Obama’s Minimum Wage Increase Would Have Minor Impact On Jobs, Huge Benefit For Economy



President Franklin Roosevelt made it law in 1938, that any hourly worker had to be paid at least 25 cents an hour. It was revolutionary, and very few countries had anything like it.

Every few years, the federal minimum wage would go up, helping millions of Americans inch closer to a middle-class lifestyle. Something changed in the early 1970s, however, and since then, the minimum wage has fallen by around 25 percent.

Fast-forward to today. The minimum wage is currently $7.25. But in 1968, you’d make the equivalent of $10 an hour in today’s money. Basically the same group, but they have 30 percent less buying power.

On Tuesday night, during his State of the Union address, President Obama made the following statement:

“Even with the tax relief we’ve put in place, a family with two kids that earns the minimum wage still lives below the poverty line. That’s wrong. Let’s declare that in the wealthiest nation on earth, no one who works full-time should have to live in poverty.”

His proposal would see the federal floor on hourly wages reach $9 in stages by the end of 2015. Tying the minimum wage to inflation would allow it to rise along with the cost of living. If enacted, the measure would boost the wages of about 15 million low-income workers, the White House estimated. The $9 minimum wage would be the highest in more than three decades, accounting for inflation, but still lower than the peaks reached in the 1960s and 1970s.

The White House said that the move would have profoundly positive effects for low-income families without unduly burdening businesses or raising the unemployment rate. It cited research showing no detectable employment losses from the kind of minimum wage increases we have seen in the United States.

But according to Fox News’ Bret Baier, and guest Nina Easton, the answer is a big “yes” – increasing the minimum wage will hurt employment and the economy. Anchoring Fox’s State of the Union coverage, Baier said that small businesses and Republicans typically push back on minimum wage hikes because of the old myth that “it will lead companies to cut back, lay people off, and not expand business.”

Nothing can be further from the truth.

In fact, studies show that raising the minimum wage does not result in higher unemployment.

In a March 2011 report, the Center for Economic and Policy Research found that raising the minimum wage has no “discernible impact” on employment. CEPR concluded that wage increases are more likely to result in more, rather than fewer, jobs:

The results for fast food, food services, retail, and low-wage establishments in San Francisco and Santa Fe support the view that a citywide minimum wages can raise the earnings of low-wage workers, without a discernible impact on their employment. Moreover, the lack of an employment response held for three full years after the implementation of the measures, allaying concerns that the shorter time periods examined in some of the earlier research on the minimum wage was not long enough to capture the true disemployment effects.

Our estimated employment responses generally cluster near zero, and are more likely to be positive than negative. Few of our point estimates are precise enough to rule out either positive or negative employment effects, but statistically significant positive employment responses outnumber statistically significant negative elasticities.”

Institute for Research on Labor and Employmen [IRLE]: “No Discernable Disemployment Effect, Even When Minimum Wage Increases Lead To Relatively Large Wage Changes.” According to a 2009 IRLE study:

“We also find no relationship between the minimum wage elasticity of overall teen wages and the elasticity of employment across the 74 commuting zones. This result provides further evidence that there is no discernable disemployment effect, even when minimum wage increases lead to relatively large wage changes.” [IRLE, 6/25/09]

A 2010 Institute for Research on Labor and Employment study likewise found:

“No detectable employment losses from the kind of minimum wage increases we have seen in the United States.”

National Employment Law Project: Most Minimum Wage Earners Are Adults, Not Teenagers. In a December 26, 2010, Register-Guard op-ed, the National Employment Law Project’s (NELP) Anne Thompson wrote:

“Even the claim that the minimum wage only affects teenagers looking for pocket change does not hold up. Most minimum wage earners are adults, many of whom support families on this income. Nationwide, three-quarters of minimum wage earners are 20 or older.” [The Register-Guard12/26/10]

The same holds true for youth unemployment:

EPI: “The Warnings Of Massive Teen Job Loss Due To Minimum Wage Increases Simply Do Not Comport With The Evidence.”  In a November 25, 2009, post, the Economic Policy Institute found:

“Since the minimum wage was raised in July (2009), the teen employment rate (the share of people age 16-19 who are employed) fell from 28.9% to 26.2%. Could this drop plausibly be attributed to July’s 70 cent increase in the minimum wage? A careful examination of the data finds no evidence to support that conclusion.”

In the same article, an analysis by the Economic Policy Institute, based on research by economists at the Federal Reserve Board of Chicago, found that July’s minimum wage increase would contribute $5.5 billion in spending over the 12 months following the increase, by getting additional income into the hands of workers who are likely to be struggling to make ends meet and therefore very likely to spend it. Therefore, increasing the minimum wage benefits the economy.

University Of California Study: Minimum Wage Has Nothing “But Very Small Disemployment Effects” On Teen Employment. A June 2010 report by University of California-Berkeley’s Institute for Research on Labor and Employment (IRLE) stated:

“For the range of minimum wage increases over the past several decades, methodologies using local comparisons provide more reliable estimates by controlling for heterogeneity in employment growth. These estimates suggest no detectable employment losses from the kind of minimum wage increases we have seen in the United States. Our analysis highlights the importance of accounting for such heterogeneity in future work on this topic”.  [IRLE,11/10]

While it is true that there is some disagreement among economists about whether increasing the minimum wage increases or decreases employment, there is a consensus on the essential point: the impact of a minimum wage raise on jobs, whether positive or negative, is small; the benefit of increasing the minimum wage on the economy as a whole is large.