United States

Labor policy changes pose distinct risks for middle market

Raising the minimum wage makes economic sense, but must be phased in correctly

THE REAL ECONOMY  | 

With more than 60 percent of the states already having minimum wages higher than the federal level, boosting the minimum wage from the current national rate of $7.25 an hour to between $10 and $12 an hour would cause little macroeconomic distortion if phased in correctly over a period of five to seven years. Indeed, on an inflation-adjusted basis, the current national minimum wage, in terms of purchasing power, equals that of the late 1970s. Thus, a hike in the wage floor makes sound economic sense.

However, state and local decisions to raise the minimum wage to $15 an hour will distort labor markets, causing undue harm to small and medium enterprises that employ the bulk of those workers who fall under the $15 per hour category. If implemented on a national basis it would affect about 40 percent of those currently in the labor force and represent one of the largest redistributions of wealth in recent memory.

Read the full article in this month's issue of The Real Economy.

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