Should the Minimum Wage Be Raised? Eight States Raised the Minimum Wage Last Month, Which Means More Money in the Pockets of Working Teens. but Does It Also Mean Fewer Jobs?

By Smith, Patricia | New York Times Upfront, February 20, 2012 | Go to article overview

Should the Minimum Wage Be Raised? Eight States Raised the Minimum Wage Last Month, Which Means More Money in the Pockets of Working Teens. but Does It Also Mean Fewer Jobs?


Smith, Patricia, New York Times Upfront


Summer Dupin, 18, who works 14 hours a week at a local restaurant, was thrilled when Florida's minimum wage increased last month by 36 cents, to $7.67 an hour.

"It definitely helps me out with everything I pay for, such as my phone bill, going out to eat, and just doing things for myself," says Dupin, a senior at Lake Brantley High School in Altamonte Springs, Florida.

Even though the federal minimum wage hasn't changed from $7.25 an hour since July 2009, Florida is one of eight states--along with Arizona, Colorado, Montana, Ohio, Oregon, Vermont, and Washington--that last month raised their own already-higher minimums by 28 to 37 cents an hour. That may not sound like much, but it's an extra $582 to $770 a year for a full-time minimum wage worker.

About 1 million workers will be affected by those increases, according to the Economic Policy Institute. More than half of those earning the minimum wage nationally are under 25 (see chart, p. 13).

Eighteen states and the District of Columbia have higher minimum wages than the federal baseline (see map). But economists disagree about whether raising the minimum wage actually helps workers and the economy or hurts them.

Some economists say increases in the minimum wage can stimulate the economy, which could still use a boost as it struggles to recover from the Great Recession that began in 2007.

Higher Pay, Fewer Hours?

"Minimum wage workers are much more likely to immediately go out and spend that extra money in the economy," says Heidi Shierholz of the Economic Policy Institute, which favors raising the minimum. "That's because they're often living paycheck to paycheck."

But other economists say raising the minimum wage actually hurts the very people it's designed to help: One of the basic laws of economics is that if you raise the price of something, there will be less demand for it. In this case, if you raise the price of workers, the demand for workers will decline. That could mean companies cutting the hours of employees, laying them off, or hiring fewer workers in the future.

That's a real problem in an economy struggling to add jobs. The unemployment rate is now 8.5 percent; last summer, the teen unemployment rate was 25 percent.

"What matters for people earning minimum wage is how much money they take home in total in their paycheck," explains Rajeev Dhawan of Georgia State University. "Their hourly rate may go up, but their number of hours may come down, so it's not an overall increase."

Part of the New Deal

Business owners also say that raising the minimum wage exerts upward pressure on other wages. If a restaurant owner in California has to boost the dishwasher's pay to $8, he'll probably have to raise the cook's higher salary as well. The owner then has to absorb the added costs and make less of a profit or raise prices--which, in a shaky economy, could scare off customers.

The first federal minimum wage--25 cents an hour--was passed in 1938 in the midst of the Great Depression. It was part of the New Deal's Fair Labor Standards Act, which also established overtime pay and banned child labor. President Franklin D. Roosevelt said that other than Social Security, the law was "the most far-sighted program for the benefit of workers ever adopted."

One of President Obama's 2008 campaign promises was to gradually raise the federal minimum wage to $9.50 an hour, and then adjust it annually for inflation. But the White House never pushed for it, and Congress never took it up.

Advocates of a higher federal minimum point out that increases haven't kept up with inflation, so today's minimum actually buys much less than it used to--25 percent less, in fact, than its adjusted-for-inflation peak in 1968.

Holly Sklar of Let Justice Roll, a group working to raise the minimum wage, says that the decline in the value of those paychecks keeps the rest of the economy from flourishing. …

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