Minimum Wage Mythbusters

Sarah Solon

Minimum Wage Mythbusters

Here's something that should happen more often: A recent study from the Albany-based Fiscal Policy Institute has found that raising the minimum wage ends up indirectly benefiting small businesses, and spurring the entire economy. Their study dispells the old excuse some conservatives have ployed that raising the miminum wage reduces the number of jobs.

Isn't it just lovely when what's right ethically also makes the best policy for everyone?

Overriding the argument that increasing pay leads to job loss (this is the argument that Pataki cited when he vetoed raising the minimum wage), the Fiscal Policy Institute's study showed that, when the minimum wage was increased, the average retail employee's hours went up - from a mean of 30.7 hours per week to 31.3 - not down.

And more hours at higher pay leads to more spending power, according to this study:

"There may be a Henry Ford effect at work here. If you pay workers more, they can buy more, boosting the overall economy, especially among small retail businesses."

Raising the minimum wage benefits minimum wage workers, and apparently the entire economy - not to mention all of the other workers whose wages are pegged at one or two dollars above the minimum wage. This legislation ends up putting more purchasing power in the hands of a huge amount of Americans.

This isn't the first time the Fiscal Policy Institute has disproved the myth that raising wages cuts jobs, in the retail industry. This year's study comes after a similar study four years ago - which found the same results. And it attempts to show the impact of raising the minimum wage to $6 last year, to $6.75 this year, and to $7.15 next year, the last in a three-year increase.

Thank you, Fiscal Policy Institute. What's good for low-income New Yorkers is also good for New York's economy - a policy frame we just might want to hold onto.

Comments

Thank you, DMI and Sarah Solon both for remembering the minimum wage issue and for pointing me to the Fiscal Policy Institute web site where is posted an interesting, timely (but very long)analysis of the NY State Budget.

Great stuff. It does merit pointing out that taking this finding as what might happen *any* time and for any amount the minimum wage might rise. The economy is a complex beast. I think what this research shows is that there is a need for a minimum wage policy because there are plenty of forces at work in the labor market that drive wages down artificially (power differentials between employers and employees being the big one), and a good minimum wage policy should seek to find the balancing point at the very bottom. I imagine it would be possible to set a minimum wage high enough that, if enforced, would have effects economists fear, but the relatively marginally minimum wage increases in recent history haven't hit that mark. How should policy makers and economists find the "appropriate" minimum wage? A "living" wage? How do we define that? ...

Thank you both for your comments.

I think it's interesting that you (Scott) connect the debate over raising the minimum wage back to the debate about what constitutes a living wage. Rather than being mostly dependents or young people, the vast majority (72%) of people working for a minimum wage in this country are adults. Also, single mothers would disproportionately benefit from an increase in the minimum wage--they make up only 5.3% of the entire workforce, but represent 10.4% of workers making minimum wage. My point is that most minimum wage workers are living off the minimum wages they are making.

This website was really helpful in explaining who exactly would benefit from an increase in the minimum wage:
http://www.epinet.org/content.cfm/issueguides_minwage_minwagefacts

And here's a link to someone's potential monthly expenses:
http://www.alternatives.org/livingwage2005chart.html

Thanks for posting this. I know Frank Mauro personally, and I can say that anything FPI comes out with is credible and well-researched.

While, in theory, the "minimum wage is bad" argument could be viable, the truth is that in New York (at least, the Albany area, which is where I live), most businesses (the reputable ones) have been paying low-skilled workers above even the new, improved minimum wage for some time now.

Raising the minimum wage doesn't hurt small and/or reputable businesses, it just keeps the greedy corporations (*cough*WALMART*cough*) in check by forcing them to pay a fair rate to all of their employees.

Now, if only we can get that legislation forcing corporations to provide health care passed and signed ...

Here, here...
If you're interested in legislation requiring corporations to provide their fair share of health care, you should come to DMI's next Marketplace of Ideas event! (May 8th, 8:15-10:00am, featuring State Senator Gloria Gary Lawlah)

http://www.drummajorinstitute.org/HoldingCorpsAccountable.html

It's good to hear that about Albany...according to the website below, there are millions of workers whose wages are pegged at one, two, or three dollars above the minimum. (Maybe even everyone's favorite bookstore of coffee shop suddenly finds itself paying $11 an hour instead of $8.50 when the minimum wage increases). Hopefully, raising the minimum wage doesn't just keep the bad guys in check, but might actually influence the whole pay scale.

http://www.vtlivablewage.org/morefacts.html