Minimum Wage Increase Does Not Cost Jobs

by James Parks, Nov 29, 2006

More than 80 percent of Americans believe it’s time to give workers a raise and back the drive to boost the minimum wage, and even business owners have said raising the minimum wage is the right thing to do.

Now comes a study that shows raising the minimum wage does not cause job loss as business and extremist critics claim. State Minimum Wages: A Policy That Works, by Paul Wolfson, a statistical research associate at the Tuck School of Business at Dartmouth College, finds that “wages are higher and employment is no lower” in states with a higher minimum wage than those without.

In the report, released Monday by the Economic Policy Institute, Wolfson shows the median minimum wage was $1.40 (more than 25 percent) higher than the federal value in states that had raised their minimum wage.

The study finds that contrary to opponents’ dire predictions, there was little effect on either employment or labor supply in states with a higher minimum wage, including teenagers and those employed in the restaurant industry.

Wolfson also determined:

• Raising the minimum wage increases wages without reducing employment for teenagers.
• Minimum wage increases lead to higher wages without reducing employment or discouraging labor supply for young adults and adults with no college education.

During the past year, the AFL-CIO union movement’s America Needs a Raise campaign has led the drive to raise the minimum wage at the state level through legislation or ballot initiatives and through congressional action on the federal level. Last month, six states voted to raise their minimum wage, bringing the total number to 29 states and the District of Columbia unwilling to wait for Congress, which has not approved an increase in the federal minimum wage in a decade.

In a commentary in Sunday’s New York Times, Louis Uchitelle highlights how newly elected congressional Democrats will quickly move to increase the minimum wage. The bill Democrats will introduce in the U.S. House and Senate would raise the minimum wage to $7.25 an hour from the current $5.15. The increase would come in three steps, spread over more than two years, with the final $7.25 not reached until spring 2009 at the earliest.

That is the same $7.25 that would be effective today if Congress had given its approval when Sen. Edward Kennedy (D-Mass.) first proposed the increase in 2004. After the Nov. 7 election, in which voters decided it was time to change the nation’s direction and give Democrats the majority in the Senate and House, Kennedy said:

America has spoken, and the new Congress will listen. If there’s one message from this election that emerged loud and clear on a domestic issue, it’s raise the minimum wage. No one who works for a living should have to live in poverty!

Further, Kennedy said that’s just the beginning.

After we successfully pass this increase, I plan to introduce a new proposal right away that will ensure that minimum-wage workers never again fall so far behind in our economy.

Incoming House Speaker Nancy Pelosi (D-Calif.) has said the new Democratic majority will pass a minimum wage increase and remove the incentives the Bush administration and Congress have given to Big Business to move jobs overseas.

The AFL-CIO and its allies also are pushing Congress to index the minimum wage to the cost of living. Scholar Peter Drier notes that since 1997, the last time it raised the minimum wage, Congress has voted to give itself cost-of-living raises totaling $31,600. Writing on Tom Paine, Drier, director of the Urban & Environmental Policy program at Occidental College, says:

While business groups invariably oppose any proposal to raise the minimum wage, they are particularly adamant against incorporating a COLA (cost-of-living adjustment) provision. But linking increases to inflation is neither a new nor radical idea. Just last month President Bush signed legislation providing COLA to military veterans who receive disability benefits.

Corporations routinely provide their top executives with huge pay and bonus increases that far exceed the inflation rate, even in years when these companies’ own profits and stock value decline. In one year alone, for example, the median pay for the CEOs of America’s 100 largest companies increased 25 percent to $17.9 million in 2005.

What about the working poor?

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