Separating Myths from Reality: Four Arguments for Raising the Minimum Wage

by Fran Quigley
Clinical Professor of Law (Faculty Profile)
Health and Human Rights Clinic
Indiana University Robert H. McKinney School of Law
Lawrence W. Inlow Hall, Room 111N
530 W. New York Street
Indianapolis, IN 46202-3225


Proposals to raise the U.S. minimum wage have attracted a great deal of attention in the last several years.  At the federal level, President Obama and many members of Congress have expressed support, via the Fair Minimum Wage Act, for an increase in the U.S. minimum wage. [1]. The legislation calls for an increase to $10.10 per hour for most workers, compared to the current minimum of $7.25 per hour. [2].  The bill also would increase the bottom level of pay for tipped workers from $2.13 per hour to 70% of the hourly worker minimum, and index both hourly and tipped worker wage levels for inflation. [3].

The federal bill has not passed, but twenty-nine states and the District of Columbia have all raised their minimum wage above the federal level. [4].  At least 140 individual communities have passed living wage ordinances, which raise salaries above the federal or state minimums. [5].  Bills proposing an increase in Indiana’s minimum wage, currently set to mirror the federal level, [6] failed to get a hearing in the 2015 session of the Indiana General Assembly. [7].

The minimum wage debate has often been characterized by misstatements of facts and forecasts that are not supported by evidence.  In an effort to separate the myths from the reality, here are four arguments for raising the minimum wage:

I.     RAISING THE MINIMUM WAGE BOOSTS INCOMES AND HAS NO DISCERNABLE NEGATIVE EFFECT ON EMPLOYMENT.

The minimum wage is one of the most studied subjects in the field of economics.  In 2013, the Center for Economic and Policy Research compiled the results of studies conducted about the minimum wage in the preceding dozen years. [8].  The weight of the evidence shows that minimum wage increases have boosted incomes while causing no discernable negative effect on employment. [9].

When wages increased, businesses adjusted by reducing labor turnover, improving organizational efficiency, trimming high-earner wages, and small price increases. [10]. Other studies have shown that raising the minimum wage boosts the local economy due to increased consumer spending by low-wage workers. [11].

Noting this evidence, 600 economists, including multiple Nobel Prize winners and past presidents of the American Economic Association, have called for a minimum wage increase to $10.10 per hour and indexed to inflation. [12].  The call for indexing is key:  If the minimum wage had kept up with inflation over recent decades, the current minimum wage would be $10.56 an hour today instead of $7.25. [13].

There are plenty of economists and business organizations arguing the opposite position. [14].  An oft-cited study is a Congressional Budget Office 2014 estimate that a $10.10 minimum wage increase would cause the loss of an estimated 500,000 jobs by 2016. [15].

However, wage expert economists have pointed out that the CBO report is based on flawed data and selective analysis. [16].  Michael Reich of University of California Berkeley and others continue to insist that the best evidence is that minimum wage mandates raise the incomes of low-wage workers and their families, and that the costs to businesses are absorbed largely by reduced turnover costs and by small price increases. [17].

II.     MOST LOW-WAGE WORKERS ARE EMPLOYED BY LARGE MULTINATIONAL CORPORATIONS, NOT MAIN STREET SMALL BUSINESSES.

Most low-wage workers toil for large and profitable corporations that can afford to pay them better wages without cutting employee hours. [18].  These are the same corporations whose CEO’s now earn 300 times what their average employee makes, a record wage gap. [19].  As a result, many business owners large and small, from Costco’s CEO to fast food franchise owners, support a minimum wage increase. [20].

III.     MOST WORKERS WHO WOULD BENEFIT FROM A MINIMUM WAGE INCREASE ARE ADULTS, AND MANY ARE PARENTS.

Contrary to the view that low-wage workers are teenagers or entry level employees, most workers who would benefit from an increase in the minimum wage are adults. [21].  This reality reflects a fundamental shift in the U.S. economy.  With the decline in manufacturing jobs and the increasing orientation toward service sector employment, research by the National Employment Law Project shows that the majority of jobs created in the United States since the recession are low-paying positions. [22].

IV.     LOCAL AND NATIONAL COALITIONS SUPPORTING A RAISE IN MINIMUM WAGE REFLECT BROAD POPULAR SUPPORT.

As far back as the beginning of the 20th century, coalitions of Catholic, Protestant, and Jewish clergy and activists joined the labor movement in pushing for laws that respected the basic humanity of hard work yielding a living wage. [23].  Public opinion polls show that argument still resonates with a strong majority of Americans today. [24].  Even in Indiana, which has resisted the national trend toward wage increases, the Raise the Wage Indiana coalition boasts organizational members from more than three dozen community, faith, and labor groups. [25].

CONCLUSION

Opposition to raising the minimum wage will continue to be lodged, particularly in Indiana, which is now in the minority of states that has not raised its workers’ wages above the federal minimum.  But it is important to recognize that the widespread national support for a minimum wage increase is buttressed by sound economic policy.


[1].  H.R. 1010, 113th Cong. (2013), available at http://democrats.edworkforce.house.gov/sites/democrats.edworkforce.house.gov/files/documents/FairMinimumWageAct-BillText.pdf.

[2]  Id.

[3].  Id.

