Rise in minimum wage not harmful to economy
In his State of the Union address, President Barack Obama called for a raise in the minimum wage from $7.25 to an even $9. Critics immediately questioned his contention and claimed that going through with a raise in the minimum wage would hurt the slowly recovering unemployment rates that just crept back to less than 8 percent nationally. Conventional wisdom says the critics are right; raising the minimum wage should hurt employment numbers. However, the hard data shows this is not necessarily true. Numerous studies have found no correlation between raises in the minimum wage and employment numbers.
The argument against the raise makes a lot of sense. Assuming a small business does not see a significant revenue increase, paying an extra $1.75 per employee would force them to lower the number of employees in order to have a similar profit. This would hurt both the businesses and the workers. However, empirical evidence demonstrates this is not the case. Many different studies have been done on the effects of minimum wage changes and individual results differ. But when two researchers did a meta-study — a study of other studies done on the topic — they came to the conclusion that raising the minimum wage a moderate amount had an infinitesimally small effect, if any at all, on employment numbers.
There are many theories on why employment isn’t affected by minimum wage change. First, employers can make the money back without firing employees by cutting hours, cutting training and cutting benefits. This is not an ideal scenario, but employers are more likely to use these methods to recoup lost funds than to fire workers. Prices are also likely to rise as a result of an increase in the minimum wage, which in turn helps businesses make up for the extra money they will be paying. An increase in the minimum wage is also thought to increase demand by putting more money in the hands of consumers, which in turn helps businesses.
Most importantly, employers are generally resistant to firing people. This makes businesses more likely to use other methods to maintain profits instead of cutting jobs. This isn’t the best situation for businesses, but it is worth it for workers.
Conventional wisdom is often helpful, but it must be checked against reality. Though it seems like increasing the minimum wage should hurt employment, facts indicate that isn’t true. Economics is a complicated field, and what seems to make sense does not always play out the way we imagine. Regardless, raising the minimum wage would benefit workers without crippling businesses or increasing unemployment, and that’s something we should all be able to get behind.
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