Minimum Wage Rise: More Money Or Fewer Jobs? This Friday, the federal minimum wage will rise to $7.25 an hour, up from $6.55. Conservative economists worry that the raise will force small businesses to lay off workers. Liberal economists say it will put more money into the pockets of people who need it most. Who's right?
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Minimum Wage Rise: More Money Or Fewer Jobs?

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Minimum Wage Rise: More Money Or Fewer Jobs?

Minimum Wage Rise: More Money Or Fewer Jobs?

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Earlier this month, we asked you to send us your thoughts on what we should discuss when it comes to the economy. One suggestion was workers' wages. And this coming week is a good time to discuss that because on Friday the 24th, the federal minimum wage will rise to $7.25 an hour. That's up from $6.55 an hour.

Congress approved this wage hike two years ago, when the economy was in much better shape. Now, with unemployment at its highest level in a generation, the wage increase is controversial. Some economists say it will force businesses to eliminate jobs. Other say a wage hike will get more cash to the people, thereby stimulating spending and giving the economy a much-needed boost.

Joining us to discuss the impact of rising wages is NPR senior business editor Marilyn Geewax. Welcome back, Marilyn.

MARILYN GEEWAX: Good morning, Liane.

HANSEN: How many people will this wage hike affect?

GEEWAX: The Labor Department says that roughly 5 million workers report that they currently get less than $7.25 an hour, so those people are going to be looking for a raise on Friday. But really, more people than that will be affected. You have to remember that the federal minimum wage really serves as a benchmark for the labor market.

So, people who are earning up to, say, $9 an hour, they most likely will get raises this week, too, when their employers slide the whole pay scale up 70 cents. That's going to affect about 10.5 million more workers. You know, it doesn't sound like much on the one hand - 70 cents an hour - but that works out for a full-time worker to $112 a month. If you're living paycheck to paycheck, $112 a month - that could be the difference between the kids have milk and bread or they don't for that month.

HANSEN: We mentioned the controversy over the wage hike. What is the argument in favor of it?

GEEWAX: Some economists think it really does help the economy. The Economic Policy Institute, which is a liberal research group, they estimate that the minimum wage pay raise this week is going to put about another $5.5 billion into the economy over the next 12 months.

Low-wage workers do not get a raise and put it under the mattress. Those new dollars circulate through the economy, and they can help a small restaurant owner, the corner gas station store, the dollar store, that kind of thing.

HANSEN: But on the other side, economists are worried about the effect that this hike is going to have on small businesses. I mean, can they really afford to give raises to their workers, even if people begin to spend more money?

GEEWAX: Ah, the famous economist other hand. Lots of economists point out that businesses are hanging on a by a thread this year, and any increase in wages is not going to be a small matter for them. Nationwide, we've got an unemployment rate of 9.5 percent - in some places, like Michigan, it's far higher than that. Anytime you lose jobs in this economy, it's going to be a blow.

HANSEN: Marilyn, there have been regular increases in the minimum wage since the Great Depression. Why is this still a debatable proposition?

GEEWAX: It is funny. It's like one of those things that you think would've been settled decades ago. Do we get a better economy or do we get a worse job market, after you have a minimum wage hike?

There was a famous study in New Jersey's fast food industry back in the 1990s, when there was a minimum wage hike. They looked at it, looked at it, looked at it and concluded it did no harm. It didn't help, it didn't hurt. But there are other studies, typically those done by free market supporters, that say they do find evidence of job losses.

This time, it's particularly interesting because we're getting this wage hike at an unusual time. Inflation is low, but the job market is very weak. We actually thought that this was so interesting on NPR's business desk that we've asked reporter David Greene to take a closer look. Listeners can tune into NPR's MORNING EDITION Thursday to hear what he learned in his interviews with workers and small-business owners.

HANSEN: NPR senior business editor Marilyn Geewax. Thanks a lot, Marilyn.

GEEWAX: You're welcome.

HANSEN: We'll have another chat with Marilyn Geewax on economic issues in two weeks. To suggest topics to discuss, go to our blog,

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