Pay Up: Raising The Minimum Wage Doesn’t Destroy Jobs

Source: Justin Sullivan/Getty Images

Justin Sullivan/Getty Images

There has been a major push for an increased minimum wage nationwide, as the cost of living has grown greatly while wages have stagnated. The effort has been embraced by worker’s rights advocates and labor groups, and met with great hostility by most of the business community. Even president Obama has come out in favor of raising the federal minimum wage — which currently sits at $7.25 per hour —  up to $10.10. This too has been met with clamoring and fear-mongering from most of the conservative wing, who claims that any increases in wages will destroy jobs and wreck the economy.

According to a study from The Center for Economic and Policy Research, however, that hypothesis has been debunked.

The study followed 13 states which saw their minimum wages increased at the start of 2014, either through legislation or automatic increases that are tied to inflation. The results were surprising, to say the least. Every state, with the exception of one, saw increases in employment — and they didn’t just see an increase, they all beat the nationwide average.

“Of the 13 states that increased their minimum wage in early 2014, all but one (New Jersey) are seeing employment gains. Furthermore, nine of the remaining 12 states are above the median for this period. The average change in employment for the 13 states that increased their minimum wage is +0.99% while the remaining states have an average employment change of +0.68%,” the CEPR says. 

The results are very promising for those looking to increase minimum wage levels locally, and could make for some interesting business and economic developments going forward.

Source: J.D.Pooley/Getty Images

J.D.Pooley/Getty Images

A Rising Tide Lifts All Ships

There are many reasons to argue both for and against raising the minimum wage. First of all, those worried about the effects of increased labor costs are completely within their right. While most minimum wage advocates are typically taking aim at larger companies, like Wal-Mart or McDonald’s, it’s often small businesses that end up feeling the biggest effects. Big corporations are able to absorb the costs much easier, and if the business climate becomes severe enough, they can always relocate. Small businesses don’t have those luxuries.

But it’s important to keep in mind that when labor costs are increased in the way a minimum wage might increase, those costs go up across the board. It then becomes more justifiable for companies to raise their prices, as everyone else will need to follow suit to offset the expenses. The thing is, prices wouldn’t go up nearly as much as you might think. For example, if the minimum wage was increased to double its current level, the price of a Big Mac at McDonald’s would only need to go up 68 cents. That seems like more than a fair trade-off, which would also result in giving the lowest earners in the workforce considerably more consumer power. Millions could be closer to taking a step out of poverty and toward a more secure future.

A common talking point is that minimum wage jobs are designed to be used by teenagers or immigrants as a spring board of sorts to develop skills and climb the ranks. That may have been true at one point in time, but is no longer the case. The average age of fast-food workers, positions that are commonly associated with low wages, is now 29. People aren’t flocking to low wage positions because they’re lazy or because the work is fun. It’s because those are the only jobs available, and employers are able to exploit a saturated labor market. One fast-food CEO declared that he would actually be hurting his employees by giving them a raise. But does any one actually believe that?

Source: David Ryder/Getty Images

David Ryder/Getty Images

Bridging the Gap

Chances are, minimum wage levels are going to increase at some point in the near future. Some cities are already taking the initiative, and most states have levels that go well above the federal level. Seattle, for example, passed legislation through its city council to raise minimum wage to $15 per hour. San Francisco has since followed in their footsteps. That is a roughly 60%  increase, a pretty steep jump in labor costs for any business to absorb. This is an extreme case, and it remains to be seen what the fallout will be. Businesses have plenty of time to adjust, however, as the increase will be phased in over several years.

Other cities are looking at Seattle as a model to begin working on big minimum wage increases, which may or may not be met with hostility, depending on where they are. For example, San Francisco could absorb a big jump in labor costs much easier than Cleveland. But the study in question looked at statewide increases, and increases that were not nearly close to some of the levels Seattle and other cities are flirting with. Minimum wage can be a blunt instrument, and not all cities will have the same abilities to cope.

Businesses themselves can shoulder the burden, offering employees a living wage and attracting more talent. Such is the case with Ikea, which recently announced it would be raising its pay floor to $10.67 per hour. Speaking with NPR, president of Ikea U.S. Rob Olson views it as an investment in his company, not just an increase in labor expenses.

“By taking better care of our coworkers,” he said. “They will take better care of our customers, who will take better care of Ikea. We see it as a win-win-win opportunity.”

Ikea may be embracing higher wages, but others are fighting back. The restaurant and hotel industry are leading the charge in some cases, as both of those industries rely on cheap labor to keep operating costs low. The blowback from these industries was to be expected, but it’s not hard to imagine how disheartening it would be for a housekeeper making minimum wage to watch their employer fight really hard to keep paying as little as possible. In fact, these employers are likely putting more money and resources into fighting wage increases than they would end up spending by simply giving employees a raise.

With the release of the CEPR’s data, more ammunition has been added to the stockpile for wage activists. The figures presented provide some tangible and real-world evidence that small increases in minimum wage do not have the disastrous effects on employment that many warn of. In fact, it turns out the opposite is true for most states. There are still plenty of battles to fight for low-wage workers, but things are looking up.

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