer demand. By raising the nation's low minimum wage, employees would be left with more disposable income, ultimately helping stimulate the economy.

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The nation’s low minimum wage could be costing state and federal governments more than $100 billion a year, a UC Berkeley Labor Center study published Thursday finds.

The federal minimum wage has stayed at $7.25 an hour since 2009, the longest period ever without an increase, according to the study. Workers whose wages do not cover their expenses turn to federally funded public safety net programs to stay afloat, putting a dent in the national coffers, the study reported.

“The minimum wage hasn’t been increased, but the cost of food, the cost of health care, the cost of child care, rent, the cost of everything else, has increased,” said study co-author Jenifer MacGillvary. “When their incomes don’t go up but their expenses do, they have to turn to the safety net programs to fill in that gap.”

The reliance on safety nets has been exacerbated by the COVID-19 pandemic, MacGillvary added. She said service workers making minimum wage are often those exposed to the highest COVID-19 risk.

Economic recovery in a post-pandemic world will require consumer demand. According to MacGillvary, a higher minimum wage — leaving employees with more disposable income — would help stimulate the economy.

MacGillvary and her team have been making these “public cost reports” since 2004, examining the cost to the government when businesses pay low wages.

President Joe Biden has pledged to increase the federal minimum wage to $15 an hour. The Raise the Wage Act, which would lift the bar in increments until 2025, passed the U.S. House of Representatives in July 2019.

In the study, the researchers calculated the cost to social welfare programs by examining workers who would receive a direct wage increase if the proposed wage hike was implemented.

A study by MacGillvary’s colleagues found that increasing the minimum wage does not have a measurable negative effect on employment rate, according to MacGillvary, contrary to opponents of the proposal who say that a higher minimum wage will result in lower hiring. 

A higher minimum wage has also been discovered to decrease earning discrepancies between Black and white workers, MacGilvary added.

Kavitha Iyengar, president of United Auto Workers, or UAW, Local 2865, the union representing student workers in the UC system, said raising the federal minimum wage is “a moral and financial necessity.”

“Any person working full time should not live in poverty,” Iyengar said in an email. “Working people deserve a fair wage.”

The city of Berkeley currently has a $16.07 an hour minimum wage, which is set to be adjusted for inflation in July.

Campus graduate student and UAW Local 2865 member Jordan Burns said the city’s minimum wage is a “great step” for Berkeley workers and campus students, but not enough to outpace the high cost of living in the city.

“In most places, the current minimum wage is a poverty wage,” Burns said in an email. “Human beings have intrinsic value that isn’t tied to their productivity or how prestigious or difficult their job is. Every human being deserves to be paid a living wage, period.”

Annika Rao is a research and ideas reporter. Contact her at [email protected] and follow her on Twitter at @annikyr.

Correction(s):
A previous version of this article incorrectly stated that the study calculated the cost of low minimum wage only on the federal government. In fact, the study calculated the cost on both the federal and state governments.