A case for raising the minimum wage

Minimum wage law makes for a widely debated and complex topic. Much of the focus on legislation today revolves around the effects of a minimum wage increase. While there is still room for debate, there are compelling signs that raising the minimum wage offers economic benefits.

The national minimum wage in the United States is currently $7.25 per hour. However, there are two states with minimum wages below that level, 14 states with a minimum wage at the national level, five states with no minimum wage laws, and 29 states and DC with minimum wage levels above the national average.

The national minimum wage is slow in catching up to inflation rates. From 1997 to 2007, it stayed constant at $5.15 per hour. Currently, it has been stuck at $7.25 for over five and a half years.

The federal government is having trouble making meaningful strides in minimum wage laws. In April 2014, attempts to pass a plan that would gradually increase the national minimum wage to $10.10 were voted down by Congress. Democrats overwhelmingly approved of the plan, while Republicans solidly rejected it, despite 65% of American citizens, and even a majority of Republicans, supporting the measure.

Meanwhile, in 2013 and 2014 alone, 13 states and 10 city governments increased minimum wage, with 10 states creating comprehensive plans to eventually raise the minimum wage to $10.10 or more. Connecticut became the first state to do so in March 2014, with a plan to raise minimum wage to $10.10 by January 1, 2017. This plan would serve largely as a blueprint for other states.

The beneficial economic results of minimum wage increases can be illustrated with a 1992 study of New Jersey and Pennsylvania. The study started April 1, 1992 when New Jersey raised its minimum wage from $4.25 to $5.05, or nearly 20 percent, while Pennsylvania’s minimum wage remained at $4.25. The study followed 410 fast food restaurants from eastern Pennsylvania and New Jersey and compared the results, ending in December 1992. Employment in New Jersey quickly expanded in the low-wage stores (those paying $4.25 before the increase), while employment at the high-wage stores (those paying $5.00 an hour or more) contracted only slightly more than in Pennsylvania. Other variables were incorporated into the estimates to guarantee that the wage increase was isolated as a distinct factor. The study also showed that overall employment increased in New Jersey, without affecting the wealth gap. Additionally, the study tracked product costs to reveal that although average prices did increase 3.2 percent by the end of the study, the result was not as severe as predicted. Lastly, the study refuted the claim that raising the minimum wage would decrease the amount of stores opening, with a slight increase in fast food chain openings.

More recently, in July 2014, democratic representative George Miller of California pointed to Department of Labor findings which suggested that the 13 states to increase their minimum wage laws in 2013 and 2014 experienced faster job growth than the ones that didn't.

“They’re seeing increased activity in stores. They’re seeing increased employment in small businesses. They’re seeing increased employment of the hospitality industries. All of the old stories where people are trying to tell you this was going to be the death knell of businesses in our communities – it’s just the opposite,” Miller said.

Dr. Melissa Kearney, an economist with the Brookings Institute confers similar findings.

“Research is quite clear that raising the minimum wage raises wages not just for those now making the minimum. […] To keep the wage structure in a firm place employers will raise wages up the scale,” Kearney said.

Nearly a third of workers in the United States, or 35 million people, would benefit from an increase, according to Kearney’s projections.

The debate is far from over. Warnings regarding damage to small businesses, widening the income gap and crowding out of low-wage jobs continue to surface. Yet numerous studies and statistics refute these claims. Public opinion remains in favor of an increase. States and cities are rapidly increasing their minimum wage. Although the perceived burden of these laws falls on small businesses, six in 10 small business owners support the measures. Small businesses continue to open in states that have recently seen minimum wage increases. So what interest remains most stubbornly opposed to raising the minimum wage? Big business.