Despite worries that a higher minimum wage will hurt mid-size companies, there’s strong evidence that a wage hike could actually be good for businesses.
Because consumer spending accounts for 70% of our nation’s economic activity, companies rely on a strong middle class to create jobs, says former Labor Secretary Robert Reich. And the majority of minimum wage workers are no longer just teenagers and part-time workers: nearly 90 percent of the workers who would be helped by a federal minimum wage increase to $10.10 an hour are 20 and older, and over half work full-time, reports the Congressional Budget Office.
When more consumers spend money, it creates a virtuous cycle, says Reich: Companies hire more workers, and the government collects more tax revenues and increases public spending on education. More highly skilled workers enter the workforce – also good for businesses — and reinvest their higher wages into local economies. And so the cycle continues.
Still, many businesses that employ minimum wage workers worry that a federal minimum wage hike would kill jobs. Just over half the companies in a recent survey projected a cut in future hiring, although a majority said they would not lay off current employees.
But here’s what’s actually happened when a minimum wage hike took place. The city of San Jose approved a 25% wage hike from $8.00 an hour to $10.00 an hour in March, 2013. An inflation-adjusted increase further boosted the minimum wage to $10.15 an hour for 2014.
When the wage hike was first proposed, local businesses made similar gloomy projections about job cuts and decreased hours for employees. The numbers, however, tell a different story.
A year after San Jose raised its base wage, unemployment is down by almost 2 points, minimum wage jobs have expanded, and workers have pumped over $100 million into the local economy, writes San Jose State University Professor Scott Myers-Lipton, whose students launched the city’s campaign for a higher minimum wage.
And although the San Jose Downtown Association originally opposed the increase, it got behind the wage hike after 60% of voters gave it a thumbs-up, and worked to make ethical shopping a selling point for the city. In the last year, downtown businesses grew by 3%, and the retail sector increased to 19% of businesses, up from 15% the previous year.
The state of Washington, which has the country’s highest minimum wage at $9.32, tells a similar story. In the 15 years since it raised its base wage, Washington’s job market has grown at an annual average of 0.8%, about 0.3 percentage points above the national average. Meanwhile, restaurants and bars have flourished, and state poverty rates trail the national average.
Economists at the University of California, Berkeley, also found positive results in a study of cities and states with higher minimum wages than the federal base. Instead of cutting jobs, businesses absorbed the costs of higher wages through reduced turnover and training costs, higher productivity from employees, and small price increases at restaurants.
“Our data show that an increase up to $13 an hour has no measurable effect on employment,” researcher Michael Reich told the Seattle Times. Will an increased minimum wage help or hurt the economy? The debate continues, but data-informed results show positive news for business and workers alike.
Lisa Wirthman writes about business, women, & social good. She contributes to Slate, Forbes, and other publications and writes a column for the Denver Post. Follow her on Twitter @lisawirthman.