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Raising minimum wage boosts economies
By Michael Reich |
February 21, 2011, Monday
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WHILE debates about how to promote American jobs and economic growth while tackling the deficit have dominated the political conversation for the past year, an effective strategy for boosting the economy without increasing government spending or adding a dime to the debt has been largely ignored: raising the minimum wage.
Raising wages for the nation's lowest-paid workers puts money into the hands of people who spend their incomes at the highest rates, boosting demand for goods and services.
A home health aide who gets a modest bump in her salary can buy another gallon of milk, a new coat for winter, and get the haircut she's been putting off for months.
Some will argue that we cannot raise the minimum wage now because it would lead to further job losses. But the best academic research shows otherwise.
While the simplistic theoretical model of supply and demand suggests that raising wages reduces the number of jobs employers offer, the reality of how the labor market functions is much more complex.
A comprehensive new body of research that I have carried out with economists from across the country examines increases in minimum wages over the past two decades. These and other new studies considerably improve upon and validate more than 15 years of economic research that had previously showed that wage increases do not result in job loss.
In a paper published last month by the prominent Review of Economics and Statistics, Arindrajit Dube of the University of Massachusetts, William Lester of the University of North Carolina, and I examine every pair of neighboring counties in the United States that straddle a state border and that had different minimum wages at any time between 1990 and 2006.
For example, we compare employment in Cook County, Illinois, with neighboring Lake County, Indiana to determine if the higher minimum wage in Illinois between 2004 and 2006 led to job loss.
We then repeat that calculation for every such county pair and wage difference on the Illinois border and across the United States over a 16-year period, creating a national estimate that controls for other critical economic factors.
We find that these minimum wage increases do not cause job loss in the counties with higher minimum wages than their neighbors across the state border.
In another study with Dube and Sylvia Allegretto of the University of California, we examine the impact of minimum wage increases specifically during the three recessions of the past two decades. We find that even the minimum wage increases during the Great Recession of 2007-2009 did not cause job loss.
Why don't minimum wage increases reduce employment?
Low-wage employers typically experience very high rates of employee turnover and struggle constantly to fill their job vacancies. A higher wage makes it easier for employers to attract and retain workers and is likely to reduce the costs of absenteeism, while giving employers the productivity benefits of more experienced workers.
At a time when families are struggling, helping workers keep a job and put more money in their pockets makes sense. A minimum wage earner in Illinois, working full-time, year-round, makes just over US$15,000 - hardly enough to keep afloat.
The chamber of commerce and lobbyists for the fast food and restaurant industry will likely say -yet again - that we can't raise wages without cutting jobs. But the best scientific research tells us otherwise.
Wall Street has recovered quite nicely from this recession, taking home salary increases and six-figure bonuses. But if our economy is to truly rebound, all Americans - many more of whom are now part of the low-wage economy - must get a boost.
(Reich is director of the Institute for Research on Labor and Employment and professor of economics at the University of California at Berkeley. Shanghai Daily condensed the article.)
Raising wages for the nation's lowest-paid workers puts money into the hands of people who spend their incomes at the highest rates, boosting demand for goods and services.
A home health aide who gets a modest bump in her salary can buy another gallon of milk, a new coat for winter, and get the haircut she's been putting off for months.
Some will argue that we cannot raise the minimum wage now because it would lead to further job losses. But the best academic research shows otherwise.
While the simplistic theoretical model of supply and demand suggests that raising wages reduces the number of jobs employers offer, the reality of how the labor market functions is much more complex.
A comprehensive new body of research that I have carried out with economists from across the country examines increases in minimum wages over the past two decades. These and other new studies considerably improve upon and validate more than 15 years of economic research that had previously showed that wage increases do not result in job loss.
In a paper published last month by the prominent Review of Economics and Statistics, Arindrajit Dube of the University of Massachusetts, William Lester of the University of North Carolina, and I examine every pair of neighboring counties in the United States that straddle a state border and that had different minimum wages at any time between 1990 and 2006.
For example, we compare employment in Cook County, Illinois, with neighboring Lake County, Indiana to determine if the higher minimum wage in Illinois between 2004 and 2006 led to job loss.
We then repeat that calculation for every such county pair and wage difference on the Illinois border and across the United States over a 16-year period, creating a national estimate that controls for other critical economic factors.
We find that these minimum wage increases do not cause job loss in the counties with higher minimum wages than their neighbors across the state border.
In another study with Dube and Sylvia Allegretto of the University of California, we examine the impact of minimum wage increases specifically during the three recessions of the past two decades. We find that even the minimum wage increases during the Great Recession of 2007-2009 did not cause job loss.
Why don't minimum wage increases reduce employment?
Low-wage employers typically experience very high rates of employee turnover and struggle constantly to fill their job vacancies. A higher wage makes it easier for employers to attract and retain workers and is likely to reduce the costs of absenteeism, while giving employers the productivity benefits of more experienced workers.
At a time when families are struggling, helping workers keep a job and put more money in their pockets makes sense. A minimum wage earner in Illinois, working full-time, year-round, makes just over US$15,000 - hardly enough to keep afloat.
The chamber of commerce and lobbyists for the fast food and restaurant industry will likely say -yet again - that we can't raise wages without cutting jobs. But the best scientific research tells us otherwise.
Wall Street has recovered quite nicely from this recession, taking home salary increases and six-figure bonuses. But if our economy is to truly rebound, all Americans - many more of whom are now part of the low-wage economy - must get a boost.
(Reich is director of the Institute for Research on Labor and Employment and professor of economics at the University of California at Berkeley. Shanghai Daily condensed the article.)
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