How Raising the Minimum Wage Would Help the Economy

Gabrielle Karol

Jobs, jobs, jobs: If there’s been one theme of the 2012 election, it’s been employment. And for the first time since 2008, some significant progress has been made: The unemployment rate is currently 7.8%, the lowest it’s been since President Obama took office.

But not all jobs are created equal. While 60% of job losses since the recession have been mid-wage positions, 58% of the growth has been in low-wage jobs. Many of these added positions pay the minimum wage, or little more than the minimum wage.

In light of the growing population of low-wage earners and the ongoing discussion of income inequality in the United States (the 99% vs. 1%, or the 47% vs. 53%), LearnVest wanted to take a closer look at the current minimum wage in the United States.

RELATED: Why Half of Americans Don’t Pay Federal Income Tax

In fact, this summer, the Fair Minimum Wage Act was introduced in Congress to raise the minimum wage from $7.25 to $9.80 and index it to inflation, making it a current political issue. Though the bill is currently sitting with a committee awaiting further action, if it passes, it could significantly change millions of Americans’ answer to the question: Are you better off than you were four years ago?

The State of Minimum Wage

The first minimum wage law was passed in 1938, guaranteeing workers at least 25 cents an hour (woo!). The heyday of the minimum wage was in the late 1960′s, when the wage was high enough relative to the cost of living to provide a secure income. Since then, it’s risen slowly but surely to $7.25 an hour, which adds up to $15,080 a year for full-time employees.

While the dollar amount has increased over time, the real value has not—it has declined by 30% since 1968, because over the years, the minimum wage has not kept pace with inflation, which is the increase in the general cost of goods and services over time. That means workers aren’t getting as much bang for their buck, so to speak. (Find out why inflation is expected to rise very soon.)

The yearly $15,080 made by a full-time minimum-wage worker, who typically works in retail or food preparation, or as a personal and home care aide, office clerk, customer service rep, waiter/waitress or construction laborer, is below the poverty level for a two-person household. And for tipped workers, the minimum wage is even lower—a measly $2.13 an hour.

While the minimum wage barely provides a solid living as is, studies have shown that workers earning the minimum are actually being underpaid by their employers. A 2008 study of low-wage workers in Chicago, Los Angeles and New York showed that 26% were paid less than the minimum wage, 70% worked off the clock before or after their shift and 76% were underpaid for overtime hours. All told, this resulted in an average loss of $2,634 in earnings for these workers. (Find out what your hour is worth.)

Proponents of the Fair Minimum Wage Act argue that raising the minimum wage to $9.80, and then “indexing” it to inflation so it rises at the same rate would help ensure that these low-wage earners would take home enough salary to live on and pay for basic goods and services. But would it?

Reasons for Raising the Minimum Wage

1. The minimum wage is below the living wage, exacerbating poverty in the United States.

A living wage ensures that a worker can pay for basic necessities like housing, food, transportation to work and health care. A common definition states that the living wage should be high enough that no more than 30% of take-home pay needs to be spent on housing. (Learn how to set up your budget according to the 50/20/30 Rule.)

But full-time employees being paid the current minimum wage will have incomes below the living wage in most areas of the country. In dollar terms, that means that if you are a full-time worker supporting a family of four on the current minimum wage, your household income is $7,000 below the poverty line. Proponents of raising the minimum wage to a living wage argue that doing so would give workers and their families a better chance of climbing out of debt and poverty. (Find out why the U.S. has less class mobility than Canada or Britain.)

As an increasing number of workers take on low-wage jobs, poverty in the United States has increased: In 2005, 12.6% of Americans were living in poverty, compared to 15.7% this year (almost 50 million citizens)–the highest rate of poverty since 1965. Raising the minimum wage to a living wage would hopefully help to reverse this trend.

2. A higher minimum wage means more consumer spending overall.

Higher wages don’t just benefit the individual earner, they also help the economy at large by increasing consumer spending. One 2011 study by the Chicago Federal Reserve Bank showed that every dollar added to the hourly minimum wage resulted in $2,800 in yearly additional consumer spending by that worker’s household.

Additionally, a 2009 study from the Economic Policy Institute predicted that upping the minimum wage to $9.50 an hour would result in $60 billion in additional spending over two years. Furthermore, this additional consumer spending would lead to more job creation—an estimated 100,000 new full-time jobs.

RELATED: Which Helps the Economy More: Saving or Spending?

3. Workers making more than the minimum wage would also see their earnings increase.

Many workers who earn more than the minimum wage—28 million, in fact—would also see their earnings increase as a result of raising the minimum wage, says the Economic Policy Institute. Why? The minimum wage is seen as the base number from which their wages are calculated, so if that number is raised, their earnings will increase accordingly … which will lead to even more consumer spending. (Find out why employers are likely to be stingy with raises in 2013.)

