The Boost That Comes from Raising the Minimum Wage
The standard argument — really, the only argument — against raising the minimum wage is that it will lead to job loss. The argument is beloved by die-hard opponents of raising the wage because it provides them with a veneer, however flimsy, of concern about the welfare of the working poor.
Economic studies have repeatedly shown that argument to be spurious. Now the latest survey of 350,000 small businesses from Paychex, a payroll provider company, and IHS, a business analysis firm, provides strong indications that the exact opposite may be true.
In April, the Paychex/IHS survey, which looks at employment in small businesses, found that the state with the highest percentage of annual job growth was Washington — the state with the highest minimum wage in the nation, $9.32 an hour. The metropolitan area with the highest percentage of annual job growth was San Francisco — the city with the highest minimum wage in the nation, at $10.74.
This suggests that the relationship between a high minimum wage and job creation needn’t be inverse. If anything, it suggests that relationship is direct.
To be sure, the Bay Area economy is booming, but minimum-wage opponents would nonetheless have us believe that mandating the payment of close to $11 an hour must cause job loss at least in fast-food joints and Chinatown’s kitchens. San Francisco shouldn’t be creating more small-business jobs than any other city. It’s theoretically impossible.
So much for the theory. San Francisco is doing exactly that.
The compatibility of higher wage standards and job creation shouldn’t come as a surprise. A classic study of fast-food employment by former White House economic adviser Alan Krueger and Berkeley economics professor David Card demonstrated that raising the minimum wage does not lead to an appreciable decline in employment. Opponents of a higher wage have invoked a recent study by the Congressional Budget Office that argued a raise in the national minimum wage from $7.25 to $10.10, as President Obama has advocated, might cost up to 500,000 jobs. But even that study said that the raise would increase the wages of 16.5 million Americans — at least 33 times the number of those who might lose jobs — and elevate 900,000 people out of poverty.
What critics of a higher minimum wage ignore is that, by putting more money into the pockets of the working poor — a group that necessarily spends nearly all its income on such locally provided basics as rent, food, transport and child care — an adequate minimum wage increases a community’s level of sales and thereby creates more jobs. The Los Angeles Economic Roundtable recently concluded that raising the hourly minimum to $15 in Los Angeles County — the nation’s largest, home to 10 million people — would generate an additional $9.2 billion in annual sales and create more than 50,000 jobs.
The Seattle City Council is expected to enact a proposal from Mayor Ed Murray, developed by a business-labor task force, to phase in a $15 citywide minimum wage over seven years. The progress of the measure is a testament not only to the fast-food workers nationwide who’ve been campaigning for $15 hourly pay from McDonald’s and other chains but also to local labor and community leaders. They injected that issue into last year’s mayoral election, winning a pledge from Murray to push for the $15 standard. With direct employee-employer collective bargaining close to a dead letter in the private-sector economy, the likely success of the Seattle measure points to a new model for bargaining, in which progressive governments respond to worker pressure by legislating the wage increases employees can no longer win in the workplace.
In a nation where most people’s wages have been stagnant or dropping for many years, and where the combination of globalization and de-unionization has stripped from workers the bargaining power they once possessed, the role of government in addressing wage issues has become more central than ever. By investing in job-creating public works, by raising the minimum wage, by lowering taxes on those corporations that give their workers annual productivity increases and raising taxes on those that don’t, government can take up the slack created by the suppression and near-disappearance of private-sector unions. But first, it must dispel the canard that raising wages destroys jobs. Now it can point to San Francisco and Washington as evidence that it doesn’t.
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This has been reposted from The Washington Post.
