By Josh Ash
“I’m tired of hearing about the minimum wage,” said New Jersey Gov. Chris Christie’s at a U.S. Chamber of Commerce conference last month. The comment comes at a moment of widespread support for a national living wage. His own state of New Jersey raised the minimum wage last November to $8.25/hour and tied it to inflation. While nowhere near a living wage, the increase, when considered with his recent apathetic statement, indicates an inability to articulate a cogent defense of the unlivable minimum wage.
Data from Department of Labor gives an indication as to why even some Republicans are having a hard time resisting minimum wage increases. The Labor Department’s July report showed that “in the 13 states that boosted their minimums at the beginning of the year, the number of jobs grew an average of 0.85 percent from January through June. The average for the other 37 states was 0.61 percent.” The findings of this report are neither anomalous nor surprising.
The most common argument against raising the minimum wage is the contention that employers will respond to a higher minimum wage by firing workers in order to reduce labor costs; therefore, workers would be wise to keep their heads down and accept $7.25/hour. This argument resembles a folk tale in the sense that it is a) fictional, b) passed down from generation to generation, and c) recited with slight variations. In reality, raising the minimum wage appears to have either a slightly positive or statistically insignificant effect on the unemployment rate.
John Schmitt of the Center for Economic and Policy Research Institute surveyed recent studies on minimum wage increases in search of a consensus. His 2013 report indicated that raising the minimum wage has had little or no employment response. A 2006 Fiscal Policy Institute was even more encouraging; it found that states which raised their minimum wage above the federal level benefited from increased job growth. The Department of Labor also weighed in on this question. After reviewing over 60 studies, the Labor Department concluded that minimum wage increases have no discernible effect on employment.
Let’s look at some of the reasons why a wage increase does not cost jobs like conservatives say. First, a majority of low-wage workers are employed by big corporations. These corporations have recovered from the recession with more than enough money to cover a wage increase. Seventy-five percent of the largest employers of low-paid workers bring in more revenue now than they did before the recession. The notion that corporations do not have enough money to pay workers a living wage when corporate profits are at all time highs and CEOs average $774 to every dollar a minimum wage worker earns is absurd.
Despite the apocalyptic rhetoric from the right, research indicates raising the minimum wage could actually benefit corporations. MIT professor Zeynep Ton conducted an in-depth study of major retailers and found that paying workers higher wages causes what she calls a “virtuous cycle.” According to Ton, “investment in employees allows for excellent operational execution, which boosts sales and profits, which allows for a larger labor budget, which results in even more investment in store employees.” Consider the fact that Trader Joe’s starting wage for a full-time employee is more than double that of Trader Joe’s competitors. Not coincidentally, Trader Joe’s has 40 percent more sales per hour than the average supermarket.
What about small businesses? Aren’t they worried about a minimum wage increase? No. Small business are concerned, but not about the cost of labor. In 2012, The National Federation of Independent Business (NFIB) conducted a survey of small businesses and found that only around 3 to 5 percent consistently list the cost of labor as their biggest problem. What the little guys are really worried about is poor sales. That same survey from 2010 showed more than 1 in 3 small business cited poor sales as their number one concern. The issue is not whether wages are too high, but whether there is sufficient demand for goods. It is no surprise that demand is teetering given that 35 million Americans make under $10.55/hour.
The depressed wages of American workers are actually hurting the economy. Raising the minimum wage would increase demand, thereby helping small businesses. The Federal Bank of Chicago found that just a $1 minimum wage hike increases a minimum wage worker’s household income by $250, prompting that household to spend an extra $2800 per year. It is easy to imagine minimum wage increases occurring in a vacuum, but the reality is that rising labor costs are offset by workers buying more with their bigger paychecks.
At this point it is clear that raising the minimum wage benefits workers and the economy without hurting corporations. Politicians and pundits who continue to oppose a living wage are increasingly disconnected from reality. Perhaps they should consider science fiction writing as an alternative to political punditry. I hear the alternate history subgenre is poised to take off.