Effects of increasing minimum wage on united states economy

Even with the low unemployment rates that have prevailed since the late s, the U.

Effects of increasing minimum wage on united states economy

Others are raising wages above the federally mandated rate, according to the National Conference of State Legislators. The changes come after years of national debate about the need to raise pay so families can earn a living wage. According to administration estimatesthis would boost the wages of some 15 million people.

Supporters of these efforts note that women in particular are likely to benefit significantly. Earlier studies have indicated that some businesses will cut jobs to pay employees more. The report concludes that there are distinct trade-offs. Critics assert that the real effects of minimum-wage increases are negative: For a good sense of the partisan argument — and the statistics and studies that are often cited — see these position pieces from the right-leaning American Enterprise Institute and the left-leaning Center for American Progress.

The best starting point for understanding the debate may be a factual picture of minimum-wage earners, as there are many myths. The BLS further notes that in Although workers under age 25 represented only about one-fifth of hourly paid workers, they made up about half of those paid the federal minimum wage or less.

Among employed teenagers ages 16 to 19 paid by the hour, about 11 percent earned the minimum wage or less, compared with about 2 percent of workers age 25 and older.

Minimum wage in the United States - Wikipedia

That work synthesizes some papers. In their conclusionthey write: Evidence leads us to conclude that moderate increases in the minimum wage are a useful means of raising wages in the lower part of the wage distribution that has little or no effect on employment and hours.

This is what one seeks in a policy tool, solid benefits with small costs. That said, current research does not speak to whether the same results would hold for large increases in the minimum wage.

Fundamentals and framings Beneath the political claims and efforts on both sides is a profound philosophical debate between neoclassical economics — with its emphasis on aggregate growth and what is best for the market as a whole — and progressive economics, beginning with John Maynard Keynes and the New Deal, with an emphasis on shared prosperity and fairness.

Although there is no doubt that inequality has risen significantly over the past few decades, studies can be found to support positions on both sides of the minimum-wage issue, and questions remain about the precise relationship with inequality dynamics.

Scholarly debates over the minimum wage have taken a distinct shape over the past two decades. Those scholars examined the results of a New Jersey law raising the minimum wage, comparing the outcomes in the fast food industry to those in the bordering state of Pennsylvania, where wage laws remained the same.

Their study called into question textbook assumptions about how labor markets might work. Krueger and Card had to defend their findings in a follow-up to the original paper. The paper, from the University of Leicester, found that firms tend to respond to minimum wage increases not by reducing production or employment, but by raising prices.

Effects of increasing minimum wage on united states economy

Overall, price increases are modest: William Lester and Michael Reich also looked at low-wage sectors in states that raised the minimum wage and compared them with those in bordering areas where there were no mandated wage changes.

Diverse outcomes The research generally supports the idea that raising the minimum wage would have varying effects across U. Throwing the Baby Out with the Bathwater?

Minimum wage: Updated research roundup on the effects of increasing pay - Journalist's Resource

A large firm might likewise try to squeeze more work out of its salaried managers and hire more part-time workers, to avoid benefits obligations. At the same time, because work has a social dimension — and is not purely an economic endeavor — many employees might keep their jobs at the higher mandated wages because of employer loyalty or trust, or the simple desire to avoid the complications of restructuring business operations to account for fewer workers.

The lesson here is to distrust sweeping generalizations about what might result from a minimum-wage increase within the national labor market as a whole. A study from U. A raise in the minimum wage might, in theory, shift some of the burden back to private companies, something that some labor economists see as being only fair.

A briefing paper from the U. As Washington Post columnist Ezra Klein has suggestedhowever, the overall cost-benefit analysis for such retailers must account for more than just wages. The following papers provide further insights into the effects of minimum-wage laws and focus on some under-appreciated dynamics: Federal Reserve Bank of Cleveland, May The effects depend ultimately on the prevailing market wage and the frictions in the market.

Evidence to date does not support the view that raising the minimum wage will lead to positive employment effects. National Bureau of Economic Research, This took two forms.In , over economists signed a letter in support of increasing the minimum wage to $ with research suggesting that a minimum wage increase could have a small stimulative effect on the economy as low-wage workers spend their additional earnings, raising demand and job growth.

For this report, CBO examined the effects on employment and family income of two options for increasing the federal minimum wage (see the figure below): A “$ option” would increase the federal minimum wage from its current rate of $ per hour to $ per hour in three steps—in , , and For this report, CBO examined the effects on employment and family income of two options for increasing the federal minimum wage (see the figure below): A “$ option” would increase the federal minimum wage from its current rate of $ per hour to $ per hour in three steps—in , , and When the United States first set a minimum wage through the Fair Labor Standards Act of , the hourly rate sat at 25 cents. Prior to that, during the Great Depression, people facing up to a 25 percent unemployment were desperate for work, so employers could take advantage and pay very little.

In the s, the minimum wage was equal to just over half of the median full-time wage in the United States (between 52 and 55 percent of the median, depending upon how one measures wages.2 See the figure below.) Today, the federal minimum wage is equal to roughly 36 percent of the median wage.

The effects depend ultimately on the prevailing market wage and the frictions in the market. Evidence to date does not support the view that raising the minimum wage will lead to positive employment effects.” “The Unexpected Long-Run Impact of the Minimum Wage: An Educational Cascade” Sutch, Richard.

National Bureau of Economic .

Sign up to stay informed

Enactment of Public Law last May not only raised the Federal minimum wage rate in the 50 states, but, for the first time, the Congress took direct action to increase the minimum wage rates in American Samoa and CNMI by 50 cents per hour on July 24 and 25, , respectively.

Jul 27,  · In many states, particularly those governed by Republicans in the South and the Midwest, there is little chance of raising the minimum wage above . This would be the economic equivalent of raising the minimum wage to $ an hour in the continental U.S. By May the third scheduled minimum wage increase in Samoa took effect, rising to $ an hour and covering 69 percent of canning workers.

The "Ripple Effect" of a Minimum Wage Increase on American Workers | The Hamilton Project