Philadelphia’s minimum wage has been stuck at $7.25 an hour since 2009 – here’s why efforts to raise it have failed

In Philadelphia, the poorest big city in the U.S., the minimum wage has been stuck at $7.25 per hour for the past 15 years. That’s the minimum wage everywhere in Pennsylvania, and it matches the federal minimum wage. However, minimum wage workers in other big American cities earn significantly more: $16 an hour in New York and $15 an hour in Boston, for example.

If Philadelphia’s $7.25-per-hour minimum wage were to keep up with inflation alone, it would need to be raised to at least $10.38 today, according to the federal Consumer Price Index inflation calculator.

We asked Michael O’Bryan, founder of the Wealth and Work Futures Lab at Drexel University’s Lindy Institute for Urban Innovation, why Philly’s minimum wage remains so low, and what effects that has on the city and its residents.

Why is Philly’s minimum wage so low?

The biggest factor is that Philadelphia does not have the authority to create its own minimum wage – one that could appropriately reflect the city’s cost of living. Pennsylvania does not allow local governments to raise the minimum wage above the state level of $7.25 an hour. For an adult working full-time hours, that’s $15,080 annually.

In June 2023, Pennsylvania’s Democratic-controlled House passed a bill to raise the minimum wage statewide incrementally to reach $15 an hour by 2026, but it stalled in the Republican-controlled Senate.

While that might be enough to scrape by in rural Pennsylvania, it simply doesn’t work in a major metropolitan area. The MIT Living Wage Calculator estimates that a single person in Philly with no children requires roughly $24 an hour to support themselves. Add two children and that number more than doubles.

Philadelphia’s city council has urged the state Legislature to introduce and pass a bill that would allow the city to set its own minimum wage, but as yet, Harrisburg hasn’t budged.

How many Philadelphians make minimum wage? What sort of jobs are these?

As of 2018, roughly 9% of employed Philadelphians age 16 or older made $7.25 an hour or less. That works out to about 44,000 individuals. Contrary to popular beliefs, these are not mostly teens working their first job. In fact, in Philadelphia, only 7% of workers earning minimum wage are teens. Over half are ages 25 to 54.

How could someone make less than the minimum? It could be because their employer is not complying with the law, or it’s related to the industry they work in. For example, restaurant and hospitality jobs have a much lower minimum wage requirement – $2.13 an hour federally and $2.83 an hour in Pennsylvania – as tips make up a significant portion of their pay. Exploitation of workers who face barriers to traditional employment, because they are undocumented or have been incarcerated, is also common.

Beyond that, nearly 40% of the city’s workforce makes $15 an hour or less. Raising the minimum wage would benefit a substantial portion of the workforce in Philadelphia because when the floor is lifted, wages across the board tend to rise.

Philadelphians who make minimum wage or less tend to be employed in four sectors: hotel and food services, retail trade, health care and social assistance, and educational services. The most common occupations are cashiers, nursing aides and most restaurant jobs, like cooks and servers.

These workers are disproportionately nonwhite or Hispanic, young, and lack a college degree. Geographically, they’re most concentrated in North, Northeast and Southwest Philadelphia — areas that are traditionally lower income.

Who does this most hurt?

It hurts those with no choice but to accept such paltry wages. In 2018, nearly 4 in 10 Pennsylvanians struggled to pay for basic expenses. Many families get stuck in a cycle of poverty even while adults are working full time. A 2020 study found that about 70% of workers in the U.S. who are receiving support from Medicaid and SNAP are working full-time hours, including for behemoth corporations like McDonald’s and Walmart.

A low minimum wage for Philadelphians also lowers the revenue the city takes in from wage taxes. This limits the resources the city has to invest in infrastructure, clean streets, parks and other public places and services.

Higher minimum wages can also improve Health outcomes and reduce crime and recidivism rates.

Who most benefits?

In theory, it’s business owners who benefit from a low minimum wage. It makes sense, right? The less they have to pay staff, the more money stays in their coffers. But that’s a shortsighted stance that doesn’t take into account the larger financial implications a low minimum wage creates: primarily, the high cost of employee turnover.

Recent studies have shown that the average cost of turnover is 40% of a position’s annual salary. That amount accounts for everything from increased overtime wages to the cost of recruiting and training new employees. The longer a job remains open, the more it costs.

Beyond the financial implications, high turnover rates also create environments where good employees leave, excellent customer service falters, and the Business as a whole declines.

So who really benefits from a bare-minimum minimum wage? I’d argue it’s nobody.

What would be needed for Philly to raise its minimum wage?

In 2019, Philadelphia’s city council agreed to pay all city employees and contractors at least $15 an hour. To expand this to all workers, Philly would need to be given the power to make change for itself and not be beholden to Harrisburg’s decision on minimum wage.

It’s abundantly clear that public desire is there. Responding to a nonbinding ballot question in 2019, Philadelphia voters voiced overwhelming support for a $15-an-hour minimum. This is how other cities like Washington and Tacoma, Washington, that eventually passed an increased minimum wage, began their efforts. However, Philadelphia workers, advocates and coalitions in the city have yet to effectively rally around this issue.

If the local business community were to mobilize, they would likely sway state policymakers to act. The Philadelphia Department of Commerce has been a vocal supporter to date.

Another potential boon is the recent budget address in February 2024 from Pennsylvania Gov. Josh Shapiro, whose push for $15 an hour was met with a standing ovation. Still, despite the applause, there remains pushback from Senate members who say it will hurt small-business owners. This has been consistently debunked by economists and researchers. State Democrats also say they are willing to create tax credits for small businesses to ease the burden it may cause.