Would Raising the Minimum Wage Create New Jobs?

One of the Latest Economic Ideas to Be Proposed May Run Contrary to Traditional Thinking

by Curtis White on September 27, 2011

As President Barack Obama tries to gain support for his new jobs plan, many critics and supporters have voiced their own proposals on how to create new jobs. One of the most interesting ideas being bandied around involves the raising of minimum wage. This runs counter to what most business owners and fiscal conservatives believe.

According to the Department of Labor, the federal minimum wage stands at $7.25 per hour. It was instituted in mid-2009. Other states, with Washington’s $8.67 the highest in the country, may impose their own minimum wage regulations.

With 20 percent of Americans working for $10.65 or less, full-time minimum wage employment for a family of four results in an annual salary of, at best, $22,314. That level of income would cause said family to register as living below the poverty line.

Many politicians and pundits are worried about the continued creation of new jobs, but, according to MIT economics professor Paul Osterman, creating more minimum wage jobs will not benefit anyone unless the minimum wage is raised. “If you give someone making $15,000 a year a $3,000 increase, that’s going to make a tremendous difference in their life,” he said.

Many business owners have protested wage hikes, saying it would cause businesses to hire less, as they would be unable to afford more workers. Others are beginning to agree with Osterman. Alan Krueger, Obama’s planned next chief economic adviser, conducted a study on the fast food industry in Pennsylvania and New Jersey, two states with different minimum wages. He found that hiring practices were virtually the same despite the difference in pay.

Paul Sonn, co-director of the National Employment Law Project Action Fund cites results which appear to back up Osterman’s claims, saying, “When you look at surveys of businesses, they consistently list weak demand as the key problem holding hiring back. Wages are nowhere near the major concern for employers. They may not realize it but raising the minimum wage would help sales and help them increase their hiring.”

Still, the traditional thinking does have a logical foundation, which could be a difficult one to persuade support away from. According to William Dunkelberg, the chief economist for the National Federation of Independent Businesses,

“If you raise the price of anything, people take less of it. That includes labor. That’s why you can’t raise wages during bad times. If you raise the price of labor, and the economy is growing, maybe I’ll still hire people. But not now.”

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