The Business Case for Raising the Minimum Wage

Raising wages reduces costly employee turnover and increases productivity.  When the minimum wage goes up, employers can enjoy these benefits of paying higher wages without being placed at a competitive disadvantage, since all companies in their field are required to do the same. Raising wages also puts money in the hands of consumers, boosting demand for goods and services.

A 2003 study of the effects of a wage increase for workers at the San Francisco Airport found that annual turnover among security screeners plunged from 95 percent to 19 percent when their hourly wage rose from $6.45 to $10 per hour.  After wages increased at the airport under a living wage policy, 35 percent of employers reported improvements in work performance, 47 percent reported better employee morale, 44 percent reported fewer disciplinary issues, and 45 percent reported that customer service had improved.

A 2006 article in the Harvard Business Review finds that wholesale retailer Costco’s higher wage rate than other retailers results in less turnover and employee theft, and greater productivity.

A 2005 study of San Francisco’s 2004 minimum wage increase found workers in fast-food restaurants remained employed for longer periods of time (an average increase of 3.5 months) and were more likely to have full-time jobs.

A 2005 study of a living wage for home care workers in the Bay Area found that turnover fell by 57 percent following an increase in their wages. 

And a 2005 study of the effect of a living wage policy for firms that contract with the city of Los Angeles found that staff turnover rates at firms affected by the policy averaged 17 percent lower than at firms that were not affected.

In 2011, The Center for Economic Policy Research and the Center for Law and Social Policy released a turnover calculator that estimates the cost of employee turnover to an individual business.

For these reasons, nearly 1,000 business owners and executives, including Costco CEO Jim Singeal, U.S. Women’s Chamber of Commerce CEO Margot Dorfman, Addus Health Care CEO Mark Heaney, Credo Mobile President Michael Kieschnick, ABC Home CEO Paulette Cole, and small business owners from all 50 states, signed a Business for a Fair Minimum Wage statement supporting the last increase in the federal minimum wage. As their statement explained, “[h]igher wages benefit business by increasing consumer purchasing power, reducing costly employee turnover, raising productivity, and improving product quality, customer satisfaction and company reputation.”



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