(Revised) Time to Raise the Minimum Wage

It has been over four years since the last time there was an increase in the hourly minimum wage for workers in the United States. And it now seems like the time has come for the government to raise this amount from the $7.25 at which it currently stands. President Barack Obama among others believes that a minimum wage increase up to about $10.10 per hour can have an effect of lifting a sizable group of low-income workers above the poverty line. “Americans overwhelmingly agree that no one who works full time should ever have to raise a family in poverty,” Mr. Obama said. I, of course, am on board with this sentiment, but in my opinion, this would not be the only beneficial result of raising the minimum wage. Raising the minimum wage to $10.10 would not only be helpful for the poor, but for the lower middle-class as well. Such an increase would not hurt anyone in terms of loss of employment, and would have significant earnings effects.

Starting from my first point though, “an hourly minimum of $10.10, for example, as Democrats have proposed, would reduce the number of people living in poverty by 4.6 million, according to widely accepted researchwithout requiring the government to tax, borrow or spend.” So clearly this minimum wage increase would benefit a substantial group of people and significantly change their lives. Moreover, evidence from over the years utilizing wage effects across states demonstrates that minimum wage increases do not result in job losses. This alone would be convincing enough for me to hop on board with this policy change. However, as I mentioned, there would be at least one other favorable outcome from a minimum wage increase. Overall, an increase from $7.25 to $10.10 could total in a $4.0 billion monthly benefits yield. And while only about 11% of these benefits would be received by the working poor, and 25% by the poor (or near-poor) families, 62% would be received by households with incomes over two times the poverty level, and 40% by those with incomes over 3 times the poverty level. There are certainly people who would use this to argue against a minimum wage raise because the benefits are not mainly reaped by the lowest-income workers (those who the policy is meant to help). However, I see this as an even more advantageous result of such a wage increase.

If raising the minimum wage at this point in time would help out the broader working class as well as those living in near-poverty (or poverty), then that is all the more reason to put this increase into effect. It is not like those households with incomes just over two or three times the poverty level are living a life of luxury. They are still not making a ton of money and could certainly use these potential benefits as well. Furthermore, going by the most significant economic benchmarks (purchasing power, wage growth, and productivity growth), the current $7.25 minimum is much too low and even the proposed $10.10 minimum is still not high enough. That being said, the increase to at least $10.10 is necessary, if not to an even higher minimum.

Looking at it from a purely economical point of view, the extra money that households with incomes below three times the poverty level (60% of the monthly benefits would be received by this group) receive is very likely to be spent, which is obviously a good thing for everyone involved. This group of people get to have a bit of extra spending money (whether immediate, or a portion for the future to be spent on things like a college education) and the economy benefits as a whole from the extra money being injected into it. Certainly, the debate over whether to raise the minimum wage is a nasty one with no clear cut answer, but I truly believe that these main effects of an increase are reason enough to do so; nobody gets hurt, and many people benefit. It will definitely be interesting to see how this unfolds in the near future.

2 thoughts on “(Revised) Time to Raise the Minimum Wage

  1. meethoon

    There are great a lot of great points you make in the post! One thing that you may want to consider is that if minimum wage rises the company may have to fire some of the people to meet their budget. This may lessen the positive benefits you talked about here!

  2. psseo

    It’s insightful analysis for minimum wage increase. I also agree with your argument. But, unfortunately, many economists believe that the increase of minimum wage will hurt the employment situation of the lowest skill workers. I wonder how politicians deal with this issue. They may be very busy to calculate the effects on this year mid-term.

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