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Harkin: The Economic Case for Raising the Minimum Wage Outweighs Criticisms

WASHINGTON, D.C.—U.S. Senator Tom Harkin (D-IA) issued the following statement today following the release of a Congressional Budget Office (CBO) report regarding the minimum wage and its impact on the economy.  Harkin is Chairman of the Senate Health, Education, Labor, and Pensions (HELP) Committee and the author, along with Congressman George Miller (D-CA), of legislation to raise the minimum wage to $10.10.

“Since the first minimum wage was enacted more than 75 years ago, opponents have argued that a wage floor would cause job loss.  But this is a myth.  Our own historical experience shows that nothing could be further from the truth,” Harkin said.  “Indeed, the newest economic research using the most sophisticated methodologies has demonstrated that modest increases in the minimum wage do not cause job loss.

“More than 600 economists, including seven Nobel Prize laureates, recently affirmed the growing consensus that low-wage workers benefit from modest increases in the minimum wage without negative consequences for the low-wage job market,” Harkin added. “In fact, an analysis of the Fair Minimum Wage Act reveals that gradually raising the minimum wage to $10.10 would raise the wages of nearly 28 million low-wage workers, pumping $22 billion in the economy and—contrary to the CBO’s report— would create 85,000 jobs over three years due to increased consumer demand.

“Furthermore, the minimum wage is a critically important standard in our economy.  A fair minimum wage sets a floor below which no worker is allowed to fall, ensuring a fair day’s pay for a hard day’s work and preventing the exploitation of hardworking Americans desperate for income.  And, as the CBO report affirms, an increase in the minimum wage will help to lift families out of poverty. 

“Raising the minimum wage is not just the popular thing to do, or the right thing to do for millions of working Americans and their families—it’s also the right thing to do for our economy.”

The Harkin-Miller bill to raise the minimum wage to $10.10 is in line with previous increases in the minimum wage that have not resulted in negative economic consequences.  The last minimum wage increase, passed during President George W. Bush’s tenure, represented a 41 percent increase.  The Harkin-Miller bill represents an increase of 39 percent minimum over the current federal minimum wage of $7.25.

The majority of minimum wage research overwhelmingly demonstrates no significant job loss:

  • A landmark 2010 study by prominent labor economists Arindrajit Dube, William Lester, and Michael Reich examined all localities throughout the United States where there were differences in the minimum wage across county borders between 1990 and 2006.  This study – the most comprehensive and sophisticated in the history of the vast economic literature surrounding the minimum wage – found that minimum wage increases in the U.S. do not cause job loss generally, among teenagers, or among restaurant workers, even when the economy is weak.
  • Older studies and studies with less sophisticated methodologies do not account for regional economic factors that affect employment, and wrongly attribute employment declines caused by other factors to minimum wage increases.  The Dube study and similar, more sophisticated research properly account for these regional economic factors, and show no employment effects from a minimum wage increase. 
  • More than 600 economists, including seven Nobel-Laureates, recently signed a letter endorsing the Harkin-Miller bill to raise the minimum wage to $10.10 per hour, stating that:  “In recent years there have been important developments in the academic literature on the effect of increases in the minimum wage on employment, with the weight of evidence now showing that increases in the minimum wage have had little or no negative effect on the employment of minimum-wage workers, even during times of weakness in the labor market.”
  • Similarly, a survey of 40 of the most distinguished economic experts from across the political spectrum conducted by the Initiative on Global Markets at the prestigious University of Chicago Booth School of Business found that 47 percent of the experts surveyed agreed or strongly agreed that low-wage workers benefit from a modest minimum wage increase.  Only 11 percent disagreed or strongly disagreed.
  • A review of 64 minimum wage studies conducted between 1972 and 2007 found that – while there was a range of findings about employment effects, both positive and negative – the vast majority of these studies found at or near zero employment effects. Any finding that modest minimum wage increases produce significant job loss should be considered an outlier in current economic research.

Business groups and businesses, including small businesses, are increasingly supportive of the minimum wage because of its positive impact on businesses and the economy:

  • In a 2013 poll, two-thirds of small business owners supported a raise in the minimum wage because they believed it would boost consumer spending, thus driving up sales at their businesses, and because it would relieve pressure on the safety net from working families who don’t earn enough to get by. Hundreds of individual business owners and executives have endorsed the Harkin-Miller bill.
  • Several business associations, representing hundreds of thousands of businesses, have endorsed the Harkin-Miller bill, including the American Sustainable Business Council, Main Street Alliance, and U.S. Women’s Chamber of Commerce.

Big businesses that employ most low-wage workers have largely recovered from the recession and are performing even better than before. 

  • A 2012 study shows that, among the top 50 low-wage employers:
    • 92 percent were profitable by 2011, and three-quarters were profitable between 2009 and 2011.
    • 75 percent had higher revenue by 2012 than before the recession.
    • Nearly two-thirds had higher profits by 2012 than before the recession.
    • These businesses distributed $175 billion to in dividend payments and share buybacks to stock holders over the 5 years preceding 2012.

Wages are among the least concerning issues for small businesses.

  • The National Federation of Independent Business’ February 2014 survey shows that only 4 percent of businesses surveyed believe the cost of labor is their single most important problem. Poor sales and taxes, among several other issues, are all more concerning. In the history of the survey, never have more than 9 percent of small businesses identified the cost of labor as their most important problem.
  • A Gallup poll of small businesses in December 2013 shows that attracting customers and new work is the most important business-specific challenge for 2014.