President Obama’s recent proposal to raise the federal minimum wage (from the current $7.25 to $10.10) has rekindled the multi-decade old argument over whether raising the minimum was is a good or bad idea. Opponents of the increase argue strongly that it will only hurt the economy by raising costs and unemployment, and in effect, hurt the poor (the intended beneficiary of such an increase).
Economists are largely divided on this. Opponents claim that raising the minimum age will only increase labor costs, which will cause employers to in fact, shed jobs. Proponents argue that this view is simplistic and flawed, as it ignores the fact that costs can be shifted elsewhere (including decreasing or flattening the pay of highly-paid executives higher up in the employment food chain), and that it also ignores the benefits that companies will see as a result of increased demand (from low-paid employees who will now have more money to spend).
Fortunately, we are not stuck to debating hypotheticals based on one’s preferred economics school of thought. We can compare the dates of minimum wage increases and look for adverse effects on unemployment rates or economic growth. In doing so, we don’t find any evidence that past increases in minimum wage has had an adverse effect on either. Continue reading