Is There a Good Reason Not to Raise the Minimum Wage?

With all the seeming benefits to raising the minimum wage, is there a compelling reason not to raise it, at the very least to a living wage? And why shouldn’t it be indexed to inflation?

Those opposed to raising it often argue that doing so will put too great a strain on employers concerned with keeping costs down, which will ultimately lead to companies being forced to slash jobs to stay afloat. However, economists like Arindrajit Dube of the University of Massachusetts-Amherst showed that over a 16-year period, areas that raised the minimum wage did not see more employment loss than comparable areas with lower minimum wages.

Additionally, two-thirds of the low-wage workers in the United States work for large companies with 100 or more employees who are more able to absorb the higher cost of hourly wages, as opposed to small mom-and-pop operations. Looking at the 50 largest employers of low-wage workers (companies like Wal-Mart, KFC and McDonald’s), more than 90% were profitable last year, meaning that they are unlikely to be in a position where raising the minimum wage to a living wage would significantly affect their ability to retain the same number of employees. (Find out how McDonald’s is turning “unhealthy” foods into a healthy stock price.)

RELATED: 29 Million Jobs Available Not Requiring a College Degree

So, Will the Bill Pass?

While over 100 Democrats helped to introduce the bill in the House of Representatives during the summer to raise the minimum wage, most Republicans will likely argue that the fragile economy prohibits such a drastic change to the minimum wage. Though President Obama campaigned in 2008 on the promise to raise the minimum wage, he has not been active in that fight in some time, and in March, Mitt Romney retracted comments he had made as recently as January saying that he would like to see the minimum wage indexed to inflation.

Despite the likely political standstill on the minimum wage issue, recent polls have shown that 70% of Americans support raising the minimum wage and believe that doing so has the power to help the economy in these uncertain times.

What do you think? Should the minimum wage be increased? Let us know in the comments.

  • Anne C

    Raising minimum wage sounds nice. Who doesn’t want people to get paid more and be able to support their families. But that’s a drastic jump. Even if it wouldn’t make larger companies cut jobs, retailers would have to cut hours for everyone on staff to keep payroll in check. It does need to be adjusted more often and needs a bump now, but a raise of 20% overnight is a big jump for employers to work around.

    • Beccaod

      I agree, it would be better to have some bill that helped add jobs which is in my opinion a bigger issue.

      • Karl Mullen

        And, btw, as most analysis show, turns out you pump money into the economy and jobs increase.  Pump money into the hands of the investor class and…caviar costs go up. Which is more useful to the nation? Jobs for Americans or profits for those few products that cater to the elite?

    • Karl Mullen

      OK, seriously, how many people here think that McDonald’s keeps a bunch of workers they don’t need working just because wages are so low? No one? Really? OK, so then why do we think that raising minimum wage a bit would make it so that McDonald’s suddenly starts dramatically understaffing, increasing wait times and essentially giving up on being a profitable corporation rather than simply increasing their prices the roughly 3-4% required to offset the increase in wages? I’d much rather allow the corporations to pay living wages to their workers rather than having us taxpayers subsidize slightly cheaper burgers in the form of food stamps, section 8 housing, medicare/caid, etc.  These companies will not cut a single hour if minimum wage is increased simply because they already do not allow a single wasted hour.  It would just be bad business. 

    • Silvester

      There’s a good chance they will cut hours, but that would force them to hire new people to fill the potential gaps…
      In my opinion, small employers would more likely have to raise prices to offset the increase in labor/payroll. The statement that large companies are the primary employer of most minimum wagers is not entirely accurate – many fast-food restaurants are privately owned franchises that are not going to be covered by the corporate profit pool, and even the corporations that are not franchised out typically have public stocks and the board of directors are not going to accept a lower profit because of higher labor costs, they will insist on raising prices.

      • Dicono1

        What are talking about these guys are Millionaires they have to be the friggin game is rigged so that only the rich get richer AND the working poor stay POOR. Think about it how many little guys are around in ANY business

  • mstraka

    Definitely!!!!!! That’s a no-brainer! Again, the Republicans are throwing a wrench into gears, but President Obama needs to become active again in the pursuit of this issue!!!!

    • LeAnne

      It’s only a no-brainer for those with no brains.  If you take the issue at face value, of course it sounds great.  There are huge fiscal implications that go along with raising the minimum wage.

      • Megan

        Like what? It would impact small employers the most, but very small employers are exempt from minimum wage requirements and can adjust at their own pace rather than being drowned with such a huge increase. So beyond middle-sized employers who have to increase but might get hurt financially in doing so, who else gets hurt here?

