In his recent State of the Union address, President Obama proposed raising the federal minimum wage from its current $7.25 an hour, a level where it has been stuck for three years, to $9 an hour.
Predictably, members of the Republican Party quickly quashed any notion that they would support any such notion.
Sen. Marco Rubio, R-Fla., who gave the official GOP response to Obama’s speech, said: “I want to see people making a lot more than $9 an hour. … The question is, is a minimum wage the best way to do it? And history has said the answer is absolutely not. In fact, the impact of minimum wage usually is that businesses hire less people.”
Congressman and former vice presidential candidate Paul Ryan said, “I think it actually is counterproductive in many ways. You end up costing jobs from people who are the bottom rung of the economic ladder.”
French philosopher Michel de Montaigne once wrote: “Nothing is so firmly believed as what is least known.”
What Rubio and Ryan know the least about is the impact that raising the minimum wage actually has on the hiring of workers, as well as on the economy in general.
Research Disproves Congressional Assertions
The fact is, since the Fair Labor Standards Act established the original federal minimum wage in 1938, research on minimum wage legislation is not only voluminous, it is contradictory to what Ryan, Rubio and others in the GOP choose to believe — that raising the minimum wage reduces employment.
Again and again, researchers have found that raising the minimum wage, whether on the national, state, county or municipal level, has no negative effect on employment – not even during hard economic times such as these.
For instance, a study published in 2010 in the Review of Economics and Statistics, found “no detectable employment losses from the kind of minimum wage increases we have seen in the United States.”
Many other studies over the past few decades have reached similar conclusions.
In fact, some studies have found employment actually increases slightly when a minimum wage is raised, because it has the effect of reducing turnover, forcing firms away from a low-human capital investment model to one where workers stay attached to the workforce and employers make stronger investments in training.
Indeed, a recent report by the Economic Policy Institute projects that increasing the federal minimum wage to $9.80 by July 2014, would:
- Raise the wages of about 28 million workers, who would receive nearly $40 billion in additional earnings
- Increase the Gross Domestic Product (GDP) by roughly $25 billion
- Create approximately 100,000 net new jobs
So not only does raising the minimum wage not cause job losses, it actually helps the economy by putting more money into the pockets of more workers, who then increase the demand for goods and services with their greater purchasing power, spurring even more employment and rising wages for all.
In addition, taxpayers are better off when the minimum wage goes up because they have to bear fewer of the negative externalities – such as the costs of food stamps and Medicaid – that low-wage workers must rely upon because, even when they work full time, their inadequate incomes keep them below the poverty line.
Rubio and Ryan have their history backward, and their understanding is erroneous.
Big Business Employs Most Low-Wage Workers
There’s yet another Republican objection to raising the minimum wage, one voiced by Speaker of the House John Boehner, R-Ohio, who said small businesses would be less likely to hire low-skilled workers if it cost them more to do so.
Once again, what the Speaker seems to know the least about is what he chooses most firmly to believe.
Here are the facts as revealed by the National Employment Law Project in July 2012:
- The majority (66 percent) of low-wage workers are not employed by small businesses, but rather by large corporations with more than 100 employees.
- The 50 largest employers of low-wage workers largely are recovered from the recession, and most are in strong financial positions: 92 percent were profitable last year and 78 percent have been profitable for the past three years.
- Top executive compensation averaged $9.4 million last year at these firms, and they returned $174.8 billion to shareholders in dividends or share buybacks over the past five years.
- The three largest low-wage employers in the United States are Walmart, Yum! Brands (operator of fast-food chains Pizza Hut, Taco Bell, and KFC) and McDonald’s. Each was profitable during all of the past three fiscal years, and each earns profits that are substantially higher than their pre-recession levels.
What the study clearly shows, then, is that the majority of the impact of any increase in the minimum wage will therefore be felt by large corporations rather than by small mom-and-pop businesses, and that “the nation’s top low-wage employers can readily afford to pay for a higher minimum wage for their lowest-paid employees.”
Most Americans Support Raising the Minimum Wage
Outside of Congress, support for raising the federal minimum wage is undeniably strong: 91 percent of Democrats, 74 percent of independents and 50 percent of Republicans all favor raising the minimum wage.
Inside the Capitol, support is less than enthusiastic.
Now then: Congressional pay is set at $174,000 a year. And since many congressional critics believe that the last session of Congress was one of the least productive in a generation, the most revealing thing that can be said about Congress and the minimum wage was perhaps best summed up by comedian Jay Leno:
“Believe me, when it comes to doing the minimum for their wage, Congress knows what it’s talking about.”
Bill “No Pay” Fay has lived a meager financial existence his entire life. He started writing/bragging about it in 2012, helping birth Debt.org into existence as the site’s original “Frugal Man.” Prior to that, he spent more than 30 years covering the high finance world of college and professional sports for major publications, including the Associated Press, New York Times and Sports Illustrated. His interest in sports has waned some, but he is as passionate as ever about not reaching for his wallet. Bill can be reached at [email protected].