Washington conservative elites seem to be taking it for granted that raising the minimum wage in a recession will destroy the already fragile job market. However, what proof do we have that this is true?
New research being conducted by prominent economists is yielding data that is proving this Washington line completely wrong. In fact, their results are showing that raising the minimum wages is not only good economics, but also good politics. Not only does a greater minimum wage not kill jobs, but it is in fact the first step to a recovery.
A panel discussion on this new research was held today by the Center for American Progress in conjunction with the National Employment Law Project. The guest panels were: Celinda Lake, President, Lake Research Partners; Michael Reich, Professor of Economics and Director of the Institute for Research on Labor and Employment, University of California, Berkeley; Sylvia Allegretto, Deputy Chair of the Center on Wage and Employment Dynamics, University of California, Berkeley; and Heidi Shierholz, Economist, Economic Policy Institute.
Each panelist presented their research on the effects of raising the minimum wage in America, with each concluding that minimum wage increases do not necessarily have a negative effect on the job market, and some studies show that they can help expand the job market.
Michael Reich’s research used a fix effect model to generalize local case studies where the minimum wage was increased on only one side of bordering counties and states. Among his findings were the positive effects of raising minimum wage not only on the employee, but also the employer: “Turnover goes way down with the minimum wage increase. This means when employees stay long, they become more experienced and employers save turnover costs.”
Past research may have blinded our view of of minimum wage hikes because studies showed a slight negative effect on the economy after a minimum wage increase, presumably as a result of raising minimum wages. Sylvia Allegretto’s research used localized statistics to take into account different factors that might affect the job market besides raising minimum wages. For example, in one case study she found that “the negative effect witnessed three years after minimum wage changes is the same as two years before minimum wage changes.” In light of this, it pays to not forget: correlation does not mean causation.
Bringing the current economic situation into context, Allegretto, whose research covered three recession periods, explained that there is no data showing that raising minimum wages in a recession negatively affects the economy and the job market. She gave an example of how we can sometimes be deceived by unexplained statistics:
“We see a lot, especially now, when students are graduating, in high school and college, and we are constantly saying everyday in the media that “Oh well the reason these young folks cannot get jobs is because of the minimum wages. Well, the unemployment rate of those with a BA or more is recently been close to all-time levels but no one would say that those educated folks are looking for a minimum wage job.”
Whatever economic stimulus some regions of the country experienced after the recent set of minimum wage increases came from the employees, not the employers. Conservatives in Washington today are pushing on us erroneous statements that giving corporations more tax breaks will create jobs. However, there is no evidence that corporations will spend the extra money they get to create an economic stimulus. We know that most businesses’ financials today are back to pre-recession levels, yet the unemployment rate is still at a historic high. This is because corporations are not hiring with their money; they are sending it straight to CEO bonuses.
Celinda Lakes’ recent opinion research on the minimum wage shows that raising the minimum wage is broadly supported by the public. In a fall 2010 nationwide poll, “67% of Americans supported raising the minimum wage to the critical threshold of $10 an hour.” In individual states where the issue was polled during this election cycle the numbers also show public support for raising the minimum wage. For example, in Maryland, where almost two-thirds of voters say the economy is not in good shape, 79% favor raising the minimum wage.
The American people understand that putting more money in their pocket will go straight back into the economy and putting money into corporations will only pad the packets of their executives. Members of Congress now need to listen to common sense and the views of the American people and put raising the federal minimum wage on the table.