Minimum Wage as Economic Stimulus

Minimum wage increases put money in the pockets of low-wage workers who have little choice but to spend that money immediately in their local communities. Research has shown that raising the minimum wage boosts consumer spending, increasing the demand that drives economic growth.

A 2011 study by the Chicago Federal Reserve Bank finds that minimum wage increases raise incomes and increase consumer spending, especially triggering car purchases.  The authors examine 23 years of household spending data and find that for every dollar increase for a minimum wage worker results in $2,800 in new consumer spending by his or her household over the following year.

A 2009 study by the Economic Policy Institute estimates that Obama’s campaign pledge to raise the minimum wage to $9.50 by 2011 would inject $60 billion in additional spending into the economy.

When the federal minimum wage was first enacted in 1938 at the height of the Great Depression, its twin goals were maintaining a wage floor to keep workers out of poverty, and stimulating the consumer spending necessary for economic recovery.  President Franklin Roosevelt called for its enactment as “an essential part of economic recovery,” explaining that by increasing the purchasing power of those workers “who have the least of it today, the purchasing power of the Nation as a whole – can be still further increased, (and) other happy results will flow from such an increase.”

The FactsThe Facts

$10.74

How much the federal minimum wage would be if it had kept up with inflation over the past 40 years. Instead, itís $7.25. Learn More

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