The US is looking to raise its minimum wage to $9. This is still short of the minimum wage in many Western nations (one of the highest in Australia, whose minimum wage is closer to $17, more on weekends and evenings). But do higher minimum wages lead countries to go broke? Or to produce less jobs?
PBS interviewed Obama’s chief economics adviser Alan Krueger, who explains many studies find minimum wage rises can actually help economies, and even are often secretly welcomed by employers.
One issue that arises is that when employers contemplate an increase in the minimum wage, they don’t take account of the fact that their competitors will also face a higher minimum wage, and therefore they won’t be at a disadvantage compared to their competitors. Instead, prices will rise and that will help to offset their higher costs.
Costs rise by a very small amount (<3%), which is more than made up for greater spending power by poorer people, and other benefits to bosses. There are a range of reasons why employers might need to offer slightly higher wages, however in competitive markets they actually need governments to step in apply them, universally.
You would expect somewhere higher prices to reach a tipping point, where they start to negatively affect profits. Krueger says in all the studies he’s read, we haven’t ever seen that point be reached.