Minimum Wage Increase Would Help Sluggish Economy, Say Experts
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WASHINGTON -- A group of economists made the case on Tuesday for raising the federal and state minimum wages across the country as a way to boost the stagnant economy and improve the standard of living among low-wage earners.
Backed by what they described as 15 years' worth of research, a panel at progressive think tank the Center for American Progress (CAP) argued that higher minimum wages flush more money into the economy without cutting into job growth -- the latter a long-held contention of business interests and many conservatives.
Michael Reich, an economics professor and director of the Institute for Research on Labor and Employment at the University of California, Berkeley, said his research has shown that businesses don't suffer from having to dish out slightly higher wages to their lowest-paid employees. In fact, he argued there are benefits to employers.
"The labor market absorbs the minimum wage," said Reich. "Turnover goes way down when there's a minimum-wage increase. Employees -- when they stay longer, they'll be more experienced and more productive. And the employers will have lower turnover costs."
The economists made their argument at a time when the American economy remains stubbornly sluggish. On Friday, the federal government released a disappointing report showing that the economy hasn't been adding jobs at the pace it needs to for a robust recovery. The unemployment rate has risen to 9.1 percent, and many experts believe it will be several years before it drops to pre-recession levels. Many of the jobs being added also happen to be lower-wage positions.
The current federal minimum wage is $7.25, or about $15,000 a year for a full-time worker. The minimum wage had been stuck at $5.15 for over 10 years until 2007, when a series of increases were put into effect. Seventeen states currently have a minimum wage set higher than the federal standard, and a number of states are considering giving their lowest-paid workers another raise.
The economists arguing for a minimum-wage boost compared it to stimulus action, saying that it pumps money into local economies and can even lead to job growth. Such an increase is like food stamps or unemployment benefits in that the recipients, who tend to be low-wage workers and their family members, usually have to spend the money rather than sock it away.
Heidi Shierholz, an economist at the left-leaning Economic Policy Institute, said it's one way to shift money from corporate profits -- which companies often sit on -- to low-income workers, who can do more immediate spending.
"When you get an increase in the minimum wage, you're getting a wage increase to the people that are low-wage families who depend on these earnings to make ends meet," said Shierholz. "They have no choice but to spend that money in their local economy. That's the stimulus you get."
Still, despite a growing body of research extolling the benefits of higher minimum wages, it can be politically tricky to bring such increases to pass. The U.S. Chamber of Commerce, along with myriad restaurant and retail trade groups, generally opposes raising the minimum wage or enacting cost-of-living adjustments, which tie the wage to inflation.
Even though there were a raft of minimum wage raises on the state level a few years ago, some of them have recently been assaulted as small business job killers. This year, Missouri Republicans tried and failed to cap their state's minimum wage. A Florida federal judge ruled in May that a state agency there had been illegally suppressing its own minimum wage. And business interests in Maine have been lobbying for the creation of a "training wage" that would let companies pay teenagers less than the state minimum.
Yet public opinion polls consistently show that voters like seeing the minimum wage raised, said Celinda Lake, president of polling firm Lake Research Partners. "When we've done public polls, anywhere from 86 to 67 percent say they support an increase in the minimum wage," Lake said at the CAP event. "A solid majority of voters believe that raising the minimum wage will help the economy."
About 1.8 million of the country's 73 million hourly-wage earners were making the federal minimum during 2010. Another 2.5 million made even less than that, according to the Bureau of Labor Statistics. These minimum wage earners tend to be younger. Workers under age 25 account for roughly half of those making the minimum wage or less.
According to Shierholz, jacking the federal minimum wage from $7.25 to $8.25 would give a raise to 10 million workers, including many currently earning their state minimum wage. That could ultimately pump as much as $9 billion into the economy, she said. "At a time like this, there is nothing else putting upward pressure on wages."
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First Posted: 06/07/11 04:01 PM ET Updated: 08/07/11 06:12 AM ET