Research shows that raising the minimum wage 'has more benefits than risks'

A study using US tax return data found that raising the minimum wage would not only benign but beneficial to small businesses, but would also meaningfully increase the income and employment of young workers.

Who's Afraid of the Minimum Wage? Measuring the Impacts on Independent Businesses Using Matched US Tax Returns
(PDF file)

Raising the minimum wage? Study using US tax data finds more gain than pain

Nirupama Rao of the University of Michigan and Max Risch of Carnegie Mellon University in the US studied the impact of the minimum wage using tax records from the past decade.

There are concerns about the minimum wage that independent businesses will not be able to withstand the increased costs or that it will make it harder to pass on their businesses.

However, the study found that in industries most affected by wage increases, companies were able to more than cover the increased labor costs with increased profits without making significant cuts to employment, and that owners' profits increased on average.

The restaurant industry will be greatly affected by the minimum wage hike, and there have been many cases of restaurants closing down, but the closures are concentrated in small, low-productivity stores, and profits have increased because the more productive small stores survived. This is because the demand that was saved by the closures was redistributed to the surviving companies.

In addition, for low-wage workers and young workers, the increase in the minimum wage increased their average income, maintained employment, and reduced turnover.

Based on these findings, Rao and Risch report that while raising the minimum wage would certainly cause pain, the benefits would far outweigh the costs.

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