Released August 20, 2009
RALEIGH, N.C. -- The minimum wage was just increased 70 cents, to $7.25 an hour. There seem to be divided views on this action. Some applaud the move to help low-wage workers, while others worry what it will do to the already weak job market. Explain these divergent views.
Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:
The minimum wage, of course, has been around since the 1930s, and it's been studied almost as long. In fact, this is one of the most-studied areas of economics of all time. And there actually is a fairly conclusive result here from the studies.
Two big effects
On the one hand, those minimum wage workers who keep their jobs are obviously going to benefit from a higher minimum wage.
On the other hand, the studies indicate that on average a business person will now look at his or her workers and say, 'Gosh, now that I have to pay them more, I'm going to have to get more out of them. They're going to have to be more productive. And if a particular worker isn't productive, based on the new higher minimum wage, ultimately - maybe not immediately, but ultimately - I'm going to have to let that person go.' So there is a lot of evidence that suggests that you do see unemployment among low-skill workers go up when you have a higher minimum wage.
Now, there would have been a way for the government to actually have both - that is, help minimum-wage workers and avoid higher unemployment - and that is rather than increasing the minimum wage, to increase something called the earned income tax credit. The downside of that is that (the earned income tax credit) is money that comes from the government, whereas when the government says that businesses have to pay a higher minimum wage, that comes out of the business's pocket.
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http://www.ncsu.edu/project/calscommblogs/news/archives/2009/08/economic_perspe_429.html
