Raising the minimum wage wouldn’t cripple job growth and hurt businesses like some conservative groups have argued, according to a new study. To the contrary, it could pump money into the economy and reduce turnover in low-wage positions, the researchers found.
The current federal minimum wage is $7.25, or about $15,000 a year for a full-time job. Until 2007, the minimum wage had been set at $5.15 for over 10 years. Seventeen states currently have a minimum wage set higher than the federal standard, and a number of states are considering giving their standards another boost. The food and retail industries often fight such hikes, arguing that higher wages discourage growth, particularly in down economies.
Sylvia Allegretto, an economist at the University of California-Berkeley and the study’s lead author, believes those concerns are unfounded.
“A lot of people say we can’t increase the minimum wage during recessions because it’ll have this big negative effect,” said Allegretto, whose study was published in the journal Industrial Relations. “We didn’t find that -- in general, or when there were recessions.”
Researchers, who focused specifically on teen employment, looked at every federal and state minimum-wage raise over the last twenty years, including during the recession from 2007 to 2009, and found that the effects of wage raises on job growth and unemployment didn’t change with the business cycle. Allegretto said a lot of the benefits of higher minimum wages tend to be overlooked -- like higher morale and productivity, and less time spent searching for workers and training them.
Advocates of a minimum-wage boost often argue that the extra income for workers functions a lot like unemployment benefits or food stamps, in that it’s money pumped immediately back into local businesses. Jen Kern, who runs the minimum wage campaign at the National Employment Law Project, says a wage hike “could provide a boost to families and the economy, putting money into the hands of people who have no choice but to spend it.”
According to the Bureau of Labor Statistics, 1.8 million of the country’s 73 million hourly-paid workers were earning the federal minimum wage during 2010, with another 2.5 million earning even less than that. Minimum-wage earners tend to skew young, with workers under age 25 accounting for roughly half of those making the minimum wage or less.
Kern says if the minimum wage had kept pace with inflation since it’s peak in the 1970’s it would now be over $10. A survey conducted last year by the Public Religion Research Institute found that roughly two-thirds of Americans supported raising the federal minimum wage to at least $10 per hour.