Commentary

Raising the minimum wage will create jobs and help businesses succeed

Many North Carolina workers are locked in low-wage jobs that don’t pay enough to make ends meet, even though they’re working full-time. Over the long-term, state lawmakers need to implement a comprehensive strategy that creates pathways out of this low-wage economy. But right now, they can provide an immediate boost to working families by increasing the minimum wage from the current level of $7.25 an hour. Raising the wage floor would put more money in the pockets of workers, increase sales for local businesses, and strengthen the state’s overall economic performance, without increasing unemployment, according to a new fact sheet released by the Justice Center yesterday.

Most importantly, raising the minimum wage benefits adult workers and their families, providing a critical antidote to the ongoing boom in low-wage jobs. Almost 6 out of every 10 new jobs created since the end of the recession are in industries that pay poverty-level wages. More than 80 percent of new jobs created since 2009 don’t pay enough to cover life’s necessities, including housing, healthcare, groceries, and gas costs. Raising the minimum wage would make the difference between destitution and self-sufficiency for thousands of workers on the bottom rung of the state’s labor market.

One critical effect of raising the minimum wage for these low-income workers is the boost to the entire economy that comes from putting more money in the pockets of large numbers of those workers most likely to spend it. For example, boosting the wage floor to $10 an hour would affect approximately 1 million workers in North Carolina. And because of the boom in low-wage work, the vast majority of those North Carolinians benefitting from the wage increase are no longer the part-time, teen-aged workers who once filled the bulk of entry-level jobs in past generations. Now, more than 85 percent of those benefitting from a minimum wage increase are workers older than 20 years of age, and more than half work full-time. A half-million children in the state would experience increased security thanks to their parents’ higher wages—a critical support given that North Carolina has the eighth highest percentage of children living in poverty in the nation.

As low-income workers spend their bigger paychecks, local businesses will benefit, growing the economy without hurting overall employment. Economists have repeatedly found that those states that increased their minimum wages have seen better economic performance, lower unemployment, and higher job creation rates than those states that didn’t raise their wages, controlling for regional economic trends. The evidence clearly and repeatedly contradicts critics who claim that increasing the minimum wage forces employers to offset greater payroll costs by reducing the number of employees.

In fact, raising the minimum wage creates more customers, more sales, and bigger profits. For example, recent studies have indicated that raising the minimum wage to $10 an hour would increase paychecks for North Carolina’s workers by $2 billion a year. That’s $2 billion in increased consumer spending at local businesses, boosting business sales, business profits, and creating more than 5,000 new jobs.

Additionally, raising the minimum wage helps small businesses reduce payroll costs by reducing employee absenteeism and turnover while simultaneously boosting productivity. Economists have long recognized that better-paid workers are more efficient, more effective, and more productive. Most importantly, increasing wages at the bottom rung reduces absenteeism and turnover—the two biggest drags on business productivity. Turnover requires managers’ time to review application, interview applicants, and provide on-the-job training and supervision for new workers once they are hired. And higher wages persuade workers to stay on the job longer, reducing the need for constant training of new employees.

These positive effects of a minimum wage increase outweigh the costs for local businesses and will not lead to layoffs. Taken together, the extra sales and stronger employee productivity more than outweigh the additional wage costs to businesses. And even where businesses do feel the need to reduce labor costs, 25 years’ worth of studies by labor economists have shown that businesses don’t respond by laying off workers, they respond by reducing workers’ hours—for example, a 10-percent increase in the minimum wage can reduce employee hours by about 1 or 2 percent. But low-wage workers still come out ahead—even after seeing their hours go down, they see a net increase in wages of 8 to 9 percent.

Given these overwhelming benefits, it’s no surprise that raising the minimum wage is so popular across the entire political spectrum. For example, during the 2014 elections, voters approved minimum wage increases everywhere they were on the ballot—from deep red states like Nebraska, South Dakota, Arkansas, and Alaska to blue cities like Oakland. Recent polling showed that 58 percent of North Carolinians support raising the minimum wage. More than half of self-identified conservative voters support local ordinances requiring that local businesses pay their employees a living wage.

Raising the minimum wage is good for workers, good for businesses, and good for the economy. It’s time to raise the minimum wage!

For a downloadable copy of this fact sheet, click here.

4 Comments


  1. LayintheSmakDown

    April 11, 2015 at 11:42 am

    You forgot the other side of the equation. An increased minimum wage will increase prices, thus negating any benefits that accrue due to the change. So for example, say McDonalds is required to go from $7.25 to $15, your Big Mac then increases from $4 to $8.
    ……..
    Overall a change to the wage base that goes beyond inflation is detremental and causes inflation itself

  2. Alan

    April 16, 2015 at 10:17 am

    LSD. No it doesn’t. The fact that the VAST majority of economists agree that increasing the minimum wage is good for the overall economy is similar to the fact the VAST majority of scientists agree on global warming, both issues the far-right loons simply cannot accept. Facts are hard to understand, aren’t they?

  3. LayintheSmakDown

    April 16, 2015 at 5:45 pm

    Alan, it inherently has to. And your majority assertion is VERY wrong.
    …..
    When you raise the price of the main cost component of items, you are going to get inflation or less of the item. Let’s just use McDonalds as an example. If you have to raise 8 worker’s pay by $1 from $7 to $8, what are you going to do to recover those costs? You can raise the Big Mac price by say $0.50 thus creating inflation. You can decrease the number of workers by one. Or as the business owner you can take a pay cut (not gonna happen). So here you have a lose, lose, lose situation for all.

  4. Allan Freyer

    April 16, 2015 at 6:45 pm

    Prices would only rise in this case if demand remains constant. But the whole point is that raising the minimum wage increases demand–more money in workers’ pockets = more customers for businesses.

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