Wage wars: weighing an increase to minimum wage

February 14, 2013. Inc. Magazine says that the data is mixed, but a minimum wage increase may not be as bad for business as you think. The story written by Jeremy Quittner is excerpted below.

Still, many economists and public policy advocates argue that in states where minimum wage is higher than the federal mandate, the economies fare better than in states where businesses stick to the federal minimum wage, which is currently not indexed to inflation and hence forces some workers to live below poverty level.

“There’ s an emerging consensus that we can’t build a recovery on poverty wage jobs, and these are the fastest growing jobs in the economy,” says Paul Sonn, legal co-director for the National Employment Law Project. In today’s dollars, the current federal minimum wage offers 30 percent less purchasing power than it did in 1968, according to NELP. (A handful of states, including Alabama, Arkansas and Minnesota, mandate even less than the federal minimum wage, which was established as part of the Fair Labor Standards Act of 1938 and contained exemptions for some poorer states.)

Advocates also argue that wage increases bolster loyalty to the employer and create more engagement at work, limiting the cost of turnover.

Additionally, when low-wage workers are paid more, they tend to immediately spend extra wages locally, says James Parrott, deputy director and chief economist for the Fiscal Policy Institute in New York. Increasing the minimum wage to $8.75 in New York State, for example, where there are 1.6 million low-wage workers making $7.25 an hour, would add $1 billion more in state revenue, and an additional 7,300 jobs, according a research report released in January by FPI, which contrasts dramatically with National Federation of Independent Business research. Even fans of wage hikes acknowledge that they must be done in steps–say, an $1.00 per hour jump the first year, and 75 cents the second. “We usually think of [implementing] minimum wage increases in reasonable increments, so it’s something businesses can adapt to,” Parrott says.

 

Filed in: FPI in the News