Increasing the minimum wage is good for the economy—

Screen Shot 2015-04-01 at 12.11.55 PMThe call to increase the minimum to $10.10 has made progress—

The minimum wage was increased in 20 states and the District of Columbia on January 1, 2015. Laws and automatic adjustments were made official with the start of the New Year. That means 29 states have minimum wages above the federal minimum of $7.25 an hour.

When President Barak Obama was reelected, he put out a call for the federal minimum wage to be increased to $10.10 an hour and for private companies to take the initiative and raise wages independently. Soon after, Obama established an executive order giving federal workers that raise. His actions spurred some companies, legislatures, cities, and governors to take similar action.

In the 13 states that boosted their minimum wages in January 2014, 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.

“One out of four workers in Maine’s Second District—almost 60,000 workers—would benefit from an increase in the minimum wage to $10.10 an hour, as proposed by President Obama,” said Bangor City Councilor Joe Baldacci.

According to the Congressional Budget Office (CBO), in 2014 the cost-benefit to the economy would be 49 to 1 meaning — an extra dollar in worker’s wages, brings $49’s worth to the economy. The CBO estimated that raising the minimum wage to $10.10 and indexing it to inflation would increase the wages of 16.5 million workers.

On March 26, 2014, Connecticut passed legislation to raise the minimum wage from $8.70 to $10.10 by 2017, the first state to address President Obama’s call for an increase in the minimum wage.

Minimum-Wage-2013-newAccording to the Economic Policy Institute (EPI), the federal minimum wage of $7.25 is worth $2 less today than it was in 1968, when adjusted for inflation. The EPI study found a full-time worker would need to earn $11.06 an hour in 2011 to keep a family of four out of poverty.

A person working 40 hours a week at the federal minimum wage of $7.25, would earn $290 each week—or $15,080 per year—$4,610 below the federal poverty level.

The Pew Center reported in January 2014 that 73 percent of Americans supported raising the minimum wage from $7.25 to $10.10 per hour. By political party, 53 percent of Republicans (mostly women) and 90 percent of Democrats favored this minimum wage increase.

The value of the minimum wage has been so severely eroded that businesses today are paying minimum wage workers 23 percent less than they were in the 1960s, while other areas of the economy have grown substantially. Over the past 50 years, the minimum wage has seen little to no growth as worker productivity has surged.

Screen Shot 2015-05-28 at 5.17.10 PM“For about four decades, increases in the minimum wage have consistently fallen behind inflation, so that in real terms the minimum wage is substantially lower than it was in the 1960s. Meanwhile, worker productivity has doubled. Isn’t it time for a raise?” asked economist and Nobel laureate Paul Krugman in The New York Times.

The opinion of the economics profession on the impact of the minimum wage has shifted dramatically over the past fifteen years. Today, the most rigorous research shows little evidence of job reductions from a higher minimum wage.

But opponents still claim raising the minimum wage would cause job losses. “There’s evidence on that question—lots and lots of evidence, because the minimum wage is one of the most studied issues in all of economics,” wrote Krugman.

minimum_wage_pie_chart_05A 2013 survey by the University of Chicago’s Booth School of Business resulted in leading economists agreeing by a nearly 4 to 1 margin that the benefits of raising and indexing the minimum wage outweigh the costs. The turnaround by many economists has to do with viewing the issue differently from using the assumptions of previous economic models.

“Workers aren’t bushels of wheat or even Manhattan apartments; they’re human beings, and the human relationships involved in hiring and firing are inevitably more complex than markets for mere commodities. And one byproduct of this human complexity seems to be that modest increases in wages for the least-paid don’t necessarily reduce the number of jobs,” wrote Krugman. “What this means, in turn, is that the main effect of a rise in minimum wages is a rise in the incomes of hard-working but low-paid Americans.”


From an article in Maine Insights by Ramona du Houx


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