While the effect will probably be positive, the magnitude of the improvement remains up in the air. A pay hike of $1.75 an hour, smaller than currently proposed, would augment purchases by at least $48 billion in the first year, according to a 2013 paper by Federal Reserve Bank of Chicago economists. Analysis by private researchers points to a smaller gain.
A raise would help lower-income earners contend with a decrease in government assistance such as the food-stamp program and the increase in the payroll tax that have hurt household purchases, which account for almost 70 percent of the economy. The Congressional Budget Office estimates there are about 16.5 million Americans who make less than $10.10 an hour, the new minimum being proposed by the Obama administration.
“Pretty much every penny of the extra wages these minimum-wage workers get they’ll be spending,” said Joshua Shapiro, chief U.S. economist at Maria Fiorini Ramirez Inc. in New York. “I doubt they have any scope for saving. They’re barely getting by.”
Richard Wilson, 27, says a higher minimum means he would have to make fewer tough choices when deciding how to best spend the $9.25 that he now makes per hour as a meat department worker at a Wal-Mart Stores Inc. outlet in Chicago.
“I have to choose sometimes between a monthly bus pass, a weekly bus pass, lunch for the day,” said Wilson.