The Benefits of Raising the Minimum Wage

Raising the minimum wage may not be a perfect solution for all of the world’s ills, but it does have some potential benefits. Here are 6 of the top benefits associated with a moderate increase in the minimum wage:

1. Raising the minimum wage increases the amount of money in the hands of poor and middle-class families.
According to the Congressional Budget Office (CBO), raising the federal minimum wage from the current amount of $7.25 to $10.10 would result in 5 billion dollars worth of real income going to families below the poverty line and 12 billion dollars for families with incomes which range from the poverty line to three times the income of the poverty line on a yearly basis1. This means that poor and middle-class families will, on net, receive an injection of approximately 17 billion dollars on a yearly basis due to this modest increase in the federal minimum wage. This injection of funds into families below the poverty line would also result in 900,000 people being lifted above the poverty threshold. This increase in income would allow these families to better take care of family emergencies, pay off important bills, be able to purchase goods in bulk and of higher quality, and have lower levels of stress from monetary reasons.

 CBO minimum wage increase effects

2.Increasing the minimum wage could potentially reduce the tax burden of welfare programs.
As can be seen from the previous graph, increasing the minimum wage would result in approximately 17 billion dollars of new real income going to poor and middle-class families. One would, therefore, expect a lower amount of funds flowing through programs such as welfare and food stamps. Also, because these families are making more money, they are also paying a higher amount of taxes. It should be noted, however, that although the Congressional Budget Office expects a decrease in the deficit for several years as a result of an increase in the minimum wage, it also expects a small increase thereafter as a result of the ultra rich making slightly less money and a small increase in unemployment. It is because of this that the CBO is unclear on the long-term effect of the minimum wage hike on the deficit. 

3.Raising the minimum wage decreases the turnover rate and increases productivity.
The turnover rate is the percentage of employees in a workforce that leave during a certain period of time. A high turnover rate can create a problem for employers because they invest a substantial amount of money in training the employee only to have that employee leave for a job which pays slightly more shortly after training. A high minimum wage could potentially decrease the turnover rate because employees are more highly incentivized to come to work when they already feel they are being paid a fair amount for their labor. A high minimum wage also makes it a bit harder for larger corporations to offer a higher wage than the minimum in order to incentivize employees from small businesses to transfer over to the large corporation. In fact, a 2014 University of California at Berkeley study found evidence that turnover rates for teens and restaurant workers decline by about 2% for a 10% increase in the minimum wage.2 A low turnover rate would also result in a workforce that is more specialized in their specific job duty as employees stay with a company for longer and reach levels of expertise within each job task. Therefore, a more productive workforce would be yet another side effect of a higher minimum wage. 

4.Raising the minimum wage increases the wages of those already making more than the minimum wage.
Those making minimum wage aren’t the only ones who should expect an increase in their wages. A minimum wage increase has a ripple effect among those individuals making slightly more than the minimum as well. This means that even though only about 3.7 million Americans are making the minimum wage, 35 million Americans should expect a boost in their wages as a result of a minimum wage hike according to a study by the Brookings Institute.3 

5.Raising the minimum wage lowers levels of inequality.
As can be seen from the research done by the Congressional Budget Office, a $10.10 minimum wage would result in a 17 billion dollar injection into the pockets of poor and middle-class families. What you’ll also see from that graph is that the biggest economic hit is taken by families which make 6 times or more the poverty threshold. The $10.10 minimum wage would result in a $17 billion dollar reduction in annual real income for the richest among us, which many may see as a small cost for the large benefit that would go to the poorest among us.  

6.Raising the minimum wage increases health outcomes.
A UCLA study found that those earning a higher minimum wage would have enough to eat, be more likely to exercise, less likely to smoke, suffer from fewer emotional and psychological problems, and even prevent 389 premature deaths a year.4 A 2014 study by the Bay Area Regional Health Inequities Initiative (BARHII) found that minimum wage workers are more likely to report poor health, suffer from chronic diseases, and be unable to afford balanced meals.5 The study concluded that “policies that reduce poverty and raise the wages of low-income people can be expected to significantly improve overall health and reduce health inequities.” It seems fairly intuitive that as an individual’s income is raised they can afford habits that they previously could not such as healthier food and a gym membership. They are also less likely to feel the stressors of poverty, which may act as a trigger for negative health habits such as smoking.

Have any objections, questions, or concerns? Let me know in the comments section below!

Sources: 

  1. https://www.cbo.gov/publication/44995 
  2. http://irle.berkeley.edu/files/2013/Minimum-Wage-Shocks-Employment-Flows-and-Labor-Market-Frictions.pdf 
  3. https://www.brookings.edu/blog/up-front/2014/01/10/the-ripple-effect-of-a-minimum-wage-increase-on-american-workers/
  4. http://healthpolicy.ucla.edu/publications/Documents/PDF/2014/SB935_HealthAnalysis.pdf
  5. http://barhii.org/download/publications/barhii_2014_minimum_wage_health.pdf

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