THE BENEFITS OF RAISING THE MINIMUM WAGE

Our mainstream media rarely present the numerous benefits of increasing the minimum wage. The benefits more than offset any negative effects and include:

  • Increased incomes for workers at and just above the minimum wage,
  • Benefits for children in families where income increases,
  • Health benefits for workers whose income increases,
  • Reduced need for publicly-funded safety net programs,
  • Stimulation of the local economy,
  • Reduced income inequality,
  • Increased incentive to work for low-wage workers, and
  • Reduced turnover, less absenteeism, and improved worker productivity in businesses where workers’ pay increases.

First and foremost, increasing the minimum wage would increase the incomes of many workers, both those earning the minimum wage and those earning just above the current and new minimum wage levels. And these aren’t teenagers working part-time: 91% are over 20 and 57% work full-time. More than half of minimum wage workers are the primary sources of income for their families and over 20% have a college degree. [1]

Nationally, 42% of all workers earn less than $15 per hour. The commitments in New York and California to increase their minimum wages to $15 are estimated to increase the incomes of over a third of workers in those states. [2] Even at $15 per hour (i.e., $30,000 per year based on 50 weeks at 40 hours per week), in many areas of our country a single person would have a barely adequate income to live on after taxes. A family with one or more children and one parent working full-time at $15 would be struggling to get by, let alone to provide the kind of experiences that support good child outcomes. At the current federal minimum wage of $7.25, a parent working full-time is in poverty.

The evidence is very strong that children’s outcomes improve when their family’s income increases. Children, and especially young children, are disproportionately in low income families. In Massachusetts, 22% of working parents would benefit from a $15 minimum wage, while 31% of children would. Parents experiencing less economic stress are more likely to have the time and energy to be nurturing parents. And they have more money to purchase all the things that support strong child development, from good food to books.

Raising the minimum wage improves workers’ health according to studies in the U.S. and in Great Britain. Workers who benefited from an increase in the minimum wage have been found to have reduced anxiety and depression. Increased income has been found to reduce the number of low birthweight babies and neonatal deaths. Low income has been linked to higher rates of obesity, high blood pressure, heart disease, smoking, diabetes, and arthritis. [3]

Health may be affected by low income a) due to the increased stress of trying to make ends meet, b) because health care and medicine are not affordable, and c) because healthy food is less available and affordable. Therefore, an increase in the minimum wage and in workers’ incomes is likely to have health benefits and contribute to restraining increases in health care costs.

When a person’s or family’s income increases, they are less likely to need publicly-funded safety net programs. Therefore, taxpayers and government save money due to a reduced need for subsidies for food, housing, child care, and health insurance.

Increasing the minimum wage stimulates the economy. The increased spending and consumer demand from workers whose incomes increase has positive effects on other local workers and businesses. Because of the multiplier effect, [4] the stimulus effect on local economies is substantial. A fundamental reality of economics – not just a theory or “law” – is that when workers have more money, they consume more and, therefore, businesses have more customers and sales, so they hire more workers, reducing unemployment.

Every dollar an hour increase means $2,000 per full-time worker per year in additional income to spend. When you multiply that by millions of workers, there are billions of additional dollars that would be spent in our economy. That would contribute to strengthening our economic recovery in a significant way.

Furthermore, this increase in economic activity will increase governments’ tax revenues. Some of these revenues should be used to ameliorate any negative effects of a minimum wage increase. Unemployment benefits, job training and placement programs, and other social supports should be provided to help anyone who lost a job. Small businesses that experienced significant negative effects should receive assistance, such as low cost loans to help bridge the transition.

Because an increase in the minimum wage would raise the incomes of those at the bottom of our income distribution, it would reduce income inequality. Other policy changes are needed to address this issue, but increasing the minimum wage is one important step.

Employers will benefit, as well as workers. Workers whose wages increase because of an increase in the minimum wage (both those at and just above the new minimum wage level) will have an increased incentive to work because their time is more highly rewarded. They will work more hours and be more motivated. As a result, absenteeism will decline and productivity will be enhanced. Furthermore, increases in pay have been found to reduce turnover. This is a major benefit to employers, as recruiting and training new workers is a major expense.

The evidence is clear that an increase in the minimum wage will have significant benefits for many workers and their families, for businesses and employers, and for our economy and society as a whole. A national, $15 minimum wage, phased in over a few years and then indexed to increase with inflation, is both economically sound policy and the right thing to do.

[1]       Chaddha, A., Sept. 2016, “A $15 minimum wage in New England: Who would be affected?” Federal Reserve Bank of Boston (https://www.bostonfed.org/publications/community-development-issue-briefs/2016/a-$15-minimum-wage-in-new-england-who-would-be-affected.aspx)

[2]       Howell, D.R., Summer 2016, “Reframing the minimum-wage debate,” The American Prospect

[3]       Leigh, J.P., 7/28/16, “Raising the minimum wage could improve public health,” Economic Policy Institute, Working Economics Blog (http://www.epi.org/blog/raising-the-minimum-wage-could-improve-public-health/)

[4]       The multiplier effect refers to the fact that each dollar spent in the local economy supports additional spending by the individual or business that received it. This cycle of re-spending of every dollar spent is repeated endlessly. Therefore, the impact of each additional dollar spent in the local economy is multiplied.

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