More than four years have passed since the official end of the Great Recession. Throughout the recovery, the cost of food, utilities and gasoline have continued to increase, but the minimum wage has not kept up with the rising cost of living. The minimum wage in Georgia and much of the U.S. has been stuck since 2009 at the federal rate of $7.25 per hour, which translates to just $15,000 per year for a full-time worker, nearly $4,000 below the poverty line for a family of four.
Lawmakers in Congress have proposed raising the federal minimum wage to $10.10 per hour by 2015 — giving a raise to roughly 944,000 low-paid workers in Georgia — and indexing it thereafter to inflation. Some will continue to insist that companies that pay low wages cannot afford to give their workers a raise, and that the minimum wage destroys jobs for workers who need them the most.
What do real-world data say?
In a recent study, I compared employment levels in all pairs of cross-state border counties that had differing minimum wage rates at any point over the last 20 years, more than 250 pairs. This study found that higher minimum wages did not reduce employment or encourage business to relocate to areas with lower minimum wages.
Indeed, two-thirds of all low-wage workers are employed by large companies with over 100 employees, not small mom-and-pop shops. The largest employers of low-wage workers, such as Wal-Mart and McDonald’s, are earning strong profits today and can afford higher wages.
Let’s not overlook the savings that result from higher wages. When pay is higher, workers do not need to balance multiple jobs to make ends meet. They are more likely to stay with their current employers. Employers can benefit from reduced employee turnover and higher worker productivity. Major companies such as Costco are able to offer low-priced products while paying their workers high wages precisely because of these kinds of savings.
Some businesses prefer to boost profits by paying very low wages and pushing their workers on to public assistance to pay their bills. However, the best economic research shows that businesses can afford to pay a higher minimum wage.
The federal minimum wage has lagged behind the cost of living for the past several decades. If it had kept pace with inflation since the late 1960s, it would be more than $10.55 today. Ten U.S. states already tie their minimum wages to changes in the state’s cost of living. States that index do not experience job losses compared to states that do not.
A higher minimum wage will offer some relief to the nation’s lowest-paid workers and help protect the promise of upward economic mobility for hard-working Americans.
Michael Reich is an economics professor at the University of California, Berkeley, where he also directs the Institute for Research on Labor and Employment.
