A Minimum Wage Stimulus?

Supporters of this election cycle’s call to raise the minimum wage have had little success so far. The country’s long-struggling economy has made federal lawmakers hesitant to increase the cost of entry-level jobs, and they’re sensibly ignoring the false claim that “there’s no solid evidence that a higher minimum wage costs jobs.”

To combat this, minwage supporters are trying a new argument: raising the federal minimum wage, they say, will boost the economy.

Harold Meyerson, for one, floats this idea in his latest Washington Post column:

By putting more money into the pockets of the working poor—a group that necessarily spends nearly all its income on such locally provided basics as rent, food, transport and child care—an adequate minimum wage increases a community’s level of sales and thereby creates more jobs.

This idea raises the question, did previous federal minimum wage increases boost the economy? Below is a list of all federal increases since the modern Fair Labor Standards Act (FLSA) minimum wage law was adopted in 1977, along with notes on what subsequently happened to the economy:

Legislation   date Phase-in   dates Economy
1977   Amendments 1/1/1978 Economy   enters recession, 1/1980
1/1/1979
1/1/1980
1989   Amendments 4/1/1990 Economy   enters recession, 7/1990
4/1/1991
1996   Amendments 10/1/1996 U.S. Real   GDP grows 4.5% in 1997, 4.4% in 1998, and 4.8% in 1999
9/1/1997
2007   Amendments 7/24/2007 Economy   enters recession, 12/2007
7/24/2008
7/24/2009

Going back further, the economy also entered recessions during the phase-ins of the two previous minimum wage increases, under the 1966 and 1974 FLSA Amendments. So, during five of the last six federal minimum wage increases, the nation fell into recession.

Now, perhaps the minwage increases did stimulate the economy in each of those years, but the stimulus was not enough to overcome the problems that brought on the recessions. Heck, perhaps the ‘96–’97 increase was the chief cause of the economic boom of the late 1990s.

But probably not.

It seems far more likely that mandating a small wage increase for a small group of workers who work a small number of hours will not have much stimulatory effect on the economy. It may not even be enough to counterbalance the negative economic effects of would-be workers who can’t find—or lose—their jobs because of the mandated increase.