In a declaration of why he supports the $15 minimum wage, Tacoma City Councilmember Anders Ibsen claimed Tacoma’s economy is performing poorly because “people don’t have enough money to put in the economy to support our local businesses.” Advocates for a higher minimum wage often make similar claims. As a new editorial from the News Tribune points out, “politicians from Gov. Jay Inslee to President Obama have argued that a higher minimum wage will stimulate the economy and be good for businesses as low-income workers spend more money.”
The problem with the claim is there is “no theory or research to back it up.” The News Tribune,
“Raising the minimum wage, by its very nature, simply redistributes existing resources. The money to pay higher wages either comes from customers, in the form of higher prices; from employers, in terms of lower profits; or, most regrettably, from other workers who lose their jobs or have their hours or benefits cut.
“It’s true that, in aggregate, some low-income workers will spend more money if the minimum wage is increased. But for every extra dollar they spend, there is one less dollar of spending by someone else. Raising the minimum wage will no more stimulate the economy than a parent raising a child’s allowance will raise the family income.”
Contrary to claims made by higher minimum wage advocates, existing research proves that “redistribution of funds does nothing to help grow the economy overall, much less produce thriving local businesses.” In fact, research “indicates that it eventually slows an economy by decreasing the rate of business formation.” The News Tribune,
“A 2011 paper by researchers at the Chicago Federal Reserve found, unsurprisingly, that low-wage households increase their spending and take on debt in the wake of a minimum wage boost. Even though the researchers noted that their study is ‘silent about the aggregate effects of a minimum wage hike,’ Obama administration officials have repeatedly cited the study as proof that a higher minimum wage will stimulate the economy.
“Additionally, the same researchers have concluded in separate papers that raising the minimum wage decreases employment and increases prices. In a 2013 paper that took only employment losses and not price increases into account, the researchers concluded that a ‘minimum wage hike provides stimulus for a year or so, but serves as a drag on the economy beyond that.’”
The News Tribune editorial concludes that a $12 or $15 minimum wage will not help Tacoma’s local business or boost the city’s economy. After all, “One does not help a business by raising its costs.” Unfortunately, that reality won’t prevent politicians and minimum wage activists from making the claim anyway.