May 28, 2009 / 9:24 PM / 8 years ago

U.S. minimum wage hike a stimulus to economy: report

NEW YORK (Reuters) - A higher U.S. minimum wage is providing a cushion to the economy when it is most needed, according to a report released on Thursday.

<p>Women wait in line for an interview at the Ringling Bros. and Barnum &amp; Bailey Coney Island Boom A Ring Job Fair in New York May 27, 2009. There will be 200 jobs available for anyone age 16 and older starting June 18 thru September 7 on the boardwalk in Coney Island. The U.S. housing bust and auto sector upheaval have left hundreds of thousands of workers looking for jobs in the same sectors, in the same places, and at the same time. REUTERS/Shannon Stapleton</p>

The Economic Policy Institute, a liberal think-tank based in Washington, said recent rises in the minimum wage have acted as a “stealth stimulus,” preventing the worst recession in generations from spiraling out of control.

The study found that the bottom-rung pay increases will boost spending by $4.9 billion.

Such findings counter conventional wisdom among economists, who tend to argue that mandated wage increases hurt businesses’ bottom line, putting a crimp on hiring.

On the contrary, say EPI analysts, who argued that further growth in low-end incomes would go a long way toward engendering an economic recovery.

“An increase in the minimum wage would not only benefit low-income working families, but it would also provide a boost to consumer spending and the broader economy,” said Kai Filion, an analyst at EPI.

In the first increase in over a decade, the minimum wage was raised to $5.85 two years ago after a tough battle in Congress.

The EPI study found the July 2007 minimum wage hike benefited over 700,000 families and added $1.7 billion in additional spending over the following year.

A July 2008 increase benefited over 1.3 million families and added $3.1 billion in additional spending over the following year, the EPI analysts added.

Reporting by Pedro Nicolaci da Costa; Editing by Dan Grebler

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