Is job creation faster in states that raised the minimum wage?

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A recent Center for Economic and Policy Research study indicates that job creation is faster in states that raised the minimum wage. The study is still preliminary but the short-term data shows that the 13 states that have raised the minimum wage have more robust economic growth and better employment than the 37 states that haven’t.

Within another year to 18 months we should have a better picture of whether raising the minimum wage actually helps the overall economy or not. In the meanwhile, here are some details from this study to consider:

How much is the minimum wage being raised by? In some cases states are raising the minimum wage by $1.50 to $4.00. Some places like Seattle have chosen to set the minimum wage even higher ($15.00/hour).

Conventional wisdom doesn’t seem to apply. Conventional wisdom says that when the minimum wage goes up, employers who are operating on a very thin margin and who can’t afford the new minimum wage will be forced to lay off employees and cut back on business. In this non-definitive study however, that doesn’t seem to be happening.

Increasing wages drives the economy up.  When you pay the lowest paid people more they spend most of that money, which goes right back into the consumer-based economy.

A look at history might be illuminating.  In 1914, Henry Ford radically increased the minimum wage of his workers. He more than doubled what he was paying factory workers and thereby not only decreased workplace attrition, but also contributed to the emergence of a middle-class that could afford to buy his cars. When Howard Schultz offered employment benefits for part-timers at Starbucks, which was unheard of in his industry, he halved the employee turnover rate and similarly saved in overall employment costs through decreased hiring and training expenses.

Spending morale has been low over the past few years: Since 2009, we’ve had a real freezing of wages and so we have more people (the sinking middle-class included) who have less and less spending power. In the end, everybody loses when there is a tough economic climate.  This is a great time to reflect on those industry leaders who have shown the courage and integrity to consider employee needs in creating win-win wage and compensation solutions.

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