        • LeAnne

          Every single person who would not see a raise in income because of this (based on the article, that would be approximately 76% of working Americans).  When minimum wage rises, so does inflation.  According to this bill, the only people protected from inflation would be minimum wage earners, so everyone else would see a hit.

          • Sher1x

            Inflation is caused by increasing hte money supply (printing money), not raising the minimum wage.  Raising the minimum wage increases unemployment and poverty.

          • Rlmcdan

            but actual prices rise as employers figure labor costs into end prices. 

          • Sher1x

            Three responses:
            1. if prices rise too high they will prices themselves out of the market.
            2. Stable $ supply – Prices rise in one area, they must fall in another.
            3. If MW is good, then put it at $100/hour, that would be better than $10.00.  Think of all the jobs and wealth we’d create…

          • Megan K

            No it doesn’t. Raising the minimum wage in no way increases unemployment. If it’s raised, employers aren’t placed at a competitive disadvantage, as all companies in their field are
            required to do the same, therefore they have no reason to fire employees. In fact, research suggests it will create 100,000 jobs.

        • Bgbrix3

          Cite the source for your comment that very small business owners are exempt from min wage rates and can adjust at their own pace, please.

    • nc-dave

      Sorry  he has more important thing to do, you know things like the,View, late night TV, and various other talk shows. Besides these people can’t donate millions to his re-election fund

  • Suejack13

    The minimum wage is for teens, other young people, and retirees.  It’s not intended to be a “living wage”. Typically, in the past, when adult immigrants arrived here, they were often forced to take minimum wage jobs frequently due to the language barrier.  Those immigrants worked their way up, but frequently needed to have two or more minimum wage jobs for a while.  They didn’t expect to have a 3 bedroom, 2.5 bath house right away.  They eventually bought 2 or 3 family houses where the rents would help with the mortgage.  What’s different now?

    • Katie

       Well, one thing that’s different is that there are plenty of college graduates working minimum wage jobs, and they actually do have to *live* on their income from those jobs.

      • nc-dave

        If you go to school to study subject that are not marketable ,then you have nothing to market, therefor no job. 

        • Megan

          Even if you go to school for a marketable degree and do everything you’re “supposed” to do after graduation to find a job, there’s no telling how long it might take you these days.  You’re competing for the same jobs with people who’ve been laid off and have 10-20 years of experience.  And often, businesses are hiring temporary or seasonal employees (these wages would be influenced dramatically by a minimum wage increase) over permanent employees because there’s so much less risk involved and the market still isn’t very confident.  My point being, there’s a large population of college graduates, like Katie said, who are working minimum wage jobs and trying to pay off student loans (the cost of getting a “marketable” degree) and have no guarantee they’ll see a permanent position any time soon.

          • Guest

            None of my friends or family who received a marketable degree have been working a minimum wage job.  In fact, when the economy slowed down, several were laid off and were able to find work in their field within a reasonable time frame.   I am employed full time, teach part time for a local university, and have my own sole proprietorship.  There are headhunters calling me on a regular basis to try to fill slots with someone with my qualifications.

            I think you may just not be clear on which degrees are actually marketable. 

      • LeAnne

         Yes, one thing that is different is that there are plenty of people getting themselves in huge debt to get a degree that doesn’t make them qualified for anything higher than a minimum wage job. 

      • Pray2fly

        Increased minimum wage is a disincentive.

        I keep hearing about how the country can’t fill hi tech. jobs that Oboma keeps touting. Then I hear that college graduates need an increase in the minimum wage so that they can have a livable wage.

        I don’t understand did you go to college to learn something that will put bread on the table. Or consider that a Liberal Arts degree  might not be relevant  in today’s hi tech. economy.

         I’m sure that the immigrant parent working two jobs to put their children through college expects more of their children than a minimum wage job. From personal experience; I’m sure that kid busting their tail to put themselves through college isn’t waiting for someone to give them anything. If you aren’t satisfied with your economic status it is up to you to make a change. 

        An employer is interested in finding the person  best suited to the job, that may the person with engineering degree but it might also be the person who has worked to learn the job by coming up through the ranks “on the job training”.

        No body owes you anything. If you want something out of life it is up to you.
        Educate yourself, move to where the work is and sometimes it means working at a job for minimum wage while you better yourself.

        If you settle fora  minimal wage life, who made that choice?

    • kennonmarie

      Generations of entitled “young adults” who expect to waltz right into the standard of living they’re expected to living. Stossel had something a while ago on the unintended consequences of increasing the minimum wage… Came to mind when I was reading this article.

