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For a Better Economy, Raise the Minimum Wage

Reflecting a national trend, Washington DC is scheduled to raise its minimum wage later this year from $12.50 to $13.25 per hour, or a 6% increase. This minimum wage hike was set forth in a 2016 bill signed by Mayor Muriel Bowser that laid forth a plan for Washington to gradually raise the minimum wage to $15 per hour over a period of four years by increasing the minimum wage approximately $0.70 per year. While dozens of states and cities throughout the United States have adopted similar measures, the issue remains significantly contentious along party-lines. This partisan debate has been highlighted on Capitol Hill, where Congress has been unwilling and unable, since 2009, to increase the federal minimum wage from a mere $7.25. Similarly, it was an issue of contention during the 2016 Presidential Election. When asked by Fox News anchor Neil Cavuto during a debate whether they supported increasing the federal minimum wage, Marco Rubio, Donald Trump, and Ben Carson assessed that the current federal minimum wage was already too high and raising it would be disastrous and would lead to higher unemployment rates. Yet, despite these and similar claims made by Republicans, a significant amount of empirical evidence suggests that increasing the minimum wage is beneficial to such workers and to the economy in several regards.

First, the District of Columbia’s plan to gradually increase the minimum wage until it reaches $15 per hour in 2020, and then continue to raise the minimum wage annually by the inflation rate, is expected to produce a pay increase for approximately 70,000 workers in Washington DC. Additionally, it is projected to cause an upward pressure on the wages of an additional 44,000 workers. This positive externality, while surprising to some, is supported by numerous studies and empirical data that posits that firms will increase pay for individuals currently making slightly above the proposed price floor for labor because they feel a responsibility to do so.

Second, according to analyses from the Economic Policy Institute and Business For A Fair Minimum Wage, increasing workers’ wages fosters higher productivity amongst such workers. Specifically, the Economic Policy Institute found that while the hourly pay from 1973 to 2013 for nonsupervisory workers only increased by 9%, their productivity increased 74%. While not all of this increase in productivity can be attributed to increasing workers’ compensation, as technology and other factors have an influence on workers’ productivity, this statistic is still notable.

Third, several economists and major financial institutions, including the International Monetary Fund and Merrill Lynch have asserted that higher wages are essential for increasing the speed of a nation’s economic growth. This relationship between the speed of economic growth and higher relationships can be attributed to the fact that higher real wages will give greater purchasing parity to consumers, thus causing an increase in consumption, and, in turn, gross domestic product (GDP). Fourth, according to a 2016 White House report, an increase in the minimum wage reduces the crime rate by approximately 3 to 5%.

Lastly, the two central arguments posed by those who oppose increasing the minimum wage on the federal level and in cities such as Washington DC are baseless and unsubstantiated. The first argument posited by such individuals is that an increase in the minimum wage would cause a significant increase in unemployment rates. Yet, multiple economic analyses and empirical data sets demonstrate that modest increases in the minimum wage for workers produce little, if any, increase in those who are unemployed. More specifically, over 600 economists, including seven Nobel Prize winners, affirm the relationship between unemployment and increases in the minimum wage noted in these economic analyses. While, opponents of increasing the minimum wage frequently cite a University of Washington study that concludes that Seattle’s minimum wage increase produced higher levels of unemployment, they fail to realize that this study is highly flawed. This study excludes approximately 40% of the labor force in Seattle, due to the fact that the researchers selected to only look at workers who work for businesses with only a single location. Additionally, Seattle’s unemployment rate is the lowest it has been in the last nine years, at an impressive 2.6%. The second argument utilized by such critics is that any increase to the minimum wage would devastate small businesses, leading to less firms and competition. Yet, studies show that over 60% of small business owners and 80% of business executives in local chambers of commerce support raising the minimum wage.

Simply stated, increasing the minimum wage is beneficial to workers, productivity, and economic growth, while producing minimal to no negative effects on unemployment rates.

Photo credit Annette Bernhardt, Creative Commons

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