Minimum Wage Raises Us All

Amy Traub

Minimum Wage Raises Us All

Over the past few weeks, I’ve explored a variety of proposals for additional federal stimulus measures. The federal government could make greater investments in repairing public infrastructure; fund the construction of affordable housing; extend tax credits to employers who increase employee health coverage; provide incentives for states to expand access to food stamps, welfare, and Medicaid; or even create a mass public jobs program. So far, none of those proposals is in the cards. But one overlooked recovery measure is already underway: the minimum wage increase scheduled for July 2009.

A new research brief from Kai Filion at the Economic Policy Institute highlights the stimulative impact of raising the minimum wage.

Remember that back in 2007, Congress obliged President Bush to sign a long-delayed minimum wage increase into law by attaching it to a must-pass war appropriations measure. After ten years in which the value of the minimum wage was continuously eroded by inflation, Congress raised the minimum from $5.15 to $5.85 an hour in 2007. In 2008, it went up to $6.55. Next month, it’s headed up to $7.25. And the economy is benefiting. So far, minimum wage increases have generated $4.9 billion in spending according to Filion, while the next increase will produce $5.5 billion in additional spending. As Filion succinctly explains “by increasing workers’ take-home pay, families gain both financial security and an increased ability to purchase goods and services, thus creating jobs for other Americans.”

The issue brief also takes on the most familiar minimum wage misconception – that raising pay inherently means increasing unemployment. Surveying a bevy of recent studies that have failed to detect significant increases in unemployment when the minimum wage rises, the issue brief considers factors like improved productivity, better employee retention and the stimulative effect of increased spending which may help explain why, in practice, jobs don’t disappear when low pay gets a mandatory boost.

The minimum wage increase all queued up and ready for July is good news, but of course there’s more policy work to be done. During the campaign President Obama pledged to seek an increase in the minimum wage to $9.50 by 2011, a measure that would provide great additional stimulus if the first steps began soon. Add that to the stimulus policy wish list.