Time to rethink minimum wage on the national stage

Vice President Joe Biden visited Los Angeles this Tuesday to promote Mayor Eric Garcetti’s proposal to raise the city minimum wage from $9.00 to $13.25 per hour by 2017. As Biden’s support indicates, Los Angeles has become the latest city to take part in this national trend. To understand this sweeping change, citizens need to think past the long-held belief that wage raises will hurt small businesses.

With this movement maturing from coast to coast, it is no surprise to see critics and pundits alike cite conventional arguments about the effects of increasing wages on the economy. This past May, Seattle raised its minimum wage to $15 per hour. New York City mayor Bill de Blasio recently signed an executive order to raise wages to $13.13 in the city. These city movements are no coincidence. The inefficiency of passing federal legislation through Congress has driven many cities to address imminent problems of wealth disparity and increasing poverty.

Those who argue against the raise follow the rationale that any increase to the minimum wage will be harmful to businesses, result in considerable job losses and hurt the economic growth of the country. These perceptions have heavily influenced the minds and politics of America. But in an era of economic woes where increasing poverty, immense wealth disparity and stagnant growth are no strangers to the country, it is time to reexamine these convictions.

The reality of the matter is that since the 1960s, wages have stagnated while cost of living has tremendously soared. According to Bloomberg, the value of the minimum wage peaked in 1968, and was worth $10.70 in today’s dollar. Due to this decrease in purchasing power, the Department of Labor reported that 88 percent of Americans that earn a minimum wage living are working adults, many of who are now living in poverty.

In Los Angeles, 27 percent of residents are estimated to be living in poverty. The mayor’s proposed minimum wage increase would lift around 567,000 of these people out of poverty.

On a larger scale, though, an increase to the minimum wage would bring a multitude of benefits to the country. In addition to lifting millions of Americans out of poverty, the spending power of low-income workers would also increase, leading to a boost in the job industry. According to the National Employment Law Project, 70 percent of the country’s gross domestic product comes from consumer spending in our domestic economy. In 2009, $5.5 billion was generated due to an increase in the federal minimum wage that year; raising 1968 minimum wage levels would bring an estimated additional $60 billion in consumer spending. This boost in spending ability empowers all Americans — especially business owners.

Though the growth in spending power is an evident effect, many are quick to note that these benefits stemming from an increased minimum wage would be balanced by job losses and increased unemployment, and that it would cause overall harm to business owners. This commonly propagated notion, however, has been frequently debunked.

A 1994 Princeton study was the first to demonstrate that increasing the minimum wage did not result in job losses. The study compared fast food restaurant employment rates after a wage raise in New Jersey compared to rates in Pennsylvania, the control, and found a significant increase in New Jersey and no sign that it led to any job losses. This analysis has been altered and replicated, constantly showing the same consistent results.

Increased savings for businesses is the other significant benefit that results form an increase to minimum wages. This is due to the fact that higher wages lead to a reduction in turnover rates, which lead to a reduction in costs from hiring and training new employees. In one University of California study of the San Francisco airport, it was estimated that each new hire cost about $4,275. These high rehiring costs are pervasive in most industries, so increases in minimum wage actually create large savings for businesses.

In a time of stagnant growth and growing poverty, minimum wage increases are imperative. This will help not only employees, but also businesses because of the increased consumer power to buy their goods and services, lower turnover rates, and savings from decreased costs for hiring and training.

These benefits are becoming irrefutable. Recognition of this conclusion led to over 600 economists, seven of whom are Nobel prize winners, to sign a letter in January urging for an increase in minimum wage while asserting that it will not negatively impact the economy.

Americans must not become paralyzed by our old convictions. It’s time to recognize that a change in thought and action is essential.