What Actually Happens When You Raise the Minimum Wage

The Atlantic Wire

Insisting that raising the federal minimum wage to $9 an hour would cost jobs, House Speaker John Boehner has already rejected President Obama's State of the Union call to bring it up from $7.25. "When you raise the price of employement, guess what happens? You get less of it," Boehner said. Here's research that says otherwise:

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It does not cost jobs. As The New Republic's Jonathan Cohn explains, that's because some research indicates that the higher cost of hiring someone is offset by the stability an employer gets out of it -— better paid workers quit less. (The White House says Costco and Stride Rite have found this to be true.) Other research finds that the effect on employment would be limited, Bloomberg's Evan Soltas explains. On the other hand, it's possible these better-paying low-skilled jobs end up going to teenagers from wealthy families, University of California - Irvine professor David Neumark told The Wall Street Journal. And while correlation is not causation, it's hard not to notice that the states without minimum wage laws — Alabama, Louisiana, Mississippi, South Carolina, Tennessee — do not have the best economies in the union. 

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It would reduce income inequality. Two studies have shown that raising minimum wage would help raise incomes of poor people, Soltas writes.

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It could help the economy. People who make less money tend to spend a bigger portion of it. A 2011 study by the Federal Reserve of Chicago found that for every $1 increase in the minimum wage, the worker's household spends about $2,800 more a year. The Economic Policy Institute said in August that raising the minimum wage to $9.40 by 2014 would increase gross domestic product by $25 billion, and create 100,000 new jobs.

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In fact, the real problem might be Obama is aiming too low. When Obama was running for president in 2008, he wanted to raise the minimum wage to $9.50 an hour. That would be $10.13 in today's dollars, Cohn notes. And Obama doesn't want it to take effect until 2015. Plus, we're missing some people. Obama didn't say it in his State of the Union address, but the White House released a memo saying he favored raising the tipped minimum wage, too, though it doesn't specify by how much. This is important, because the number of people working in these jobs is growing faster than in other industries. The Leisure and Hospitality industry has recovered faster than other sectors, according to the Bureau of Labor Statistics. It added 77,000 jobs in the last three months, and 80 percent of those new jobs came from food services and drinking establishments. It has recovered all jobs lost in the recession. And yet it is one of the lowest-paid sectors — it has the highest percentage of workers making minimum wage or less. The minimum wage for tipped workers is $2.13 an hour. This hasn't changed in more than a decade.

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