In one of the first calls to action under new Secretary Perez, the Department of Labor issued a blog post yesterday about raising the minimum wage, as President Obama urged in his State of the Union address. Economists have been debating whether even having the minimum wage is in the interest of a free economy. But according to the DOL, raising the minimum wage payable to most American workers would help the economy. Remember reading about Henry Ford, and how he imposed a shorter work day and higher wages for his factory workers? Guess what, they all were able to buy Fords, and use some of their free time to enjoy them. The same principle is at work with the wages paid to lower end workers. If they can pay their absolute necessities and have some cash left over, the cash will be spent on things and services sold by other people, whose income rises.
The DOL blog post has a nice graphic on the reduction in buying power of minimum wage, the lack of ill effects on the economy when a new minimum wage goes into effect, and other fun facts.
Many people assume that most minimum wages jobs are held by teenagers supplementing their allowances with a part-time job. That assumption was never completely correct, but as the recession hit a few years ago, the competition for lower wage jobs intensified. Lots of people try to meet their own expenses and those of their families on $7.25 per hour. After FICA withholding, but not other tax withholding, a 40-hour a week job would net $267 per week. Try paying for rent, groceries and transportation on that paltry sum, and think about the how unlikely it is that you could also afford health care, a cell phone, and clothing. On the other hand, think what a 20% raise could mean.