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It’s that time of the year again, folks — time for political parties to push their agendas at you. Last Saturday, President Obama once again advocated for raising the federal minimum wage, echoing Democratic proposals that aim to raise the current minimum wage of $7.25 to up to $10.10 per hour by 2016. The president said a wage raise would help reduce worker turnover, increase worker productivity and give people more money to spend at local businesses. But the opposition argues that raising the minimum wage will negatively affect employment levels, causing more people to lose their jobs. The question is: who’s right?
What’s the problem with the current federal minimum wage?
Right now, the federal minimum wage is $7.25, which means that workers who don’t get tips must be paid at least those $7.25 per hour. This isn’t exactly appropriate for a nation that calls itself the world’s wealthiest country. Among developed nations, the U.S. has a lower minimum wage than Canada, the U.K., New Zealand, Belgium, Australia, France, the Netherlands, Ireland and especially Luxembourg, which had a minimum wage of $11.36 in 2011.
And even by our own standards, we don’t measure up. Consider the minimum wage in 1968, which was equivalent to $9.39 in what dollars are worth in 2013. From the 1960s to the 1980s, one full-time minimum wage job could keep a family of two above the poverty line, and the minimum wage was about half the average wage that workers usually earned. Today, the minimum wage is barely a third of what workers get payed on average, around $20.39 an hour. If we kept pace with how the minimum wage used to progress, it would already be around $10.19.
So why not raise it?
A recent report from the independent Congressional Budget Office gave naysayers the doomsday statistic they were looking for. According to the report, a wage raise would cause 500,000 workers to lose their jobs by 2016.
There are a variety of factors that may cause employers to fire more workers in an effort to keep making enough money and pay higher wages at the same time. Shifting dollars from wealthy employers to low-income workers will increase consumption of products because those workers spend a larger amount of their money than the wealthy do. But employers will probably have to fire workers to make up for the increase in wages they must pay other workers. Workers will therefore have to increase productivity in order to meet the higher demand for products. Additionally, since employers will have to pay workers more, they will charge higher prices for their products.
If that all sounded strange to you…
You are not alone. The CBO’s statistic is based on sloppy assumptions. You cannot logically say that consumption, and thus demand for products, will increase, and at the same time say that employers will be making losses from paying workers more. If demand goes up, so will profits. If your employees will be working more to meet higher demand, you will be putting out more products. And other working Americans, now with higher wages, will be better equipped to buy these products. That leads to more positive economic activity, not workers being fired.
Time to back our claims up.
A 2010 minimum-wage study out of the University of California at Berkeley compared the effects of job growth between neighboring counties across state borders that had differing minimum wage levels from 1990 to 2006. Essentially, they took a look at counties that occupied the same economic environment, but had different minimum wage policies.
The study found “strong earnings effects and no employment effects of minimum wage increases.” That means they found that the only effect of a higher minimum wage was that workers in one county were paid more, while there was no negative impact on employment.
Another study, done back in 1994 by the American Economic Association, compared the employment levels of adjacent areas in New Jersey and eastern Pennsylvania after New Jersey raised its minimum wage while Pennsylvania kept it the same. The researchers found no evidence that the rise of wages in New Jersey had any effect on employment of workers.
And what are the benefits?
Research shows that raising the minimum wage won’t cause us to start hemorrhaging jobs, and the benefits make it seem worth starting right away. Aside from the many teenaged minimum wage workers, the average worker receiving minimum pay is 35 and earns half of his or her family’s income. One fourth of all minimum wage workers are parents.
Given how little today’s $7.25 minimum wage is worth compared to previous years, giving workers a raise is not only logical, it’s profitable. If workers have more money, they are going to spend more money, and that helps boost the economy in general.
In a country as advanced and economically powerful as ours, a higher minimum wage shouldn’t even be debatable. We could be helping these families out, without requiring the federal government to spend an extra dime. Congress needs to raise the federal minimum wage right away. It’s a move that would help everyone.
Contact CU Independent Staff Writer Ellis Arnold at firstname.lastname@example.org.