Raising the minimum wage wouldn’t only be a boon for low-wage workers, it could also provide a slight boost to the U.S. economy, a new study suggests.
President Obama’s State of the Union proposal to raise the federal minimum wage from $7.25 an hour to $9 an hour could cause America’s Gross Domestic Product to rise by up to 0.3 percent during the first year the hike is in place, a recent letter from the Federal Reserve Bank of Chicago found. The findings counter conservative claims that boosting the minimum wage would hurt the economy by pushing up prices for goods, leading to an overall decline in household spending.
Republicans shot down a minimum wage hike earlier this year, in part out of concern that it would hurt the economy by causing businesses to cut jobs in the face of higher-priced labor.
A minimum wage increase would probably have a negligible effect on GDP in the long-term, the Chicago Fed study found.
Additionally, it would likely take more than a $9 minimum wage to significantly affect the economy. Boosting the minimum wage to $9 would only increase low-income households’ earnings by 7 percent, a recent report from the non-partisan Brookings Institute found.
A $9 minimum wage is nowhere near the appropriate level to fairly compensate employees for their work. If the minimum wage had kept up with boosts in worker productivity, it would have reached $21.72 an hour, according to a March 2012 study from the Center for Economic and Policy Research.