Much of the discussion about the Democratic proposal to raise the minimum wage to $10.10 an hour by 2016 has rightly focused on the workers who will clearly benefit from the move. But what about businesses? How would higher wages affect them?
The answer — contrary to a great deal of reflexive hand-wringing by some conservative think tanks and politicians — is surprisingly positive. Scholarly studies and the experience of businesses themselves show that what companies lose when they pay more is often offset by lower turnover and increased productivity. Businesses are also able to deal with higher costs by modestly increasing prices and by giving smaller increases to higher-paid employees.
The Senate majority leader, Harry Reid, says he expects to bring a minimum-wage increase proposal to the floor of the Senate for a vote in late March or early April. When he does, politicians from both parties need to put aside old canards and instead focus on research that suggests that a higher minimum wage has a powerful upside.
One 2013 study by three economists — Arindrajit Dube, T. William Lester and Michael Reich — compared the experiences of businesses in neighboring counties in different states and found less turnover in states that had raised the minimum wage. Workers were less likely to leave on their own, and managers were more likely to keep the workers they had on staff to avoid the cost of recruiting and training replacements.
Other studies on the effect of local minimum wage increases in places like San Francisco and Los Angeles have found similar results, according to a recent overview published by the Center for Economic and Policy Research in Washington.