Minimum Wage Increase Has Nearly No Negative Impact, Study Says

minimum wage increaseThe minimum wage debate continues as proposals of an increase from $7.25 to $10.10 per hour are being considered. There is a lot of speculation as far as what the outcome would be if the increase were made across the board. According to one study, however, there is a minimal negative impact from bumping up the hourly wage of underpaid employees.

Economists at the University of California, Berkley studied a list of cities that have already raised their minimum wage over the last 10 years. What they found was that it did not have a big negative impact on those cities, as some have speculated. Using San Francisco as an example, a city that had a 26 percent minimum wage increase, followed by gradual increases until it reached $10.74 an hour, they found almost no negative effects.

Businesses, such as restaurants, did enforce modest price increases, but many of them actually absorbed the added cost of the higher wages. Researchers also found that minimum wage employees showed more productivity once the raise went into effect, thus reducing a possible negative outcome.

As one might expect, the cost of eating out did go up with the minimum wage increase, according to the study. However, even with an increase of 25 percent in minimum wages, the restaurants only increased their menu prices by two to three percent. Those numbers rose to six to seven percent when the minimum wage was raised by a higher percentage.

The average pay increase for the cities in the study was 40 percent. Michael Reich. an economics professor with the Research on Labor and Employment states that raising the minimum wage up to $13 per hour does not have a negative impact on employment. Though he said that effect of the requested $15 per hour for fast food workers had not yet been studied.

A $15 an hour minimum wage would likely have a different impact. It is too big of a hike and restaurants would be forced to reduce employees hours, rely on fewer people or perhaps turn to automation as a way to keep costs down.

Furthermore, a paper by the Economic Policy Institute covering national research details the “multiple positive effects” that would occur from a minimum wage increase. Namely, the potential for economic growth. Aside from new jobs, the research shows that higher wages could spin the economy and give American working families a much-needed boost. It could also help reduce the current unemployment rate of 7.7 percent, as well as increase spending, which would result in a better economy overall.

According to the Bloomberg National Poll that was released Tuesday, 69 percent of Americans favor the minimum wage increase to $10.10 per hours, as long as jobs are not lost because of it. Meanwhile, 28 percent of Americans oppose the minimum wage hike.

The proposed increase would give 16.5 million people more annual earnings and a chance to make a living while working a minimum wage job. The tradeoff, however, is said to be the loss of approximately 500,000 jobs.

While studies and research highlight the possible benefits, or at least the low risk of a negative impact, as a result of a minimum wage increase to $10.10 by July 1, 2015, the proposal still shows mixed reviews among Americans.

Editorial by Tracy Rose

Sources:

Los Angeles Times
Seattle Times
EPI

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