You’d think debate on the merits of raising the minimum wage would have been settled long ago. After all, it’s been around for 75 years in the United States, and it’s been examined in countless academic and professional studies.
But the rhetoric rages on, after President Barack Obama last week urged Congress to “give America a raise” by hiking the national minimum wage to $10.10 an hour, from $7.25. And again, when Gov. Pat Quinn advocated a raise in Illinois, to $10 an hour from $8.25, during his State of the State address.
It’s a job killer.
It’s a poverty fighter.
“It’s probably the most studied social policy in American history,” said Robert Bruno, a professor of labor and employment relations at the University of Illinois at Chicago.
Yet debate continues, this time against the backdrop of a fragile economy, which has employers reluctant to add costs. Meanwhile, the same forces pinching business are also squeezing workers at the lowest rung of the income ladder, who haven’t seen an increase in their hourly wage since 2009, as the top 1 percent accumulated more wealth.
Bruno, who supports raising the minimum wage, called wrangling over the virtues of raising the minimum wage “a foolish endeavor.”
“It’s good for minimum-wage workers; it’s good for other workers; it’s good for the economy; it isn’t a drag on employers,” he contends. “There is no research that has ever identified a negative job impact from raising the minimum wage.”
However, that’s in the aggregate. Some studies have shown a reduction in the number of entry-level jobs that might otherwise have been created, if not for a minimum-wage increase, Bruno said.
“That’s mitigated by the fact that raising the minimum wage generates so much more economic activity that, at the end of the day, it creates more total jobs,” Bruno said. “I would argue there isn’t really any serious disagreement over the impact of a modest, phased-in, minimum-wage increase.”
He conceded those views are for the typical slow and modest increase in the minimum wage, not a sudden doubling of it to $15, as some groups have recently advocated. “That might change things,” he said.
Studies also have shown that a higher minimum wage, first enacted in 1938 as a component of President Franklin D. Roosevelt’s New Deal, to spark the economy after the Great Depression, helps businesses retain employees and saves employers money on recruiting and training. Studies also show that a modest rise in the minimum wage does not create a discernible inflation in consumer prices.
But opponents of raising the minimum wage point to basic economic theory. If you raise the price of something, such as labor, demand for the product or service will decrease. Thus, higher wages mean fewer jobs.
Indeed, a rise in the minimum wage results in reduced employment among low-wage workers, concludes a 2007 review of existing minimum-wage research by David Neumark of the University of California at Irvine and William Wascher of the Federal Reserve. In a subsequent review last year, they came to the same conclusion, unpersuaded by more recent studies that came to the opposite conclusion.
Dueling studies aside, sometimes it’s just bad timing for a rise in the minimum wage, said Kim Maisch, Illinois state director of the National Federation of Independent Business.
“What I’m hearing from my members is they’re scared this time around, because $10 is a lot,” Maisch said. “And, particularly, small-business owners continue to feel the repercussions of the recession. While things are a little bit better, they’re not great. … We’re not out of the woods yet.”
She said “piling on a large wage increase” could lead business owners to close their doors or reduce payrolls.
Typically, the argument by businesses against minimum-wage increases is more philosophical – that government shouldn’t be weighing in on wages in the private sector, she said.
“This time around, it is a lot more dire,” Maisch said. “It’s really more about the bottom line for many of these small employers.”
Business owners are also dealing with the relatively high costs of doing business in Illinois, such as workers’ compensation costs and unemployment insurance costs, and uncertainty about the impact of the Affordable Care Act, or Obamacare, Maisch said. “There are only so many dollars to go around,” she said.
But raising the minimum wage could create more of those dollars, because workers will have more money to spend, creating a stimulating effect as those dollars spread through the economy, supporters say.
They point to a 2011 study by the Chicago Federal Reserve Bank, which found that for each dollar in a minimum-wage hike, household income rises by $1,000 a year but spending increases by $2,800. That’s because consumers often use the money as down payment on durable goods, especially vehicles, the study found.
A worker earning today’s national minimum wage earns about $15,000 a year, assuming 40-hour workweeks every week of the year. An Illinois minimum-wage worker makes about $17,000. The federal government poverty line for a family of four is $23,850.
Supporters also argue that today’s low minimum wage amounts to corporate subsidies from taxpayers. Because workers cannot survive on the minimum wage, they qualify for government welfare services, such as food stamps. So, instead of paying a livable wage, businesses rely on the government to make up the difference so those workers can survive, essentially forcing taxpayers to subsidize their payrolls.
Still others argue that the debate doesn’t even matter that much. While 3.6 million Americans earned the federal minimum wage or less in 2012, that’s just 4.7 percent of all hourly workers, according to the U.S. Labor Department. And only 2 percent of full-time workers make the federal minimum wage.
But Bruno said there is a ripple effect among wages, so those working slightly above the minimum wage get increases and benefit too. “If you increase the wage floor, you don’t only help those people at minimum wage,” he said.
As the arguments on each side continue, fundamentally the minimum wage is a government regulation that attempts to fix a perceived inefficiency in the market by redistributing some wealth.
“The question is, is that good or bad?” Bruno said.