

Date Published: 
Thu, 03/30/2006

By  James Parrott,   Brent Kramer and Oliver Cooke. Fiscal Policy Institute . March 30, 2006.

The authors decisively disprove the argument that the minimum wage takes a particularly cruel toll on small businesses, which frequently employ low-wage workers (and operate on thin profit margins).  The study looks at business employing 50 workers or less and found that "employment and payrolls in small businesses grew faster in the states with minimum wages above the federal level".  Job growth was stronger in these states as well, both generally and in the retail trade sector (where most workers are employed at the minimum wage).  The authors postulate that this may be the result of the "Henry Ford effect": Higher paid workers buy more, stimulating the overall economy. In 2006, the states with minimum wages higher than the federal standard were quite diverse, including Vermont, Michigan, Florida, Alaska, and New York among fifteen others. They conclude: "This analysis does not prove that increasing the minimum wage will boost employment growth over what it otherwise would have been. But it is clear that the prediction that an increase in the minimum wage will result in adverse employment outcomes has not been validated."