Will a higher minimum wage help the economy?

Will a higher minimum wage help the economy?

On the front lines of the battle over the minimum wage, there are no victory laps, even when there are victories.

     A task force appointed by Chicago Mayor Rahm Emanuel recommended that the city raise the minimum wage to $13 by 2018, according to a July 8 report in The Chicago Tribune.
     This is good news for single young workers plunging into a first job. But for families -- not so much. To have a secure living standard, a family of one adult and one child needs $4,431 a month in Chicago, according to the Family Budget Calculator on the Economic Policy Institute's website. That's about $1,100 per week or $27.50 an hour.      
     Lawmakers in 21 states and the District of Columbia have set a minimum wage above the federal level of $7.25. Independently, retailers Ikea and Gap have raised employees' wages. But workers – especially those with children – are still gasping for air. Notably, the group Fight for 15 in Chicago advocates a minimum wage of $15 per hour. President Barack Obama has called for raising the wage to $10.10.
     The economic effect of a higher minimum wage is a matter of debate.
     Some economists predict that employers will cut jobs and the higher wage will backfire. But higher incomes could also mean more spending – and an economic boom. Economic analysts have examined the impact of raising the minimum wage.
       A Congressional Budget Office report looked the impact of two options: raising the minimum wage to $9 per hour or $10.10 per hour. Another report by David Cooper of the Economic Policy Institute focused on $10.10 per hour.
       Here are some of the questions they addressed:

  • Will raising the minimum wage reduce jobs overall?
     Yes, but by how much is unclear.  “Once fully implemented in the second half of 2016, the $10.10 option would reduce total employment by about 500,000 workers, or 0.3 percent,” according to the Congressional Budget Office (CBO). “As with any such estimates, however, the actual losses could be smaller or larger; in CBO’s assessment, there is about a two-thirds chance that the effect would be in the range between a very slight reduction in employment and a reduction in employment of one million workers."
  • Is this about raising the salary of burger-flipping teens?
      Minimum wage earners are older than you would think. The Economic Policy Institute found that the average age of a minimum wage earner is 35. “Nearly 88 percent are at least 20 years old, and more than a third (34.5 percent) are at least 40 years old.” More than half –54 percent – work full time at a minimum-wage job.
  • Would raising the minimum wage to $10.10 move families out of poverty?
     Yes, but it is not necessarily a silver bullet.  “Real income would increase, on net, by $5 billion for families whose income will be below the poverty threshold under current law, boosting their average family income by about 3 percent and moving about 900,000 people, on net, above the poverty threshold (out of the roughly 45 million people who are projected to be below that threshold under current law)," the CBO report concluded.
      Among those who would benefit from raising the minimum wage to $10.10, roughly 26.5 percent are parents, according to the Economic Policy Institute.
  • Would families living in poverty benefit most from raising the minimum wage? 

      Not everyone who will benefit from an increase in the minimum wage is considered low income. “The increased earnings for low-wage workers resulting from the higher minimum wage would total $31 billion,” according to the CBO. But the downside: “Just 19 percent of the $31 billion would accrue to families with earnings below the poverty threshold, whereas 29 percent would accrue to families earning more than three times the poverty threshold."

  • So would an increased minimum wage help middle income families?
      According to the Economic Policy Institute, 69 percent of workers earning minimum wage are from families with incomes less than $60,000,


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