By Jack Howard
President Obama supports a $10.10 minimum wage. He said in his State of the Union Address that it will put more money in consumers’ pockets and help families.
“Give America a raise!” he said.
But some say a higher minimum wage will cause businesses to hire fewer young people who work low-skilled jobs, leading to higher unemployment.
Obama cited the example of a pizzeria in Minneapolis as proof that businesses can thrive if wages increase.
President Obama says that move eased workers’ worries about money and boosted morale. And a higher minimum wage would do the same across the country.
Cato Institute’s policy analyst Jeff Miron disagrees.
“I mean, if that were true, that employers weren’t going to respond at all to a higher minimum wage, then maybe we should mandate it to be fifteen dollars an hour or five hundred dollars an hour,” said Miron.
Instead, Miron, who is also a Harvard professor, says employers would just replace minimum wage workers.
He says he experienced this fifteen years ago when he was lost in a parking garage in France where the minimum wage is much higher than it is in the US.
He couldn’t find a parking attendant to pay because the position had been replaced by a machine.
“A higher minimum wage had given people a much higher incentive to invest in machinery that would accept those tickets. That was a clear example where the mix of machinery relative to people was different in two different places because one had a much higher minimum wage than the other,” he said.
The Congressional Budget Office estimates a $10.10 minimum wage would cost five-hundred thousand jobs.
Center for American Progress expert Sarah Ayres says their research is off.
“The best empirical research that has been conducted over the last few decades has not found that. It’s overwhelmingly found that raising the minimum wage does not cost jobs. And does help millions of people and provide an immediate boost to the economy by putting more money into peoples’ pockets,” she said.
She says a higher minimum wage doesn’t necessarily mean fewer minimum wage workers.
Ayres says fast food workers shouldn’t be worried about layoffs after a minimum wage raise.
“This is true not just generally but they also don’t create job losses among teenagers or among restaurant worker,” said Ayres.
In 1992, Ayres says a natural minimum wage experiment happened. New Jersey raised its minimum wage, and neighboring Pennsylvania didn’t.
She says researchers David Card and Alan Krueger found no difference in fast food employment.
Heritage Institute economist James Sherk says it’s not so black and white.
He says a higher minimum wage is OK for a place with a higher cost of living for everyone.
“California is free to raise the minimum wage as much as they want. I would think that would not be the best economic policy. But it’s going to be less harmful for California than it would be if you force that same pay increase on West Virginia,” said Sherk.
In addition, a California business would also raise prices – making the cost of living even higher.
“The typical restaurant has a profit margin of 2 or 3 percent. They can’t simply absorb that a 20, 25 increase in the cost of their labor. The only way they can cover that is by raising their prices. And who are the people affected by that? Their customers,” he said.
Continuing with the restaurant example, Sherk says prices would rise 10 percent. He says that rise is a large price to pay for a reduced number of minimum wage workers to get a raise.
And he says the cost of living for the rest of us would rise.
Ayres rejects that conclusion. She says the rest of us would also get a raise.
“So what we found is that raising the minimum wage leads to spillover effect for workers who are making above the minimum wage. Those workers will also benefit in the way of higher wages,” she said.
As lawmakers decide whether a minimum wage increase amounts to a living wage or places an artificial value on labor, all of us will soon learn whether we all benefit or the rest of us end up with the bill.
