via Susan Feiner, Portland Press Herald
Raise chickens. Raise hell. Raise the minimum wage.
Reading those words, dozens of readers will run to their computers and log onto the comments page. “Don’t you know that unemployment increases when you raise the minimum wage? … Mandating higher wages hurts the people you’re trying to help … Thousands, nay millions of small businesses will be forced to close.”
So goes the mantra against raising the minimum wage. But what the common sense-brigade doesn’t understand is that their argument requires an assumption that “all other things held constant.” Ceteris paribus if you want to get fancy. No one in the anti-minimum wage camp ever pays attention to this assumption, and that’s why their views are so incorrect.
In the real world, where all other things are never constant, increasing the wages of workers at the bottom of the pay scale leads to greater spending. Most of it local. People buy more food, clothing, medicine, gasoline, heating oil and school supplies. This reality – as distinct from the two-dimensional textbook fiction that’s sold as common sense – throws the positive benefits of raising the minimum wage into sharp relief.
When the federal minimum wage goes up to $10.10 per hour, 27.8 million workers will earn an additional $35 billion, on which, by the way, they’ll pay taxes. The resulting $22 billion growth in GDP will induce the creation of roughly 85,000 net new jobs.
Maine will benefit, too. Sixty-nine thousand women and 52,000 men will get higher wages. Workers age 29 and younger will be 57 percent of the beneficiaries of the wage increase, while workers 30 and over will be 43 percent of the beneficiaries. Nearly half of the benefits of an increased minimum wage will accrue to households with annual incomes below $39,999 per year.
Despite such clear-cut benefits, those who pledge allegiance to free markets insist that interfering with supply and demand would wreak havoc on the labor market. Left to its own devices, so the story goes, the market will set an equilibrium wage at which firms can hire all the workers they want, and workers can sell as many hours of work as they want.
With the supply of labor equal to the demand for labor, there is no unemployment. In this ceteris paribus world, when the government sets a minimum wage above the market-determined wage, workers will offer more work than employers want to hire. Thus there is, by definition, an excess supply of labor, more commonly known as unemployment.
But remember that fine print? “All other things held constant.” In the 3-D world in which we actually live, all other things are not constant.
And that’s why real world experiences with increasing the minimum wage show the exact opposite of what the textbooks predict: With an increase in the minimum wage, employment actually grows!
Just this year, 13 states boosted the baseline pay of workers by increasing what employers have to shell out; some even tied their state’s minimum wage to inflation. The radical economic outfit Goldman Sachs compared changes in employment in the 13 states that raised their minimum wage with changes in employment in the states that kept the minimum wage constant.
Goldman Sachs concluded that “January’s state-level payrolls data failed to show a negative impact of state-level hikes (in the minimum wage). Relative to recent averages, the group of states that had hikes at the start of 2014 in fact performed better than states without hikes. While this is only one month’s data, it suggests that the negative impact of a higher federal minimum wage – if any – would likely be small relative to normal volatility.”
If even Goldman Sachs recognizes that increasing the minimum wage is unlikely to have a negative economic impact, one wonders why conservatives can’t wrap their heads around the facts.
Arguments against raising the minimum wage have no basis in any reality-based economic theories or any actually occurring economic events. When workers have higher incomes, they spend more. When workers spend more, firms sell more. Firms selling more hire more workers and place orders to restock their shelves. The supplying firms sell more and hire more workers, too. All other things are not constant.
Ceteris paribus is to economic policy what a screen door is to a submarine.
Susan Feiner is a professor of economics and women and gender studies at the University of Southern Maine. She can be contacted at: