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Salmon: Minimum-Wage Stimulus

Tickers in this article: WMT
NEW YORK ( Reuters Blogs ) -- Nick Hanauer has a good idea: raise the minimum wage to $15 per hour.

The minimum-wage intervention would kill a lot of birds with one stone: It's a win-win-win-win-win-win.

First of all, most simply and most cleanly, it would immediately raise the incomes of millions of cash-strapped Americans -- precisely the people who most need to be earning more than they're making right now. A whopping 51 million people would benefit directly, along with 30 million who would benefit indirectly: These are enormous numbers.

Secondly, the cost to the government of putting billions of extra dollars into these workers' hands would in fact be substantially negative: There's a strong fiscal case for a $15 minimum wage. We currently spend $316 billion per year on programs designed to help the poor, with the lowest-income households receiving about $8,800 per year. Billions of those dollars would be saved as the workers in question saw their wages rise. And no longer would the likes of Walmart be able to take advantage of implicit government wage subsidies, whereby low-paid workers receive substantial top-up checks from Uncle Sam to supplement their direct income.

Thirdly, the move would constitute a huge economic stimulus program: Hanauer says that it would inject about $450 billion annually into the U.S. economy every year. If you like massive stimulus but you don't like the idea of the government paying for it, then a higher minimum wage is the program for you.

Fourthly, and crucially, a higher minimum wage would be good for employment. A $450 billion stimulus, delivered directly into the hands of the Americans most likely to spend it, can't help but create jobs across the economy. Of course, as in any healthy economy, there will be a birth/death model: Some employers will see demand soar, while others will see their costs rise and their margins shrink. But there's empirical evidence to suggest that states that raise the minimum wage when unemployment is high -- when there's a lot of slack in the labor force -- get faster job growth than in the country as a whole.

This is the particular genius of Hanauer's suggestion: It's especially effective right now , and we're at the perfect point in the economic cycle to implement it. At the depths of a recession, a disruptive move like this can have unintended consequences. But the economy is growing now, albeit not as fast as anybody would like, which means the wind is behind our backs to a certain degree. The bigger economic problem is that employment hasn't kept pace with economic growth: Most of the gains in GDP have gone to capital, rather than to labor. A higher minimum wage would redress the balance somewhat.