A University of California, Irvine economics director argued in a report Monday the estimated 200,000 jobs lost because of minimum wage increases since the Great Recession should be weighed against all the potential good the policy might do.
In his report, David Neumark looked at what impact raising the minimum wage could have on employment. He examined the 23 states which raised the minimum wage since before the Great Recession began in 2007. Critics have long since noted the impact will likely be devastating. Neumark, however, found that though critics are likely right about the job loss, the impact is marginal.
“Despite the evidence of job loss, policymakers and the voting public have raised minimum wages frequently and sometimes substantially in recent years,” the report detailed. “Since the last federal increase in 2009, 23 states have raised their minimum wage. In these states, minimum wages in 2014 averaged 11.5% higher than the federal minimum.”
The report notes research has found conflicting information since 2007. Policymakers, the report asserts, should consider the potential negative outcome, but also note all the good that could happen from raising the minimum wage. Supporters have often claimed raising the minimum wage will help the poor by allowing them to more easily afford basic necessities. The increased spending would then in turn stimulate economic activity.
“A reasonable estimate based on the evidence is that current minimum wages have directly reduced the number of jobs nationally by about 100,000 to 200,000, relative to the period just before the Great Recession,” the report continued. “This is a small drop in aggregate employment that should be weighed against increased earnings for still-employed workers.”
For critics, the main problem is the increased cost of labor. Many businesses, especially in low-profit industries, have few options to off set the additional costs. Employers have been known to reduce hours worked or reduce the number of employees they have. Those new to the workforce or with low-skills are most likely to be cut first. While some workers may begin earning more, others are forced out of work or into part-time positions.
Currently, the federal minimum wage is $7.25 an hour. The report was published by the Federal Reserve Bank of San Francisco. The regional reserve bank represents several states primarily on the west coast.
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