Kick-starting the US economy – increase the minimum wage?

A hat tip to colleague Richard Wells for this piece from the Huffington Post. Research by economists from the University of California, Berkerly have shown that businesses don’t suffer from having to increase the minimum wage to their lowest-paid employess. In fact they believe that employers are actually better-off as with a higher minimum wage employees stay longer and become more experienced. This in turn should increase productivity and reduce the turnover cost.

For 10 years up to 2007 the federal minimum wage was US$5.15 but since then has increased to US$7.25, or about US$15,000 a year for a full-time worker. Economists argue that increasing the minimum wage will act as a stimulus to the economy. This is especially prevalent amongst the those low-wage families who depend on these earnings to survive. Therefore their marginal propensity to consume is very high and may even lead to job growth. Workers under the age of 25 account for approximately 50% of those making the munimum wage of less.

According to researchers the federal minimum wage from $7.25 to $8.25 would give a raise to 10 million workers, including many currently earning their state minimum wage. That could ultimately pump as much as $9 billion into the economy. At a time like this, there is nothing else putting upward pressure on wages. As the US economy remains in a stagnant position maybe this could be an option?

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