Higher Wages, a Stronger Bottom Line and Job Growth

by Patrick Reimherr on August 1, 2014 · 2 comments

As President Obama has said, raising the minimum wage isn’t just the right thing to do for working families, it is also smart economics. Consumer spending accounts for almost 70 percent of GDP. When you put more money in the pockets of working people, they don’t hide it in a mattress – they pump it right back into the economy, spending it on groceries, gas, school supplies and more.

In an economy driven by consumer demand, more money in people’s pockets means more customers for businesses. That’s why small business owners have said that they see higher wages as a sound business investment. And it isn’t just anecdotal – a recent poll shows that more than 3 in 5 small business owners support a $10.10 minimum wage.

Contrary to popular myth – raising the wage doesn’t necessarily mean lower employment, a fact supported by seven Nobel Prize winners and more than 600 other economists. Moreover, those same economists have pointed out that “a minimum-wage increase could have a small stimulative effect on the economy as low-wage workers spend their additional earnings, raising demand and job growth, and providing some help on the jobs front.”

An analysis of jobs data supports the economists’ assertion. At the beginning of this year, 13 states increased their minimum wages. In those states, job growth overall outpaced job growth in those that didn’t increase their minimum wages.

chart showing job growth in states that raised the wage

Washington is one of those states, and at $9.32 per hour, its minimum wage is the highest in the country. It’s also indexed to inflation and increases to keep up with the rising cost of living – the result of a voter referendum in 1998. Over the last 15 years, according to Bloomberg, job growth has continued at an average annual rate above the national rate, and payrolls at restaurants and bars (often seen as vulnerable to higher wage costs) have grown by 21 percent. Also, poverty has been lower than the national level for at least seven years.

For more than 45 years, we’ve seen a steady decline in the purchasing power of the minimum wage. The inflation-adjusted value of the minimum wage has fallen by a third from its peak in 1968.

An increase to $10.10 per hour as proposed by the president would help restore the minimum wage to around its 1968 level, boosting the incomes of 28 million Americans, and lifting 2 million out of poverty to boot. For those workers, they’d end up with a little more breathing room and peace of mind. For businesses across the country, they’d benefit from more customers, and a stronger bottom line. And everyone would benefit from a potential boost to the economy.

Patrick Reimherr is policy advisor in the Office of the Secretary.

 

{ 2 comments… read them below or add one }

1 Jose Rodriguez August 2, 2014 at 3:49 am

We are all struggling. But i just read. House Speaker John Boehner says raising the minimum wage is “bad policy” because it will cause a loss of jobs.

2 Ralph Holmes August 8, 2014 at 9:54 pm

Please pass this information on to the House and Senate as they still don’t get it.

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