    • Erin Uncapher

      You must live in a bubble to think that only teens, young people, and retirees making minimum wage.  I have crawled out of the minimum wage pool and now do pretty well, but most of my relatives and a lot of the people I graduated high school with (who have college degrees) have only been able to get minimum wage jobs.  

      • LeAnne

        Those you graduated high school with who got a degree that won’t get them better than a minimum wage job could have instead worked a minimum wage job as a teenager and would be making higher than minimum wage by now.  If someone wants to defer working so that they can get a degree for fun, then they would fall into the “teens and young people” category for which minimum wage exists.

      • RK

         Historically, it has predominately been teens and retirees – so no one is living in a bubble. Making an economic decision with long-standing economic consequences purely off of the current situation is exactly how we got into this mess.

        • Susan Lamoureux

          Historically, sure its been teens & retirees. But that is not the current situation. At this pace, we wont be going back to that historical trend

    • Susan Lamoureux

      I agree with Katie. Unfortunately those who work min wage jobs now are not just immigrants, teens and young people. College grads taking min wage jobs is a definite hardship and also prevent college grads from being able to pay their students loans and living costs.

  • Caitlin

    Minimum wage for the state of Georgia is a scary $5.15. Because of that, a LOT of people are under payed for the jobs they are doing, and I’m not just speaking about retail and service industries; Atlanta is especially the worst. It completely baffles me, so yes I really do believe we should raise minimum wage. 

    ALSO, minimum wage jobs are NOT just for teenagers, young people and retirees, @208bcc8e9f1bfe637b67f2a1618766dc:disqus . A LOT of people are relying on multiple part-time minimum wage jobs to keep their head afloat due to lack of other jobs, or being unemployed, myself included. Yes, it’s not ideal, but it’s better than sitting on your butt collecting government money and not making ANY effort whatsoever to be a contributing member of society. 

    • beachbug1

      Federal law is $7.25 an hour Min Wage, and all states have to comply.   That changed in early 2007 when the Dems took over both the House and at that time the Unemployment rate was 4.6%.  As soon as they forced employers to raise it, we started losing jobs like crazy and the rTE WAS 8.3% when Obama became Pres.  See what 2 years of forcing employers to pay more did!    That’s bull about GA!

      • Michelle

         Georgia ONLY has to pay $5.15 an hr and not even that if less than 6 employee’s…it’s bs.

      • Michelle

      • Michelle

    • beachbug1

      I meant “when the Dems took over both the US House and the US Senate.”

  • Erin Uncapher

    I think it’s a great idea to increase minimum wage!  However, I think it needs to be done in steps.  $0.25 every 6-months or every year.  Not a drastic $2.00 jump overnight.  Companies will be able to absorb the increase over time and adjust their budgets accordingly. 

    I think if you keep it at the low amount, it will discourage those that work and they’ll decide to not work and just get government hand outs because they end up benefiting more than busting their buns at work every day.

    • kennonmarie

      Perhaps that says more about the inefficiency of government handouts rather than the necessity to increase the minimum wage…? 

    • nc-dave

      How about ending government handouts, require workfair rather than welfare, you want a check pickup the roads, work for habitat for humanity, be a teachers aid, a school bus monitor. clean up the parks

      • Erin Uncapher

        I think that’s an awesome idea!

      • lin

         So, this was the basic premise behind welfare reform in the mid-90′s under Clinton.  As a result welfare (more accurately, TANF) caseloads fell by 60%. However, the percentage of people in deep poverty rose steadily over the past 16 years.

        The fact is when the reform was implemented in the late 90′s, the rate of employment did increase among recipients – however, these gains have been eroded as the economy declined since the financial crisis.

        Today, an increasing number of households are disconnected from both aid and from work.

        Personally, I believe that workfare, as you call it, is a nice idea in theory, but won’t work unless there are actual jobs paying a living wage that one can get after going through a workfare training program. The fact is, jobs are limited and are growing fastest in the service oriented sector – you know, the jobs that don’t provide full time hours, pay 10 bucks and hour and provide NO sick pay and no health benefits.

    • LeAnne

       Do you understand how companies are able to absorb the increase over time?  They either cut costs in other ways (such as decreasing the hours of employees) or increase prices. 

      Increasing the minimum will not encourage those who would prefer a hand out, and it will discourage those who work hard to make more than minimum wage.

  • kennonmarie

    Point #3, which says even if you’re making more than the minimum wage you too will see an increase in wage…I have never found that to be true. Ultimately, an increase in the minimum wage makes me feel as though my wage means less than it did before. 

