Impact of Raising the Federal Minimum Wage

The federal minimum wage is going up to $7.25 an hour. Some say the raise during a deep recession is a bad idea because it could cause employers to lay off more workers. Economic Studies Senior Fellow Gary Burtless doesn’t think anyone will lose their job, but some future hires may be impacted. He says the most noticeable impact of the raise will be in the spending power of some workers.

Transcript

“I don’t think that the effect of raising the minimum wage is going to be very noticeable except to the people whose paychecks are a little fatter. There’s very little evidence over the last 30 years that hikes in the minimum wage have had an adverse impact on large numbers of very low-skilled workers in terms of their chances of getting a job. During the 1980s the value of the minimum wage fell a long way compared with prices in the US economy and other wages in the US economy. The people at the bottom did not see big improvements in their job-finding ability and I think it works in the other direction also – when there’s a hike in the minimum wage they won’t see losses in their job opportunities, either. The main effect is going to be low-wage workers will have a higher pay today than they had yesterday and there will be, I think, virtually no detectable effect on employment.”

“…A common complaint that you sometimes hear from businessmen who have to pay the minimum wage is it’s going to raise their costs and hurt them. I think they sometimes forget that, well, the same increase in costs is being faced by all of their competitors and so the competitive situation of these employers is not as bad as they suggest. The second thing to bear in mind is that if you take all of the wages paid to all of the minimum wage workers in the United States and you add all of those wages together, it is a very trivial part of the total wage bill of American businesses and so the effects on prices in the United States are also likely to be very, very tiny.”

“…I’m sure that if members of Congress had been told that the unemployment rate would be 9.5% and rising on July 24, 2009 they might have hesitated to raise the minimum wage by 11% on that particular day. On the other hand it’s very difficult to assemble coalitions in Congress to get the minimum wage raised. All opinion polls, to me, show that this is a very popular way to help workers with low skills improve their take-home income.”