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Social Security faces a double-barreled challenge. Benefits are grossly inadequate, and yet the system faces a shortfall in its trust funds projected to hit sometime in the 2040s, depending on your assumptions of economic growth and wage growth.
Social Security is funded by payroll taxes on worker earnings. The entire shortfall is the result of wages failing to keep pace with productivity growth since about 1973.
According to data and a graph made famous by the Economic Policy Institute, median wages and growth in the economy’s productivity rose in lockstep from 1948 to 1979, and have widely diverged ever since. Since 1979, productivity has grown by 69.6 percent but hourly pay only by 11.6 percent.
With a $15 minimum wage, EPI projects annual wage gains of $107 billion. That in turn would increase payroll tax receipts by $13 billion a year, or over $200 billion between now and 2040. That’s not enough to plug the entire Social Security shortfall, but it’s not chump change either.
The indirect impact of a minimum-wage hike would spill over into faster GDP growth, tighter labor markets, and higher wages elsewhere. That would also be good for Social Security tax receipts.
We do need to find other revenue sources to combine Social Security solvency with adequacy of benefits, which are far too low. But a $15 minimum wage would be a great place to start.