    • LeAnne

      This is very true.  They’re saying that 20% of Americans will possibly see an increase in wage, but this would not be indexed to the inflation rate.  What’s more is that the 73% of Americans who will see no increase related to this will pay more for everything because of the inevitable inflation. 

    • Ron

       You’re so right.  Not initially. Salaried employees see the increase in salaries as a result of inflation.  Salaried employees are not matched to the minimum wage, at all.

  • nc-dave

    A couple of points. Wages are the largest expense to companies that employ these minimum wage workers. When you increase the cost of labor the first thing that’s going to happen is the workers will face a cut in the amount of hours they are allowed to work. Here is how that works. Company’s have an amount of hours that grant status to workers as full time, 28-32 as an example. Full time people will be cut to that level required to maintain full time status.Also, full time workers who experience problems with being to work on time, taking time off will not maintain the necessary hours required for full time status and if not terminated ,re-classified to part time status.Part timer will also have their hours reduced to meet wage cost requirements. Fewer people will be hired for the same reason. The increased labor cost, to the company, will also be  passed through to the customer  as the company raises prices to cover additional labor cost and provide reasonable customer service,

  • LeAnne

    LOL.  It surprise me that so many people don’t understand how money works.  The author makes the point that 28M workers making above minimum wage will see an increase in pay.  What about everyone else?  People who have worked hard to earn more than minimum wage will not automatically see an increase in wages.  They WILL however see an increase in the cost of living.  Every time the minimum wage is increased, inflation happens. 

    All raising the minimum wage will do is decrease the standard of living for 73% of Americans.

    • nc-dave

      It seems everybody wants something for nothing. Read an interesting article yesterday, actually an open letter to BHO, ,the writer who did make it happen , noted that the number of people who just do the lest amount they can to keep their job. These folks stated that if you paid me more I would do more. It has been my experience that they do not increase productive. Up-ing the minimum wage will only cost us more. they lazy will remain just that. 

      • LeAnne

         While I don’t believe that all people on minimum wage are lazy, many of the hard working people who started on minimum wage have worked there way up into making more.  If the minimum wage is upped, the majority of these people who have finally started making higher than minimum wage will now make minimum wage!

    • Ron

       Yes! Well said!

    • TGRohr

      So tell me, what would increase the standard of living ?

      • LeAnne

        Cutting frivolous government spending and allowing Americans to make their own choices with the fruits of their labor would help increase the standard of living for those who put in to the system more than they take out.

      • nuwriter

        Getting government interference out of the economy, and having the standard of living be increased the only way it can be – by having a more productive economy through capital investment.

        Capital investment (tools, machines, etc) makes each worker more productive, and drives up their marginal product. 

  • Ron

    It seems this topic always seems to come up when things are rough in the economy, and when it does, it invariably hear the comment “raising the minimum wage is like putting a cheap dress on a pig.” Somehow, dressing the pig makes it look better, but at the end of the day, you still have a pig – the pig being a metaphor of the initial problem.

    First off, raising the minimum wages means taking the money from somewhere.  Naturally, that somewhere is the balance sheet of the employer.  This increase faces difficultly both from small and large businesses, with the small business being disproportionately affected given they lack the economies of scale that large businesses enjoy.  Invariably, we see this spike in living wages, and as you’ve point out, the worker spends more.

    So at the onset, it looks great.  At the onset, you get a wealth effect that initially is positive; just like a jolt of sugar to the economy.  But that’s it…why?  Because labor costs are sticky, meaning they don’t go down (people only get fired, they don’t negotiate down their pay).

    The increases expenditure on labor can come from two places: revenues or profit.  If it comes from revenues, the result with a rise in the minimum wage results in layoffs.  Historically, we generally don’t see this happen.  So the money comes from profits.

    This invariably means prices go up – they have to. Invariably the business goes out of business – even with the increased consumer spending.

    This is why this rationale doesn’t work, after about 6 to 9 months the worker is right back to where they started from.  And who hurts the most from this?  The worker and the saver (the saver being those in the economy living off of savings and/or fixed income, like seniors and retirees).

    I’ve heard this issue being compared against the 1968 minimum wage and standard of living thereunto pertaining.  That is blatantly deceptive and morbidly incompetent.  In 1968, the inflation rate was far tamer than now, as the US dollar was backed by 1/35 of gold.  So, inflation was capped.  Nixon took us off of that standard, making the US dollar a 100% fiat currency.  Since then, inflation has been on a steady march upward.  Therefore, this comparison is NOT an apples to apples comparison and is disgusting to see someone pull that off.

    If you want to see what happens with economic populism, take a look at Latin America during the 1980s.

    • LeAnne

       Oh yeah!  The author doesn’t even mention what the increase in minimum wage will do to retirees!   The inflation will be unbearable to them!!

