Raising the minimum wage to $10.10 an hour by 2016 would increases wages by $35 billion, and the resulting increase in consumer spending would mean a GDP boost of $22.1 billion, which would support about 85,000 new jobs, according to an analysis by the Economic Policy Institute.
Because low-wage workers are much more likely to spend extra earnings, raising their wages can boost economic activity when consumer spending is low. The report finds that 27.8 million workers would get a raise with a higher wage. Author David Cooper looked at this boost in spending while accounting for any increased labor costs for employers and potentially small price increases for consumers and still found that an increase would give growth a bump.
Other studies have found that raising the minimum wage would be good for growth, such as one from the Chicago Fed that found raising the minimum wage to $9 an hour would increase consumer spending by $28 billion, even with the possibility of job losses taken into consideration, increasing GDP by 0.2 percent.
On the other hand, research has shown that the claim that a raise will hurt jobs and businesses doesn’t hold much water. Five recent studies have found that increasing the wage during periods of high unemployment doesn’t have a negative impact on job growth, and states that raised their wages even had job growth slightly above the national average. In fact, increasing the minimum wage can have positive effects on businesses such as increasing demand for goods and services, encouraging employees to work harder, and reducing turnover and the costs of hiring and training new workers.
Raising the wage wouldn’t just help the economy, though — it would be a significant improvement for millions of people. A $10.10 an hour wage would lift nearly 6 million workers out of poverty. The current wage of $7.25 an hour is not enough to keep a parent who works full time, year round above the federal poverty line. Yet the EPI report notes that it used to: throughout the 1960s and 70s, a full-time, year-round minimum wage income was above the poverty line for a family of two, and in the 1960s it could keep a family of three above the line.
A wage above $10 an hour would also bring it in line with where it would be if it had kept up with various factors. It would be more than $10 an hour if i had kept up with inflation, $10.65 if it had kept up with the raise in average wages for all workers, and a whopping $18.30 if it had kept up with gains in worker productivity. It would be $22.62 if it had kept pace with the growth in the earnings of the top one percent.
Lawmakers have recently gotten on board with a higher wage. Democrats in the House and Senate introduced a bill to increase it to $10.10 an hour in March, and President Obama recently came out in favor of bringing it up to that level. The public also supports it: two-thirds of Americans support a raise to $10.25 an hour.