Do increases help economies or hurt businesses?

Executive Summary

In the United States and around the world, public concern has grown that the lowest-paid workers are falling behind as national economies recover from the global recession. Most Americans support raising the minimum wage to assist low-paid workers, and lawmakers in some U.S. states and cities have done so. As of January 2015, a total of 29 states had set their own hourly minimum wages higher than the federal minimum, $7.25 an hour since 2009. Politicians in many countries besides the United States also have pushed their minimum wages higher. Washington remains sharply divided on the issue, however. President Obama backs a Democratic proposal to raise the federal minimum to $10.10 an hour, phased in over a little more than two years. Raising the minimum wage would boost the economy by increasing consumer demand and ease taxpayers' burden by removing some workers from Medicaid and food stamp rolls, advocates say. Congressional Republicans, however, who control both houses of Congress following the November 2014 elections, join many businesses in opposing a wage hike. Increasing the wage wouldn't help the poor, most of whom are not in the workforce, and would make it harder for the lowest-skilled to find employment, opponents say. Congress seems unlikely to enact a wage increase in the near future, but public concern over unequal incomes is certain to continue, political analysts say.

Resources

Bibliography

Books

Grimshaw, Damian, “Minimum Wages, Pay Equity and Comparative Industrial Relations,” Routledge, 2013. A professor of employment studies at England's University of Manchester examines national differences among European minimum wage-setting systems.

Waltman, Jerold, “Minimum Wage Policy in Great Britain and the United States,” Algora Publishing, 2008. A political science professor at Baylor University, in Waco, Texas, describes the differing histories and policy decisions that underlie minimum wage policy in the United States and Great Britain.

Articles

“Global Minimum Wage,” Reuters, undated, accessed Jan. 2, 2015, http://tinyurl.com/p4nmtab. The news agency presents a collection of reports on minimum wage policies and their effects on workers' lives in countries including China, Brazil, France, Portugal, Bolivia, Hungary, Australia, Greece and Mexico.

“Minimum Wage,” Business Day Live (South Africa), March 11, 2014, http://tinyurl.com/njb8ofo. A South African economist and a trade union official debate a proposal by South Africa's ruling political party to institute a national minimum wage to combat long-standing wage disparities between the country's black majority and white minority.

Brock, Sam, “Reality Check: Hype or Reality? Numbers Behind Wage Hike and Jobs,” Bay Area NBC News, Feb. 10, 2014, http://tinyurl.com/lx8oomp. The minimum wage in San Jose, Calif., rose from $8 to $10 in March 2013, and to $10.15 in January 2014, higher than elsewhere in the state. According to the business-backed Washington, D.C.-based Employment Policies Institute, about two-thirds of local restaurants raised prices and about half reduced employee hours in response. Overall, however, San Jose experienced business growth in the past year, with the number of retail businesses including restaurants registered in the city growing by 19 percent.

DePillis, Lydia, “Why Franchises Are Such a Huge Obstacle to Higher Wages,” Wonkblog, The Washington Post, Dec. 6, 2013, http://tinyurl.com/lw297to. Saddled with pricey requirements imposed by parent companies, local franchise owners may squeeze wages because those are the only costs they can control.

Ton, Zeynep, “A Minimum-Wage Hike Could Help Employers Too,” HBR Blog Network, Jan. 28, 2014, http://tinyurl.com/mwqu4td. An adjunct associate professor of operations management at the Massachusetts Institute of Technology's Sloan School of Management argues that combining higher wages with increased staffing, greater standardization of work processes and several other operational changes produces better business outcomes.

Witte, Griff, “The minimum wage is set to rise in Britain. And Conservatives are all for it,” The Washington Post, Jan. 26, 2014, http://tinyurl.com/kdpgkn7. British Conservatives see a minimum wage increase as a way to trim spending on government benefits as well as a way to reward and encourage work.

Reports and Studies

“National Minimum Wage: Low Pay Commission Report 2014,” United Kingdom Low Pay Commission, March 2014, http://tinyurl.com/kbqvkgx. The expert panel that recommends annual minimum wage changes to the government of the United Kingdom describes the research and reasoning that underlie its 2014 recommendation to increase the wage by more than the annual inflation rate.

Bradley, David H., “The Federal Minimum Wage: In Brief,” Congressional Research Service, May 30, 2013, http://tinyurl.com/k5eh73q. An analyst at Congress' nonpartisan research office summarizes the current federal law provisions on the minimum wage, the wage's history in the United States and the main arguments favoring and opposing minimum wage increases.

Eyraud, François, and Catherine Saget, “The fundamentals of minimum wage fixing,” International Labour Organization, 2005, http://tinyurl.com/lsg7vf6. Analysts for a United Nations agency describe the range of national systems that exist for setting a minimum wage, how the various systems developed and what policy questions are raised as nations contemplate raising their minimum wages.

Sawhill, Isabel, and Quentin Karpilow, “Raising the Minimum Wage and Redesigning the EITC,” Brookings Institution Center on Children and Families, Jan. 30, 2014, http://tinyurl.com/n9wbkch. Economists from the centrist Brookings Institution argue that combining a minimum wage increase to $10.10 with a more effectively targeted Earned Income Tax Credit would be the most effective policy for helping low-income families.

Sherk, James, “Who Earns the Minimum Wage? Suburban Teenagers, Not Single Parents,” Heritage Foundation, Feb. 28, 2013, http://tinyurl.com/c86p8zq. An analyst for a conservative think tank explains that most people who live in poverty are not minimum wage earners, so raising the wage as a means of fighting poverty is ineffective.