  • Susan Lamoureux

    Or perhaps the culture we live in and/or the government doesnt deem it marketable. Now that’s an issue. Changing what can become marketable

    • LeAnne

       Any degree can be marketable if the person who holds it is marketable.  However, if that person is marketable and driven, typically they do not need the degree to succeed. 

      Also, the need for a job to be done does not depend on who wants to do that job.  The reason why so many college grads are unemployed is that it is great fun to major in basket-weaving (or journalism or whatever), but the world only needs a finite number of basket weavers (or journalists or whatever).  If everyone was paid to do a job they really wanted to do, who would collect the trash?

  • Emily

    The group of people not being addressed in the comments or article here is the under-the-table workers who accept less than minimum wage in order to have a job that pays something.  Will that group increase significantly (and therefore will tax revenue decrease?) if more small/independent “employers” cannot afford to pay a higher minimum wage?

  • TGRohr

    Of course the minimum wage should be increased. All the talk about education, most people still aren’t getting jobs in their field. What stinks, you maybe told like of EXPERIENCE. So tell me, how can I advance myself without the OPPORTUNITY. 
    Experience comes with Job Opportunity does it not.

  • Marc Neermann

    Another noble but clueless idea!!!  First if you have a marketable skill you don’t make minimum wage.  If you don’t want to make minimum wage improve yourself so you don’t have to!

    This is nothing more than a tax on businesses and businesses don’t pay taxes!!!  They pass the cost of taxes on to the consumer in the price of the product.  Oh sorry there is one exception and this company is very friendly with this administration and that’s General Electric.  Not only do they pass the cost of taxes on to the end user but they don’t pay any taxes at all.

    This will hurt the people that it’s meant to help the most.  It would increase prices across that the board so everything would get more expensive.  It would drive wages up on everyone.  That person that’s making $10.00 an hour for being a better equipped employee will need to be paid more.  This will snowball up though the companies pay structure.

  • Tallywg

    Hmm, I’m not convinced of the authors argument. It seems to me that cost of domestically produced goods would increase with increased wages, which in turn would ultimately lead to less demand of domestically produced products and also less export demand. This decreased product demand would then lead to less domestic production and fewer jobs. Whereas the demand for cheaper foreign produced products (i.e.China) would increase.

  • jordanclay

    It doesn’t surprise me at all that you graduated with an English degree.   After reading the article it is obvious that you never set through the first day of an economics class.  

  • Vicvanni

    I think eliminating minimum wage would benefit America the most.  We might actually start creating jobs again, rather than losing them to oversees locations.  Sure the short term adjustment would be painful, but ultimately, the relative cost of living would be forced to adjust downward.  By increasing minimum wage, we lose jobs and the cost of living is driven higher, it creates a short-term, false sense of security.

  • Sher1x

    A minimum wage is principally wrong and pragmatically unwise.  Such laws violate individual rights.  If person A wants to work for Person B, but Person B is only willing to pay $5 an hour, it is Person A’s right to voluntary accept or decline the wage rate.  If both agree on a wage price, it should not matter how much it is.  A third party has no authority (not even government, since our rights do not come from gov’t) tell Person A he/she cannot work for that price.  Doing so would violate his/her rights as well as the Employer. 

    Pragmatically, it will not work.  Raising the cost of labor decreases the demand for labor (law of demand).  A higher minimum wage will benefit some at the expense of others.  Fewer jobs will be available (increasing unemployment), some people deserving of raises will not get one b/c less productive workers are mandated to make more.  Businesses that cannot afford the increased costs (mom and pop or start-ups) will go out of business, the increased costs discourages new business start-ups (which means less goods and services, less competition, and thus higher prices), prices for goods and services could be raised to cover the higher minimum wage costs, etc…  The people hurt the most by such an action are actually the people that are supposed to be helped – the poor.  Less opportunity, higher prices.  If you really want to help the poor, remove obstacles to trade – reduce regulations and get the government the heck out of our lives and let us govern ourselves as was intended since 1776. 

  • Pesfls

    Actually Oregon was the first state to create a minimum wage by decree in 1914.  Currently Oregon minimum wage is second highest in the country.

  • Nick Dorsey

    I enjoyed your article and your reasoning.  It’s scary how people unthinkingly spout the Republican Chicken Little line.  I guess many did not bother  to read the  two paragraphs below.

