It’s not widely thought about, but Social Security and the minimum wage have a lot in common. For starters, they were both created by the same guy, President Franklin D. Roosevelt. Both concepts have had a lot of opposition and support. Finally, both are eager for change but have received none for a long time. Fortunately, 2022’s minimum wage might be the change we need.
While the relationship might not be a two-way street, the minimum wage does influence Social Security, fueling it for both current and future beneficiaries. 2022’s minimum wage is set to add more funds into Social Security, which it desperately needs.
We saw in February of 2021 attempts to raise the minimum wage to $15 an hour. This idea was shot down by the U.S. Senate, and the Senate parliamentarian denied reconciliation. Reconciliation allows a simple majority to pass legislation, but the minimum wage was deemed incidental to matters like federal Covid-19 relief.
Despite this set back, the minimum wage has always been resilient, and not all hope for a higher wage is lost. While it isn’t federally mandated, a number of states that are geared towards raising their wages — which means 2022’s minimum wage just might be the catalyst for positive change.
A Brief History
The minimum wage, like Social Security, is a product of the Great Depression era. The Social Security Act was created in 1935 as a safety net for older workers with little to no savings. The minimum wage came in 1938, when FDR signed the Fair Labor Standards Act into law. The FLSA established minimum wages in certain industries, created a maximum workweek, and fought against child labor.
The Unsung Heroine
FDR is often credited for his New Deal, as he should be; however, one of the lesser known champions of the New Deal, and ultimately both Social Security and the minimum wage was a woman named Frances Perkins. Perkins was FDR’s Secretary of Labor and had sponsored a bill that would become the FLSA. FDR and Frances Perkins had politically out-maneuvered and out-smarted their opponents when creating, timing, and passing the New Deal. Without their partnership, we would have a vastly different system today.
2022’s Minimum Wage
CNN’s Shawna Mizelle reports on twenty-one states raising their minimum wage in 2022. The states raising wages are:
- New York
- New Jersey
- Rhode Island
- South Dakota
These states are raising their minimum wage between $9 and $15. Some raises are due to inflation while others are due to a promise to get the minimum wage to $15 over a several year period. While the federal initiative to raise the minimum wage failed, state governments and even some private sector members are raising it themselves.
“A rising tide raises all ships.” A higher minimum wage potentially means longevity for Social Security. Funded by payroll taxes, Social Security is taking in less because it has a smaller workforce and wages have been stagnant over the last decade.
By introducing a higher wage, workers and employers can both contribute more to the Social Security trust through payroll taxes, meaning that Social Security is funded for longer. For example, a workforce of 32 million earning a $15 minimum wage would contribute over a billion dollars in additional income for Social Security.
In generations past, it used to be five workers would pay for the Social Security benefits for one person. Now because of a smaller workforce, it’s every two workers per one retiree. We can’t magically increase the workforce overnight, but we can be more efficient by offering a higher minimum wage and contributing more to payroll taxes.
Final Thoughts from the Council
2022’s minimum wage raise is still unfolding. It might sponsor positive change and it might just create a little relief when we need it. Either is okay. The debate surrounding whether to raise the minimum wage will continue. We work with what we have. If what we have is a smaller workforce, then we need to be smart and adjust the plan to have a better outcome.
One way is to protect the Social Security Trust itself. Protecting any surplus we have is vital to fighting insolvency. The Council for Retirement Security can’t say whether 2022’s minimum wage will help overall, but any strategy that defends Social Security and protects seniors’ hard-earned benefits is worth some thought.