In 2017, and in the midst of Seattle’s efforts to raise its minimum wage to $15 an hour, a University of Washington study was released that proved damaging to supporters of a higher hourly rate.
The study looked at the effects of the city raising its minimum wage from $10.50 to $13 an hour in 2016 and concluded that, although the increase was successful in boosting pay, it had the unfortunate consequence of reducing jobs by about 9%. The report’s authors said there were about 5,000 fewer low-wage jobs in the city because of the minimum wage increase. Opponents of the hike felt vindicated.
But now it’s time for supporters of the minimum wage to cheer. A new study published this week by the University of California at Berkeley found that minimum wage increases in six US cities increased pay and did not harm job growth. The study’s authors did this by looking at wage and employment data in Washington DC, Chicago, Seattle, San Francisco, Oakland and San Jose – all cities that raised their minimum wages above $10 an hour. Pay went up. No significant job losses were measured.
“Policies are working as the policymakers intended,” paper co-author Sylvia Allegretto, a labor economist and co-chair of the center, said in a Bloomberg article. “The sky is not falling.”
Maybe. Maybe not. The Berkeley report is just one of a number of academic studies conducted over the past few decades that have either confirmed or questioned the positive impacts of minimum wage hikes. “Raising the minimum wage is a ‘feel good’ policy that actually harms more low-income folks than it helps,” Robert Topel, an economics professor at the University of Chicago told the Chicago Tribune. “There are better ways to help low-income individuals and households.”
With many cities either considering or enacting similar minimum wage increases over the next few years the question of whether this is ultimately good or bad for the economy remains a hot topic, particularly for small businesses.
Higher wages will obviously increase costs, and not just for the lowest-paid workers. If the minimum wage floor is increased it also puts pressure on all wages in a business because what worker who was once making twice the minimum wants to be making only a few dollars more than the minimum now? Businesses – particularly small businesses – in low-margin trades like restaurants and retail will face big decisions: raise prices or accept lower profits? This why so many associations, chambers of commerce and other groups representing businesses argue against a minimum wage and there is much logic to this position.
But on the other hand, if everyone in a city is forced to raise their prices, then it may be easier to pass through price increases while still remaining competitive. Higher wages may not only keep more people out of poverty, but can also turn into more consumer spending which may result in even more business. And besides, aren’t most small businesses having trouble finding employees in this low unemployment, competitive environment? Aren’t their bigger competitors already paying more?
It’s a shame that the government has to require a “minimum” wage at all. From what I see, it’s one of those laws needed to protect workers from a minority of abusive businesses. Across the board, the owners of good, profitable and growing companies that I know don’t need the government to tell them how much to spend on what is for many their most important asset: people. They already pay a fair wage because they know that, in business, you always get what you pay for.
