President Obama has hit the campaign trail again to push policy reform that will raise minimum wage to $9 per hour. The White House asserts that increasing minimum wage elevates the economic status for the working-poor, particularly single parents and women, who account for 60 percent of hourly employees. Raising the wage helps parents avoid debt and support their families.
However, this initiative does not account for the potential detriment that raising minimum wage can have on businesses and unemployment. Though seminal research has found that minimum wage increases benefit workers and the costs often fall on consumers, it also has a negative impact on low-skill workers. The American Enterprise Institute, a Republican-leaning think tank, found that a 10 percent increase in minimum wage decreases low-skill employment by a minor percentage. Since low-skill workers will have to be employed at a higher rate, employers cut hours and some lose their jobs.
Despite their findings, most evidence supports President Obama’s position.
Alan Krueger, who is now Chairman of the White House Council of Economic Advisers, and his colleague David Card produced research in the 1990s that focused on the results of New Jersey’s decision to raise minimum wage. Their findings included:
- No evidence that the rise in New Jersey’s minimum wage reduced employment at fast-food restaurants.
- Prices of fast-food meals increased in New Jersey, so the burden of cost was passed on to consumers.
Even the consumer costs are minimal. “The Effect of Minimum Wage on Prices,” a 2004 collection of previously published research found that a 10 percent increase in minimum wage increases food prices by less than 5 percent. So though Republicans and Democrats have opposing viewpoints on President Obama’s proposal, the real impact of minimum wage is pulling the poor out of poverty by helping 15 million workers and paying a little more for a blouse or cheeseburger.