A minimum wage hike has been in hot debate, but the proposed hike may have less impact than previously claimed. As minimum wage legislation enters thirty-four state legislatures across the country, fears of inflation and employment reduction are being spread by various vested interests.
In Washington State, which currently has the highest minimum wage in the country at 9.32 per hour, a bill has been proposed to increase the wage to $12 per hour over the next three years. What’s more, the city of SeaTac within Washington State, which encompasses the area directly surrounding the Seattle-Tacoma International Airport, voted to raise the minimum wage of transportation and hospitality workers to $15 per hour starting in January 2014. This would mean an increased wage for roughly 6,000 out of 27,000 SeaTac residents.
When the wage increase in Washington was first proposed last summer, Alaska Airlines and the Washington State Restaurant Association filed a lawsuit to try and block the legislation from taking effect.
The lawsuit claimed that petition signatures to put the wage increase on the November ballot were not valid. It went on to claim that increasing the minimum wage would cause an increased cost to businesses that would force the businesses to either lay off employees, reduce hours, reduce quality of goods and services, or increase the costs of goods sold.
The purpose of the increasing the minimum wage is to create a living wage for workers, but if costs to consumers increased and businesses laid off workers as Alaska Airlines and the Washington State Restaurant Association claimed, then that purpose would be negated.
In reality, increased minimum wage has not been linked to either a significant increase in costs of goods or to a decrease in employment.
Studies by Sara Lemos from the Economics Department at the University of Leicaster from 2004, 2006 and 2008 have concluded that an increase in minimum wage does not significantly increase costs of goods to consumers.
Lemos looked at various studies using different types of economic models to determine whether a hike in minimum wage resulted in inflation. Lemons found that one economic model showed that inflation from an increased minimum wage was, too small to be of concern, with a 10 percent minimum wage increase 0.2 percent impact on price inflation. Another economic model showed that a 10 percent minimum wage increase was even less significant, only increasing inflation by 0.02 percentage points, illustrating an increase in the minimum wage would have less impact than previously claimed.
Three other economic models similarly predicted little increase in inflation due to minimum wage. Overall, higher minimum wage was found to have no more than a 0.4 percent impact on inflation at most.
While this does point to a net increase in prices after a hike in the minimum wage, Lemos also said that the increase is less significant than the benefits reaped by minimum wage workers. In other words, raising the minimum wage does in fact contribute to a living wage, and does not cause inflation to skyrocket as the lawsuit claimed by Alaska Airlines and the Washington State Restaurant Association.
As for the claim that increasing the minimum wage will result in layoffs, a study by John Schmitt of the Center for Economic Policy and Research that was released in February 2013, found that evidence for the claim is inconclusive at best.
Generally, Schmitt found that minimum wage has little to no impact on employment. Analysis of various reports showed that employers deal with increased minimum wage in a variety of ways, from reducing the salary of higher paid workers to incurring lower profits. Either of these points to a reallocation of resources, which benefits those who struggle to make ends meet.
Schmitt further found that there is the most conclusive evidence for increased worker productivity and less employee turnover, both of which are beneficial for companies.
As decisions are made across the country about increasing minimum wages, claims of inflation and job loss need to be kept in check with research-based evidence on economic realities, since studies prove a hike in the minimum wage will have less impact than claimed.
By Julia Waterhous