--- title: Minimum Wage Hike: Low Wages Can Hurt Companies' Bottom Line description: There's little evidence to indicate that raising wages will lead to job losses, and studies show that high-wage companies fare better than lower-wage ones. canonical: https://time.com/2828130/minimum-wage-hike-job-loss/ author: Jeffrey Pfeffer article:opinion: true article:content_tier: free article:published_time: 2014-06-06T15:52:57.000Z article:modified_time: 2026-08-04T07:45:34.649Z article:section: Ideas og:title: Underpaying Employees Can Hurt a Company's Bottom Line og:description: There's little evidence to indicate that raising wages will lead to job losses, and studies show that high-wage companies fare better than lower-wage ones. og:url: https://time.com/2828130/minimum-wage-hike-job-loss/ og:site_name: TIME og:image: https://static.time.com/v3/assets/bltea6093859af6183b/blt9b4969b4a901dc61/6986966be8524be24760353f/178346448.jpg?branch=production&width=1200&quality=75&auto=webp&crop=16:9 og:image:width: 4000 og:image:height: 2250 og:image:alt: Fast-Food Strikes in 50 U.S. Cities Seeking $15 Per Hour og:type: article twitter:card: summary_large_image twitter:title: Underpaying Employees Can Hurt a Company's Bottom Line twitter:description: There's little evidence to indicate that raising wages will lead to job losses, and studies show that high-wage companies fare better than lower-wage ones. twitter:image: https://static.time.com/v3/assets/bltea6093859af6183b/blt9b4969b4a901dc61/6986966be8524be24760353f/178346448.jpg?branch=production&width=1200&quality=75&auto=webp&crop=16:9 ---  # Underpaying Employees Can Hurt a Company's Bottom Line > Sponsored content. 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It explains how TIME's journalism is made, from the first pitch through the editorial decisions behind a finished story or cover. #### How can I read about how TIME chooses its covers? Inside TIME is the newsletter where TIME's Editor-in-Chief explains cover selection and the editorial reasoning behind major stories. It is free at time.com/newsletters. #### Who is the editor of TIME? Sam Jacobs is TIME's Editor-in-Chief. He writes Inside TIME, a twice-weekly newsletter about the newsroom's reporting and editorial decisions. #### Is Inside TIME free? Yes. Inside TIME is a free newsletter, available at time.com/newsletters. A paid TIME subscription is separate and available at time.com/subscribe-agent. ## Video: A History Of The Minimum Wage [Watch (HLS stream): A History Of The Minimum Wage](https://cdn.jwplayer.com/manifests/KFNoRaXc.m3u8) (3:56)  _Published 2014-02-28. See who raised the minimum wage and when throughout history._ by [Jeffrey Pfeffer](https://time.com/author/jeffrey-pfeffer/) ## Jeffrey Pfeffer Jun 6, 2014 3:52 PM UTC  Fast-food workers and supporters organized by the Service Employees International Union (SEIU) protest outside of a Burger King Worldwide Inc. restaurant in Los Angeles, California, U.S., on Thursday, Aug. 29, 2013. Fast-food workers and supporters organized by the Service Employees International Union (SEIU) protest outside of a Burger King Worldwide Inc. restaurant in Los Angeles, California, U.S., on Thursday, Aug. 29, 2013. Bloomberg—Bloomberg via Getty Images by [Jeffrey Pfeffer](https://time.com/author/jeffrey-pfeffer/) ## Jeffrey Pfeffer Jun 6, 2014 3:52 PM UTC Just this week, Seattle workers won a significant battle when the city [raised](http://seattletimes.com/html/localnews/2023769933%5Fwagefoloxml.html) its minimum wage to $15 an hour. Richmond, Calif, recently voted to [hike](http://www.sacbee.com/2014/06/05/6460500/california-city-votes-to-hike.html) theirs to $13 by 2018, while polls indicate San Francisco voters favor a $15 [minimum](http://www.sfgate.com/politics/joegarofoli/article/Thumbs-uo-for-15-an-hour-minimum-wage-in-new-5321206.php). Even the CEO of McDonalds is somewhere between neutral and positive on [raising the minimum wage](http://www.huffingtonpost.com/2014/06/04/mcdonalds-ceo-minimum-wage-hike%5Fn%5F5445539.html). People continue to argue that increasing the price of labor will reduce the number of jobs. However, the oft-cited [study](http://www.nber.org/papers/w4509) in the fast-food industry by economists David Card and Alan Krueger show small to no negative employment effects. And a [comprehensive study](http://econ.lse.ac.uk/~amanning/work/AM.MinimumWagesInEurope.pdf) of minimum wages in European countries concludes that there is “no general evidence that minimum wages reduced employment.” But even if higher minimum wages do cost jobs, should U.S. policymakers