[4].  State Minimum Wages | 2015 Minimum Wage by State, NAT’L CONFERENCE OF STATE LEGISLATURES, http://www.ncsl.org/research/labor-and-employment/state-minimum-wage-chart.aspx (last visited Mar. 10, 2015).

[5].  T. William Lester, The Impact of Living Wage Laws on Urban Economic Development Patterns and the Local Business Climate: Evidence From California Cities, 25 ECON. DEV. Q. 237 (2011).

[6].  IND. CODE § 22-2-2-4 (2007).

[7].  Dave Stafford, Indiana Bills to Increase Minimum Wage Go Unheard, IND. LAWYER  (Feb. 11, 2015), http://www.theindianalawyer.com/indiana-bills-to-increase-minimum-wage-go-unheard/PARAMS/article/36320.

[8].  John Schmitt, Why Does the Minimum Wage Have No Discernible Effect on Employment?, CENTER FOR ECON. & POL’Y RESEARCH (February 2013), http://www.cepr.net/documents/publications/min-wage-2013-02.pdf (last visited Mar. 10, 2015).

[9].  Id.

[10].  Id.

[11].  Daniel Aaronson et al., The Spending and Debt Responses to Minimum Wage Increases, CHICAGO FEDERAL RESERVE BANK (Feb. 8, 2011), https://www.chicagofed.org/~/media/publications/working-papers/2007/wp2007-23-pdf.pdf (last visited Mar. 10, 2015).

[12].  Over 600 Economists Sign Letter In Support of $10.10 Minimum Wage: Economist Statement on the Federal Minimum Wage, ECON. POL’Y INST. (January 14, 2014), http://www.epi.org/minimum-wage-statement/.

[13].  Annalyn Kurtz, A History of the Minimum Wage Since 1938, CNN MONEY (Feb. 14, 2013, 10:24 AM), http://economy.money.cnn.com/2013/02/14/minimum-wage-history.

[14].  See, e.g., Why Some Economists Oppose Minimum Wages, THE ECONOMIST (Jan. 22. 2014, 11:50 PM), http://www.economist.com/blogs/economist-explains/2014/01/economist-explains-11.

[15].  CONGRESSIONAL BUDGET OFFICE , THE EFFECTS OF A MINIMUM-WAGE INCREASE ON EMPLOYMENT AND FAMILY INCOME (Feb. 18, 2014), available at https://www.cbo.gov/publication/44995.

[16].  Michael Reich, The Troubling Fine Print in the Claim That  Raising the Minimum Wage Will Cost Jobs, THINK PROGRESS (Feb. 19,  2014, 11:50 AM), http://thinkprogress.org/economy/2014/02/19/3307661/cbo-minimum-wage-methodology/. See also Jillian Berman, Even Economists Cited By the CBO Disagree With Its Minimum Wage Report, THE HUFFINGTON POST (Feb. 19, 2014, 3:46 PM), http://www.huffingtonpost.com/2014/02/19/cbo-report-disputed_n_4816854.html.

[17].  Michael Reich et al., Local Minimum Wage Laws: Impacts on Workers, Families and Businesses (Inst. for Research on Labor & Emp’t Working Paper 104-14, 2014), available at http://irle.berkeley.edu/workingpapers/104-14.pdf.

[18].  Big Business, Corporate Profits, and the Minimum Wage, NAT’L EMP’T L. PROJECT (July 2012), http://nelp.3cdn.net/e555b2e361f8f734f4_sim6btdzo.pdf.

[19].  Lawrence Mishel and Alyssa Davi, CEO Pay Continues to Rise as Typical Workers Are Paid Less, ECON. POL’Y INST. (June 12, 2014), http://www.epi.org/publication/ceo-pay-continues-to-rise/.

[20].  Costco, Eileen Fisher and Small Business Owners Nationwide Support Fair Minimum Wage Act Introduced Today In Congress, BUS. FOR A FAIR MINIMUM WAGE (March 5, 2013), http://www.businessforafairminimumwage.org/news/00272/costco-eileen-fisher-and-small-business-owners-nationwide-support-fair-minimum-wage-act-i.

[21].  David Cooper and Doug Hall, Raising the Federal Minimum Wage to $10.10 Would Give Working Families, and the Overall Economy, a Much-Needed Boost, ECON. POL’Y INST.  (March 13, 2013), http://www.epi.org/publication/bp357-federal-minimum-wage-increase/.

[22].  The Low-Wage Recovery and Growing Inequality, NAT’L EMP’T L. PROJECT (Aug. 2012), http://www.nelp.org/page/-/Job_Creation/LowWageRecovery2012.pdf?nocdn=1.

[23].  See, e.g., Laura Murphy, An ‘Indestructible Right’: John Ryan and the Catholic Origins of the U.S. Living Wage Movement, 1906-1938, 6 LABOR: STUDIES IN WORKING-CLASS HISTORY OF THE AMERICAS 6 (2009).

[24].  See, e.g., Most See Inequality Growing, but Partisans Differ over Solutions, PEW RESEARCH CTR. (Jan. 23, 2014), http://www.people-press.org/2014/01/23/most-see-inequality-growing-but-partisans-differ-over-solutions/ (seventy-three percent of the public favors raising the federal minimum wage from its current level of $7.25 an hour to $10.10 an hour).

[25].  See RAISE THE WAGE INDIANA, http://www.raisethewagein.org (last visited Mar. 10, 2015).

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