    Those opposed to raising it often argue that doing so will put too great a strain on employers concerned with keeping costs down, which will ultimately lead to companies being forced to slash jobs to stay afloat. However, economists like Arindrajit Dube of the University of Massachusetts-Amherst showed that over a 16-year period, areas that raised the minimum wage did not see more employment loss than comparable areas with lower minimum wages.Additionally, two-thirds of the low-wage workers in the United States work for large companies with 100 or more employees who are more able to absorb the higher cost of hourly wages, as opposed to small mom-and-pop operations. Looking at the 50 largest employers of low-wage workers (companies like Wal-Mart, KFC and McDonald’s), more than 90% were profitable last year, meaning that they are unlikely to be in a position where raising the minimum wage to a living wage would significantly affect their ability to retain the same number of employeesI would only raise one objection to your article.  You mention that ” the minimum wage has gone up steadily”  It has not gone up steadily mainly through the fault of Republican obstructionism. If it had then there would not be a need to raise it to a great degree.Just look at a chart which displays the difference between the actual minimum wage and the wage in terms of  ”real ” dollars. See the times, especially the periods 1982- 1989, 1991-1995, and the unconscionable period from 1996-2006 when it did not rise at all.This was due to the Chicken Little Republicans. 

    • nuwriter

      It’s really scary that you believe any of this garbage. Then you think name calling adds anything to your argument. Here’s a hint, genius, it doesn’t. It makes you look like a child.

      Yes, some economists did that study – and then every other non-Keynesian economist correctly ripped it apart.

      The phrase ceteris paribus is the operative one here. You think you’ve disproved the economic laws of supply and demand? It’s nonsense.

      You seem to have no understanding of marginal utility, no understanding of how prices are set (hint:they mean something), and more than this, you seem to believe everything that the state apologists tell you to believe.

      Businesses do not become successful engaging in money losing transactions. That’s how they make profits, and profits are a good thing. If a worker creates $7 an hour in value, they will be paid close to, but less than $7 (completely fueled by competition for workers and employer greed). A minimum wage of $8 would not give this employee a raise, but would rather unemploy them. It might not do so right away. But in the long run, this position will be replaced in some manner.

      But the bigger issue is the unseen effect. The people who are never hired. The jobs that are never created. The experience never gained that would lead to greater productivity and income in the future.

      So yes, the Republicans are far, far from perfect, but obstructing the minimum wage is a good thing – and this obstruction is good for unskilled workers, and for consumers. 

  • nuwriter

    This is just economically dead from the neck up.

    Workers are paid nearly as much as they produce – this is due to the fact that if they are paid far less than their marginal productivity, another employer would be foolish not to hire them – and the employee has every incentive to let employers know this.

    So knowing this – which is plain, unadulterated, economic fact – we can see that raising the minimum wage above the market rate for an employee will destroy the job of the employer. If an employee is a net loss on an employer, that job will go away.

    If we are to believe that employers can pay only subsistence wages to all of their employees, than more than 5% of all employees should be making just minimum wage. But they aren’t. 

    Who is affected by minimum wage laws?

    The lowest skilled workers. Those who have just entered the work-force. Those who have had poor educations. These are people who need skills. Most of them are young people looking for a first job. And this is what is prevented by the minimum wage. This is why teenage unemployment is so high, and why it remains high in the low 20′s.

    The minimum wage does not serve as a boost to the wages of low-skill workers, but rather a hurdle that they must clear or not be hired. This arrangement was created by unions to keep competition out, and artificially raise wages – but it did so at the expense of productivity (which hurts the entire economy), and at the expense of the lowest-skilled workers. Those workers cannot now gain the skills they need to get better paying jobs. 

    The best analogy is that the minimum wage cuts out the bottom rungs on the employment ladder. You complain about wealth differentials, then push a policy that was designed from the outset to do just that.

    The results are hardly surprising. Low skilled workers, whom people like the author pretend to care about, are hurt by bills like this. They were designed to do just that. They never get the job skills needed to competed with established workers.

    Supply and demand set prices. When politicians try to set prices (of oil, food, or yes, labor), disaster ensues.

    As for the rest of your arguments, they’re just foolish and poorly thought out. 

    Raising the minimum wage does not lead to an increase in productivity. Just the opposite in fact.

    This comes from the fallacy that spending and not investment leads to greater wealth and prosperity. This is an obvious fallacy. Take away all the machines from our daily lives – how productive would we be? How many people would it take to do the work of one person?

    Now, lets see if raising the minimum wage arbitrarily would have a positive effect. If raising it to $9.50/hr is good, wouldn’t raising it to $100/hr be better? The effect becomes clearer in a reductio ad absurdum.

    Please Gabrielle, go back to the drawing board and study a real economist. Start with Henry Hazlitt’s “Economics in One Lesson”, or Frederic Bastiat’s “The Law.”

    Because what you’ve got here is rubbish.

