Why Raising The Minimum Wage Is Beneficial For Individuals And Businesses
In Tuesday’s State of the Union speech, President Obama called on members of Congress to raise the federal minimum wage from $7.25 to $9.00 an hour, something Governor Mitt Romney (R-MA) supported during the 2012 election. The president said, “This single step would raise the incomes of millions of working families. It could mean the difference between groceries or the food bank; rent or eviction; scraping by or finally getting ahead.”
Who could argue with that?
Two Republican leaders have voiced their opposition to the president’s proposal. House Speaker John Boehner (R-OH) and Senator Marco Rubio (R-FL) agree that raising the minimum wage hurts businesses, claiming that increasing the cost of employment makes it difficult for businesses to sustain themselves and deters them from hiring employees.
A study released yesterday by the Center for Economic and Policy Research suggests otherwise. John Schmitt, who authored Why Does The Minimum Wage Have No Discernible Effect on Employment?, argues that raising wages actually has little to no effect on employment. Schmitt offers 11 “channels of adjustment,” ways in which businesses could respond to a raise in minimum wage. These include raising prices on goods and services (offset by higher demand), increase in worker efficiency and effort, and less difficulty in recruiting and retaining employees which “may compensate some or all of the increased wage costs, allowing employers to maintain employment levels.”
Based on the results of this study, small businesses have everything to gain in paying their employees a wage they can live on. Economist and New York Times columnist Paul Krugman addressed the myth behind cutting minimum wage during a time of recession back in 2009. “In reality, reducing wages would at best do nothing for employment; more likely it would actually be contractionary,” Krugman said. “Proposing wage cuts as a solution to unemployment is a totally counterproductive idea.”
Larger corporations such as Walmart and McDonald’s that employ 66% of low-wage workers are rewarding their top executives in profitable years with raises, while their low-wage employees are still making minimum wage — a pay level that is not sustainable for many American families. In fact, if minimum wage matched inflation, it would be $10.58 per hour.
As stated in a Huffington Post article, “This would guarantee that workers on the lowest rung of the economic ladder don’t lose purchasing power, but it would also mean fast-food companies and other low-wage employers would have to pay higher wages just about every year, except in rare cases of deflation.”
This type of proposal was already favored in 2010, when the Public Religion Research Institute conducted a poll and found that 67 percent of respondents were in favor of increasing the minimum wage to $10.00 an hour—that includes a majority of respondents who identified as Republicans.
In 2007, President Bush signed the Fair Minimum Wage Act, which easily passed in the House 315-116, including bipartisan support from 82 Republicans. It passed the Senate — with the help of Mitch McConnell (R-KY) — by a 94-3 vote before making it to the president’s desk.
Studies clearly point to the profitable effects on individuals and businesses if earnings per hour are raised to a level where low-wage workers are actually able to support themselves and their families. If Republicans like Boehner and Rubio are truly advocating for their middle-class constituents, then supporting the president in ensuring that workers earn what they deserve — and can live on — ought to be a nonpartisan no-brainer.
Official White House Photo/Chuck Kennedy