Christian Science Monitor: Would raising the minimum wage destroy jobs?
Since President Obama proposed an increase in the federal minimum wage in the U.S., from $7.25 per hour to $9 per hour and then index it to inflation, the debate has been raging about whether or not this would make low wage workers better paid or not paid at all (or in other words if they would get unemployed).
The short answer is that it would be a little bit of both, but with emphasis on little. To understand why we must first examine the issue theoretically and then look at current U.S. conditions. ...
... If the legal minimum wage is lower or equal to the current pay level, nothing happens at all. If it is higher than current pay but lower than marginal productivity then workers get higher pay. If it is higher than marginal productivity, workers lose their jobs.
Since minimum wages are usually far below median pay, for most workers nothing happens. For the small numbers that are affected some will receive a raise, while others will lose their jobs. The exact proportion of workers who are unaffacted, of workers who receive higher pay and of workers who lose their jobs depend on the specific conditions in each specific country (or state or city) and each specific period of time and will therefore differ between different locations and different periods of time ...
This fits makes sound economic sense to me. I think most people intuitively know that if you put the minimum wage at $30 you would wreck the economy. There is an upper limit on high you can go before businesses would be paying people more than the economic value of the labor they are getting in return. Presently, $9 is well below that threshold in most contexts and will therefore have only a modest impact on either improving wages or destroying jobs. I suspect the political and symbolic value is greater than the actual economic impact.
