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Would increasing the minimum wage also add jobs?

August 16th, 2012  |  Matt Pavich

The Economic Policy Institute says it would. According to a report by the EPI, raising the federal minimum wage of $2.65 over the next two years could add as many as 100,000 jobs to the national economy. The report suggested that such an increase would affect up to 28 million workers who would get almost $40 billion in additional wages during that time. The report suggests that those wages would, in turn, expand the U.S. gross domestic product (GDP) by roughly $25 billion, resulting in the creation of approximately 100,000 net new jobs. According to the report, almost 55 percent of the beneficiaries of such an increase would be women.

The EPI’s report reflects the current thinking among many economists and lawmakers. Late last month, Senator Tom Harkin (D-Iowa), the chairman of the Senate Health, Education, Labor, and Pensions (HELP) Committee, introduced the Fair Minimum Wage Act of 2012 . A companion bill to one introduced in the House, the measure (S. 3453) would increase the minimum wage to $9.80 per hour in three steps over the next two years. It would also increase the minimum wage for tipped workers from the current $2.13 per hour to a level that is 70 percent of the full minimum wage, or approximately $6.85 per hour.

The bill is based on the Rebuild America Act introduced by Harkin in March 2012. That bill also would close loopholes that potentially allow employers to misclassify workers as independent contractors and would provide funding for state and local governments to hire teachers and first responders. It also would provide $300 billion in infrastructure funding to build and repair bridges and highways, reinstate the Child Care and Development Block Grant that assists working families with child care costs, and improve Social Security benefits.

In addition, the legislation would update the overtime requirements for white-collar workers, expand the Work Opportunity Tax Credit allowing employers to hire more workers with disabilities, and allow American workers to earn up to seven paid sick days each year.

So is it worth a shot? Well, many economists believe that an influx of cash is needed to push the economy out of its current doldrums and that until people start buying, businesses won’t start making more product which, in turn, would allow them to hire more people. Given the lack of political will to spend federal dollars on infrastructure projects that could spur job creation, a phased increase in the minimum wage might be the best way to get the economy moving again.