Could Higher Minimum Wages Actually Help Businesses?

Last week, President Obama issued an executive order raising the minimum wage for federal contract workers to $10.10 per hour. With McDonald's (NYSE: MCD  ) , Wal-Mart (NYSE: WMT  ) , and many other employers facing controversy over minimum-wage workers, many economists worried about the adverse impact a higher minimum wage could have on employment. But at least some economists think that higher minimum wages could actually help businesses.

In the following video, Dan Caplinger, The Motley Fool's director of investment planning, goes through the arguments on both sides. Dan notes that many economists believe that higher wages force businesses to cut back on hiring. But he also goes through a study from the Center for Economic and Policy Research, detailing some other moves that businesses might make that could lead to less of a negative impact. The study looks at employers cutting labor costs elsewhere, as well as the potential productivity gains from lower turnover and workers actually working harder. Dan concludes that raising minimum wages for federal contract workers under contracts given to United Technologies (NYSE: UTX  ) , Raytheon (NYSE: RTN  ) , and other major contractors could give valuable data on the actual impact of rising minimum wages.

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  • Report this Comment On February 02, 2014, at 7:11 PM, wisdomtooth2020 wrote:

    Question 1: Has anyone given a dime's thought to how raising minimum wage will affect not-for-profit organizations? Answer: no.

    Question 2: Are you going to give the rest of us who started at minimum age 16, went to school, got degrees or training, and "worked our way up" to a better paying job a 40% increase in pay, too?

    Answer: no, not by law.

    Question 3: Are you ready for a greater percentage of the unskilled workforce to remain unemployed, underemployed, and unable to manage without public aid? Answer: no.

    The issue here isn't whether people "deserve" to earn a "living wage" it's whether we have an infrastructure that supports people to WANT to become a skilled worker. Right now we have a public aid system that discourages individuals and families from seeking a "good job" because all they know is welfare. Even "welfare to work" programs fail because they fail to address a basic truth: you don't take someone whose from generational poverty and turn them into middle class-minded money managers. The key word being "manage."

  • Report this Comment On February 02, 2014, at 9:11 PM, busseja wrote:

    wisdomtooth. Our public support system discourages work because people know it is not productive to work Your statement implies they don't know the "work" way. I think they do, They also know it doesn't pay to work The loss of benefits far exceeds the gains made by work. It is a lifestyle supported by the "Poor" industry which is made up of those lobbies who take government money to help the poor, the poor themselves and those government workers who would be out of a job if there were fewer benefits to dole out and fewer poor to service. The overriding goal of all those people, who now comprise about 50% of our population is to increase the number of poor. It is good for business. Why work when you are content not to? They retire at 18 and those dumb enough to fill the lower paying jobs pay for them by working.

  • Report this Comment On February 02, 2014, at 10:15 PM, globeflyer wrote:

    Only in Robert Reich's dreams.....or those who didn't pay attention to Econ. 101.

  • Report this Comment On February 02, 2014, at 11:02 PM, Hadenoughuc wrote:

    every time a boss or corporation gives raises to the lowet paid workers it helps the economy , the problem is they just keep giving it all out at the top ,does nothing to help economy

  • Report this Comment On February 02, 2014, at 11:22 PM, ObamaStinks wrote:

    Oh the Liberal a business owner, yeah raise my costs, labor expenses, healthcare expenses, etc....and now I'm going to hire more people? Now I'm going to make more money? Wrong - now I'm going to fire people. This socialized Media stupidity has to stop at some point. I guess the new requirement to be a journalist is you have to have had a Lobotomy or have been paid off by the Dems.

  • Report this Comment On February 03, 2014, at 7:56 AM, scipiojr wrote:

    Obviously not all economists agree but I appreciate hearing both sides. That does not make me a stupid liberal, by the way. My personal opinion,based on reading, common sense, and having worked a lot of different jobs, is that a raise would be a good thing. There might be a drop off in hiring at first or even a few layoffs,but poor people spend ALL their money, unlike the rich and that would stimulate retail trade. Minimum wage right now is not a liveable raise.

  • Report this Comment On February 03, 2014, at 8:08 AM, GT6 wrote:

    In my 20 years as a restaurant manager and owner, i saw the minimum go up many times. Every time it did, I was told it would hurt me. And every time, they were wrong. Yes, yes my costs went up about 2%. But my sales increased by 5%. So I always came out ahead. A higher minimum wage puts more money in the hands of people who spend every dime they get, recirculating throughout the economy.

  • Report this Comment On February 03, 2014, at 9:44 AM, dogjudge wrote:

    Chicago Tribune (which is VERY conservative) ran a long article about raising the minimum wage yesterday.

    According to the article, there has no been one credible economic study that substantiates the minimum wage causing a loss of jobs, or causing the economy to falter.

  • Report this Comment On February 03, 2014, at 10:43 AM, sogole wrote:

    This will result in (1) fewer jobs (2) higher operating costs and higher prices.

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Dan Caplinger

Dan Caplinger has been a contract writer for the Motley Fool since 2006. As the Fool's Director of Investment Planning, Dan oversees much of the personal-finance and investment-planning content published daily on With a background as an estate-planning attorney and independent financial consultant, Dan's articles are based on more than 20 years of experience from all angles of the financial world.

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