care? Maybe not. Contrary to what you may think, the U.S. is actually a comparatively low-wage country. According to data from the [Organisation for Economic Co-operation and Development](http://www.oecd-ilibrary.org/economics/data/labour/hourly-earnings%5Fdata-00044-en), in 2013 the U.S. ranked _23rd_ out of 28 industrialized countries in terms of hourly earnings. These data suggest that the U.S. can easily afford to pay more and not jeopardize its competitive standing. Moreover–and this is important–there is essentially no relationship between average hourly earnings and that country’s competitiveness as measured, for instance, by balance of trade statistics. In 2012, countries with high wages—such as Germany, the Netherlands, Sweden and Denmark, to take a few examples—ran a large [balance of trade surpluses](http://www.oecd-ilibrary.org/economics/data/main-economic-indicators/balance-of-payments%5Fdata-00040.en), while low-wage countries such as Portugal, Iceland and the U.S. ran a balance of trade deficits. Nor, for that matter, do high-wage companies invariably suffer, as University of Colorado Denver management professor Wayne Cascio’s comparison of higher-wage (and benefits) Costco with lower-wage (and benefits) Sam’s Club so nicely [illustrated](http://www.ou.edu/russell/UGcomp/Cascio.pdf). The issue is not what people cost, but what they can do, their innovativeness, and their productivity. Poorly paid people are more likely to quit, and turnover is costly. Underpaid people are unlikely to be engaged with their work or to exert discretionary effort. There is simply little reason to believe that raising wage rates will unduly harm country or company competitiveness. But most fundamentally, policymakers need to ask what sort of economy they want to create: a) an economy with low-wage jobs—and maybe one with few environmental or safety protections as well—such as Bangladesh, or b) an economy with high-wage employment and working conditions that do not sicken and kill people—think Denmark or Singapore. Some years ago I had the privilege of working with the Ministry of Manpower in Singapore. Although Singapore has no national minimum wage, the government has consistently pursued policies to raise not just the education and training levels of the workforce, but also income. Early in Singapore’s history, it was a hub for low-cost manufacturing. When low-wage manufacturers complained they would be forced to move their operations out of Singapore as wage levels rose, the government’s response was: learn to be more efficient and productive, or go. Why would the government want to encourage the preservation of low-wage work—a policy that would also retard the growth in national median income? Missing from the minimum wage discussion are the effects of wages and other job conditions on people’s physical, psychological and economic well being. And what about the “social pollution” caused by companies who pay people so little that their food and health care must then be [subsidized by the public](http://www.deseretnews.com/article/865594404/California-millionaire-pushes-minimum-wage-as-a-conservative-cause.html)? Many advanced industrialized economies have chosen a “high road” policy path that has produced higher incomes and, not coincidentally, much [better health outcomes](http://www.oecd.org/health/health-systems/oecdhealthdata.htm) such as longer life expectancy and lower rates of infant mortality. Economics teaches us that trade-offs are inevitable. Trading off job quality for job quantity might be a poor choice. _Jeffrey Pfeffer is Thomas D. Dee II Professor of Organizational Behavior at the Graduate School of Business, Stanford University._ ## Transcript >> In 1938, the very first federal minimum wage was set at $ 0. 25 cents an hour when Franklin Roosevelt signed the Fair Labor Standards Act. The wage is not tied to the rate of inflation, so it only goes up through congressional action. Twenty- two times since 1938, Congress and the President have worked together to raise it. Here's a look at when the wages have gone up over time. Keep an eye on the number in blue, which shows you how much that amount would be worth in today's dollars. -[ Music Playing ] [ Music Playing ] [ Music Playing ] [ Music Playing ] [ Music Playing ] [ Music Playing ] >> At its peak, the minimum wage in 1968 was worth $ 10. 75 in today's dollars, but the purchasing power that goes with it has not kept up. So, if you earn minimum wage in the 1960s, it was enough to fill up your basket with a week's groceries. 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