The Next Step

Fast-Food Workers

Greenhouse, Steven, “$15 Wage in Fast Food Stirs Debate on Effects,” The New York Times, Dec. 4, 2013, http://tinyurl.com/l2dxmwx. In the debate over raising the minimum wage for fast-food workers, one side argues it will reduce employment and increase food prices while the other says it will reduce worker turnover and increase worker productivity.

Semuels, Alana, “More than half of U.S. fast food workers on public aid, report says,” Los Angeles Times, Oct. 15, 2013, http://tinyurl.com/peuap3f. A new report reveals that more than half of U.S. fast-food workers receive some type of public aid, costing the nation $7 billion a year.

Winter, Michael, “Protesters Nationwide Call for $15 Minimum Wage,” USA Today, Dec. 4, 2014, http://tinyurl.com/kzwn5aq. Thousands of low-wage workers protested in 190 U.S. cities in support of a movement that aims to raise the minimum wage for fast-food and retail employees to $15 an hour.

Federal Laws

Devaney, Tim, “Obama's ‘Pen and Phone’ Barrage,” The Hill, Dec. 28, 2014, http://tinyurl.com/kvn6khh. President Obama's executive order raised the minimum wage for government-contracted employees from $7.25 to $10.10 per hour.

Morath, Eric, Damian Paletta and Carol E. Lee, “Wage-Rise Report Sees Fewer Jobs, Less Poverty,” The Wall Street Journal, Feb. 20, 2014, http://tinyurl.com/kq5lu2u. A federal minimum wage increase would eliminate about 500,000 jobs by 2016 while also helping nearly 1 million Americans to escape poverty, according to a report by the nonpartisan Congressional Budget Office.

Pfeifer, Stuart, “75 economists call for increase in federal minimum wage,” Los Angeles Times, Jan. 14, 2014, http://tinyurl.com/lyzghb6. Seventy-five economists signed a letter to the White House in support of raising the federal minimum wage to $10.10 per hour by 2016.

Jobs

Kessler, Glenn, “Obama's claim that there is ‘no solid evidence’ that boosting the minimum wage harms jobs,” The Washington Post, Dec. 5, 2013, http://tinyurl.com/q7efjle. The newspaper's fact-checker says economists remain sharply divided on whether minimum-wage laws hurt employment.

Simon, Jeff, “Raising minimum wage doesn't affect employment, in 3 charts (and 2 McDonald's meals),” The Washington Post, Jan. 8, 2014, http://tinyurl.com/lhqmlxy. A reporter says that data show little connection between raising the minimum wage and decreased employment.

Sullivan, Cara, “Minimum wage hike has an adverse effect on jobs for young workers,” Baltimore Business Journal, Jan. 21, 2015, http://tinyurl.com/mlunjqp. A task force director for the conservative nonprofit American Legislative Exchange Council says a minimum wage increase in Maryland will lead businesses to cut entry-level positions to reduce costs, which will exacerbate youth unemployment.

State Laws

Connelly, Joel, “States raise minimum wage: Washington is tops, but not for long,” Jan. 2, 2015, SeatllePI.com, http://tinyurl.com/l45njbj. Minimum wage in Washington, one of several states to hike pay recently, will be $9.47 per hour in 2015. In Seattle, a $15-an-hour minimum will phase in beginning in April.

Cousins, Christopher, “LePage vetoes minimum wage hike, 20 other bills,” Bangor Daily News, July 8, 2013, http://tinyurl.com/qcy8m8d Maine Gov. Paul LePage, R, vetoed a bill that would have increased the minimum wage from $7.50 to $9 by 2015, with annual increases tied to inflation.

Johnson, Katie, “Minimum Wage Rising in Much of US,” The Boston Globe, Jan. 1, 2015, http://tinyurl.com/k3qc4hk. Pending minimum wage increases in 20 states will immediately affect more than 3.1 million low-wage earning Americans in 2015.

Organizations

Congressional Budget Office
Ford House Office Building, 4th Floor, 2nd and D streets, S.W., Washington, DC 20515-6925
202-226-2602
www.cbo.gov
Congress' nonpartisan budget-analysis office analyzes the effects of legislative proposals on the federal budget and the economy.

Heritage Foundation
214 Massachusetts Ave., N.E., Washington, DC 20002
202-546-4400
www.heritage.org
Conservative think tank analyzes economic policies from a free-market perspective.

International Labour Organization
4 route des Morillons, CH-1211 Genève 22, Switzerland, 41 22 798 8685
www.ilo.org
United Nations agency governed by government, employer and labor representatives establishes international fair labor standards; provides information and statistics.

Low Pay Commission
8th Floor, Fleetbank House, 2-6 Salisbury Square, London EC4Y 8JX, England, 44 20 7211 8212
www.gov.uk/government/organisations/low-pay-commission
Expert body established by government of United Kingdom to commission research and make recommendations on wage-setting for low-paid workers.

National Employment Law Program
75 Maiden Lane, Suite 601, New York, NY, 10038
212-285-3025
www.nelp.org
Liberal analysis, information and advocacy group on issues affecting workers.

National Federation of Independent Business
1201 F St., N.W., Suite 200, Washington, DC 20004
202-554-9000; 615-872-5800
www.nfib.com
Membership group for small business opposing minimum wage increases.

Organisation for Economic Co-operation and Development
2 rue André Pascal, 75775 Paris Cedex 16, France, 33 1 4524 8200
www.oecd.org
Membership organization of industrialized nations that provides statistics on national economies, including minimum wage.

UC Berkeley Center for Labor Research and Education
Institute for Research on Labor and Employment, 2521 Channing Way #5555, Berkeley, CA 94720
510-642-0323
http://laborcenter.berkeley.edu
University-based center that conducts and disseminates research on labor and employment issues.

DOI: 10.1177/2374556814557252