  • R. E. Tomak

    Minimum wage jobs are not meant for people supporting a family but as job entry positions.  Check out employees working for minimum wage or slightly above.  Many are not even worth this minimum wage.  Hardly any education, can’t even speak english correctly, dressed and looking like they were camping, body piercing, tatoos and the like.  Clean up, wear clean clothes, practice good hygine, show up for work on time, don’t take days off and act like a respectable citizen and then you can work for better wages.

  • Dianna Connatser

    Minimum wage doesn’t pay the bills, or put food on the table. We have more poverty here in the USA because wages are not keeping up with the cost of living. Now we have more people on welfare and living in poverty.

  • Wright15

    Employers add jobs by hiring more people. Our economy is in the position it’s in because employers hire people but they hired them for minimum-wage jobs. Which shouldn’t be an issue but if minimum-wage is keeping people at a poverty line then that’s where the issue draws. I believe indexing minimum-wage to inflation will keep employers responsible for giving their employees proper payment, as we know many employers will just ship jobs overseas to get the cheapest wage workers they can find. The true problem in America is not lack of jobs but lack of high-paying jobs or better yet decent paying jobs that don’t keep you at poverty if we increase the minimum wage and index it to inflation this will revive the middle class and hold our employers responsible and sent a message that this nation is not supportive of poverty labor

  • Dicono1

    Corporations earned over $800 BILLION last because they pay slave wages! Raise the min. to $12 per hr. Let us eat steak!

  • Dicono1

    Any argument against raising is typical repub lies. This economy is in the trouble it is in because (1) manufacturing was allowed off shore so that the rich could get richer period! (2) taxes were lowered so that the rich could keep more of their blood money and America is suffering and they do not care !

  • Strmchaser2

    It isnt going to increase spending! it only takes the same amount of money that is in the system and re-distributes it. It will just create more lay offs and push more more out of business. The unemployment lines will grow. Or .. Industry will flourish, investors will make more amd do so at the expense of what is more valuable than money, the earths naturall resources.

  • Strmchaser2

    Inflation, the Wealthy have built their life styles around making a certain amount of money.. When money leaves their pocket, they just raise the rates to compensate for the difference, they’ll cut jobs, squeeze the work of two out of one, they’ll do anything to keep their status. And don’t think your not going to have to work harder for that extra buck while the wealthy will sit back back sipping on a sangria while everyone else is running around like chickens with their heads cut off. Nothing is free! Except for buy one get one free..and there is a marketing ploy behind that too!

  • Janetsd14

    They need to make allowances for small(less then 50 employees). We are a franchise business, have to adhere to advertised specials(ie 5.99 for a 2 topping pizza(you have to buy two) or the $1.00 menu). So the our bottom line goes down even more with a rise–not going to be able to raise the rate. We can’t always raise our prices. Remember that many of our fast food McDonald’s, Domino’s, Taco Bell are owned by franchisees who may only have one store so they are not as able to absorb the cost of raising labor costs. All franchisees pay a franchisee fee and that is off the top line so yeah all of them are showing increases–on the backs of the franchisees!!!!

  • Steve DiGioia

    “Earn More Tips On Your Very Next Shift…Even If You’re a Bad Waiter” – The Book, is available on Amazon.

  • Stopher

    60% of job losses since the recession have been mid-wage positions, over 58% of
    the growth has been in low-wage jobs.” I am curious the source on that.

  • Diane Fleming

    Yes.. minimum wage should be increased to at least $10/hr.. that is still hard for a single person to live on – but is manageable! If that happens though, the people already making $15 or so an hour – should also be increased the same amount – so lets say $7.25/hr goes to $10.. then the people making $15 should go to $18.00… but have a cap on it for the WEALTHY – they do NOT NEED TO MAKE any more money or increase their pay – they can’t take it with them and the money needs to be more spread out evenly! Professional athletes don’t need to make millions a year.. Celebrities don’t need to make $20 million per movie! just ridiculous!

  • Vern

    If they raise minimum wage together maybe Republicans can get something on their agenda such as tax cuts or entitlement cuts. But then agian anything to help the poor is not on their agenda. But once they loose their last base which is the rural poor and lower middle class im sure they will start to kiss the ass of the rest of America. Not just the 1 percent

  • Justin z

    So what your saying is larger companies will benefit from raising minimum wage as it would cause a strain on privately owned business giving larger companies a greater share of the market.

  • mr johnson

    the minimum wage is so low in america that if i had a choice between death by firing squad or to work for minimum wage i would pick death by firing squad.raise the minimum wage because no working person should be in poverty.

  • Guest User

    This article is very helpful! I am writing a report on minimum wage right now, and it’s very difficult to understand some of the language found in law journals. This explained to me much of what I needed to know.