Here's what would happen if we raised minimum wage

Business Insider

The federal minimum wage has been stuck at $7.25 since 2009. Democrats want to raise it, but business leaders say it will tank the economy. Here's what's at stake.

Transcript

00:00Think back to the year 2009, Barack Obama had just been elected, the original Gossip Girl was still in the air, and Lady Gaga was inescapable.

00:09That was also the last time the federal minimum wage was increased.

00:14It's hard to imagine that in this day and age, $7.25 an hour is a livable wage.

00:20That's just $15,000 a year, and it's well below the poverty level for families.

00:26So is a minimum wage hike on the table when a new president takes over the White House?

00:31The federal minimum wage was first implemented in 1938, under FDR.

00:36Back then, it was just $0.25 an hour.

00:39It's steadily risen over time since, but Business Insider's Emily Stewart says in recent years, it's been stuck.

00:46And states and cities have put their own wage standards in place.

00:49Arizona's minimum, for example, is $14.35, California's is $16, and West Virginia's is $8.75.

00:56But lots of businesses nowadays are paying more because the market demands it.

01:01They've had to increase pay to compete for workers and just to get them in the door.

01:04Just look at Walmart. Workers there now start at $14 an hour.

01:08You hear stories about people going by fast food restaurants in Texas or really pick your state or city

01:15and seeing ads for $14, $15, $16 outside of fast food restaurants.

01:21It's really tough to pay the $7.25 today.

01:24Low-wage workers generally make more than their state's minimum wage, basically everywhere.

01:29Raising it would lock in gains for workers even in the event of a downturn.

01:33And there are spillover effects to hiking pay that would help more than the lowest paid people.

01:38Every time anybody talks about raising the minimum wage, businesses act like the sky is falling,

01:43all hell will break loose, that they will have to lay everyone off, that they will all shut down.

01:47But much of the evidence suggests that's not the case.

01:50When people have more money in their pockets, they can spend it at the grocery store, at the restaurant, down the street.

01:56After Seattle raised its minimum wage in 2014, its businesses had a 99.3% survival rate.

02:03And the labor market wasn't as strong as it is now.

02:06Research suggests a higher minimum wage can increase worker productivity and lower turnaround costs for businesses

02:12because better paid workers stick with their employers longer.

02:15I don't want to ignore the risks here.

02:17In Seattle, some workers did see their hours go down as businesses tried to compensate for having to pay them more.

02:23Though most of them still did see an increase in their net pay.

02:26And less experienced workers, teens in particular, had a harder time finding jobs.

02:32The Congressional Budget Office has this calculator that lets you play around with its estimates of the effects of a federal minimum wage hike.

02:39It predicts a higher minimum wage would lift families out of poverty.

02:42Though it also anticipates some job loss, depending on how high the wage is.

02:47You can understand why that's scary for workers.

02:49Higher pay only helps if you keep your job.

02:52Still, more recent hikes, like California's new $20 minimum wage for fast food workers, haven't put tons of people out of work.

02:59There could be an impact on consumers, too.

03:01Because businesses pass some wage increases into their prices.

03:05Let's say your burrito costs 10 cents more.

03:08But that's because the guy behind the counter who's making that burrito is making a living wage.

03:13And that feels like a worthwhile tradeoff to me.

03:16It's impossible to predict exactly what a higher federal minimum wage would do.

03:21A lot of the effect would depend on the labor market, competition, geography, and obviously the amount.

03:27For a long time, progressives were pushing for $15.

03:30They've now increased that to $17 because of inflation.

03:33But it's hard to know the right amount.

03:35But I do think you have to figure in Washington, supposedly the land of compromise.

03:39There's really a ton of space between $7.25 and $15 or $17.

03:43And they could pick something in there that might make sense.

03:47It's unlikely minimum wage will be increased this year.

03:50But it could be on the agenda in 2025.

03:52Kamala Harris has been talking about raising it.

03:55So maybe next year it will be brought up again.

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