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Could Higher Minimum Wages Actually Help Businesses?

By Dan Caplinger – Feb 2, 2014 at 3:11PM

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A new minimum wage hike for federal contract workers raises new debate about the impact of higher minimum wages. Learn more about both sides of the issue.

Last week, President Obama issued an executive order raising the minimum wage for federal contract workers to $10.10 per hour. With McDonald's (MCD 0.63%), Wal-Mart (WMT 0.43%), 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 (RTX 0.35%), Raytheon (RTN), and other major contractors could give valuable data on the actual impact of rising minimum wages.

Dan Caplinger has no position in any stocks mentioned. The Motley Fool recommends McDonald's and owns shares of McDonald's and Raytheon. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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McDonald's Stock Quote
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Raytheon Stock Quote
Raytheon Technologies Stock Quote
Raytheon Technologies
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