Benefits in raising the minimum wage

1. Intro. It has been years since the minimum wage has been updated in MN, It has stayed stuck at $7.25 an hour, but to put things into perspective, it would currently be up to $10.40 if it had kept up with inflation since 1968. Raising the minimum wage is crucial for it boosts the economy, it lifts people out of poverty, and it will help close the gender wage gap. I know a lot of people in this room are, or at one point have worked for minimum wage, and it is not a very easy thing to manage with today’s cost of living getting higher and higher. Many states outside MN have raised the minimum wage and they are reaping the benefits, now it is time for us to do the same.

2. Affirmative position. The main reason that raising the minimum wage, either here in MN, or nationwide, is so beneficial is that it boosts the economy greatly. A recent study by the Chicago Federal Reserve found that raising the minimum wage to $9 an hour nationwide would likely increase household spending by about $48 billion after just one year, amounting to a .3 percent boost to GDP. And while opponents warn that a raise would hurt jobs, the states that have already raised their minimum wage report that it has not had a negative effect on employment and some report a boost in job growth. Another key reason raising the minimum wage is a fantastic thing is that it helps lift millions out of poverty. At the current minimum wage, an employee working full time will get a mere $15,080 annually, now if that person is single and has kids, they would be living at least $3000 below the poverty line. By raising the minimum wage in MN, it will effectively help boost millions of families out of poverty.
And finally it helps close the gender wage gap. Currently in the nation roughly ⅔ of minimum wage workers are women. Now, Washington state has a minimum wage of $9.32 an hour, and they report that their gender wage gap has been steadily decreasing due to their recent lift in minimum wage.
3. The facts
Consumer spending is the engine that powers our domestic economy, comprising 70 percent of gross domestic product. Restoring consumer demand is essential for stabilizing the economy and allowing local businesses to expand and create jobs. Raising wages for low and moderate income workers is one of the most effective strategies for boosting demand. Unlike higher earners who can afford to save some of their income, working families spend higher wages on necessities at local businesses, re-circulating them back through the economy. Raising the minimum wage is a key strategy for boosting consumer spending, and one of the only ways to do so that doesn’t worsen state or federal budget deficits. The scale of this spending can be significant. According to the Federal Reserve Bank of Chicago, every $1.00 in wage increase for a minimum wage worker results in $3,500 in new consumer spending by his or her household over the following year. As a result, the Economic Policy Institute estimates that the modest increase in the federal minimum wage in July 2009 generated $5.5 billion in consumer spending across the economy. And restoring the U.S. minimum wage to its historical level, as President Obama proposed during the 2008 presidential campaign, would do even more to help the economy by creating more than $60 billion in new consumer spending.
In fact, when the federal minimum wage was first enacted in 1938 at the height of the Great Depression, its twin goals were maintaining a wage floor to keep workers out of poverty, and stimulating the consumer spending necessary for economic recovery. President Franklin Roosevelt called for its enactment as “an essential part of economic recovery,” explaining that by increasing the purchasing power of those workers “who have the least of it today, the purchasing power of the Nation as a whole – can be still further increased, and other happy results will flow from such an increase.”

Most significantly, raising wages reduces costly employee turnover and increases productivity. When the minimum wage goes up, employers can enjoy these benefits of paying higher wages without being placed at a competitive disadvantage, since all companies in their field are required to do the same. Research has documented how, especially in low-wage industries, raising wages reduces turnover, because workers who are paid more stay with their current employer longer. For example, a study of the effect of a wage increase for workers at the San Francisco airport found that annual turnover among security screeners plunged from 95 percent to 19 percent when their hourly wage rose from $6.45 to $10 per hour under a living wage policy. Similarly, a study of a living wage for home care workers in the Bay Area found that turnover fell by 57 percent following an increase in their wages.

Because of these benefits, many businesses across the country support raising the minimum wage – and often pay their workers above the minimum wage – recognizing the benefits that come with compensating employees well. This includes major national employers in low-wage industries, such as retail and home care. Just look at Henry Ford and how well his raising the wage for workers strategy went!

Michael Reich, Peter Hall, and Ken Jacobs, Living Wages and Economic Performance: The San Francisco Airport Model (Berkeley, CA: Institute of Industrial Relations at the University of California, Berkeley, 2003),
Card, David and Alan B. Krueger. 1994. “Minimum Wages and Employment: A Case Study of the Fast-Food Industry in New Jersey and Pennsylvania.” American Economic Review.
8 Candace Howes, Living Wages and the Retention of Homecare Workers in San Francisco, Industrial Relations, Vol. 44, No. 1 pp. 139‐163, Jan. 2005.