Whether or not we should raise the minimum wage has been the subject of heated debate in recent months. Liberals argue that it is a minimal measure to combat America’s staggering wealth inequality, while conservatives argue that it will have a negative impact on employment. I thought it would be useful to shed some light on this contentious issue, by reviewing some of the economic literature, and the opinions of the world’s top economists.
In 1994, the Princeton Economist Dr Alan Krueger published a paper entitled “Minimum Wages and Employment”, which studied the effect of New Jersey’s minimum wage increase on employment, wages and prices. The study examined a sample of fast food restaurants in New Jersey and Pennsylvania, comparing them before and after the minimum wage increase. Contrary to popular conservative dogma, the study found that employment in New Jersey increased by 13% relative to Pennsylvania. The study also found that the stores most affected by the minimum increase increased employment, whereas those least affected did not. The results of this study fly in the face of traditional “free-market” economics, challenging the notion that an increase in the minimum wage negatively impacts employment.
Dr Paul Krugman, another distinguished Princeton Economist recently had this to say about the minimum wage:
“Until the Card-Krueger study, myself included, assumed that raising the minimum wage would have a clear negative effect on employment. But they found, if anything, a positive effect. Their result has since been confirmed from many episodes. There’s just no evidence that raising the minimum wage costs jobs, at least when the starting point is as low as it is in modern America.”
In summary, it’s anything but proven that increasing the minimum wage negatively impacts employment. In fact, many top economists believe that it may even have a positive impact, along with the added benefit of improving the living standards of those affected. I think we need to seriously review America’s minimum wage policy, and consider increasing it at the Federal level. If we refuse to tackle the problem of inequality head-on, we only have ourselves to blame for our country’s soaring wealth disparity, especially when our best economists are screaming from the roof-tops that we are on the wrong track.