Roughly four-and-a-half million low-wage workers are set to receive a special economic stimulus today, as the federal minimum wage rises from $6.55 to $7.25. Despite grumblings from some economists, conservative pundits, and members of the business community about the dire consequences of a seventy-cent raise for the country’s poorest during this time of uncertainty and tightened belts, increasing the minimum wage is only a good thing—for minimum wage workers and for all of us.

The benefits for low-wage workers are obvious: since 1980, the real (after inflation) value of the minimum wage has declined precipitously, from a high of around $8.00 to a low of around $5.50. In nominal terms, the minimum wage did not budge between 1997 and 2007, even as annual inflation averaged 3 to 4 percent during most of those years. Adjusted for inflation, the minimum wage today is 17 percent lower than it was 1968.

During that same time, the shrinking value of the minimum wage has contributed to a steady increase in income inequality across the board. By 2005, according to the Economic Policy Institute, minimum wage earners made 32 percent of the average hourly wage, down from a peak of 56 percent in 1950 and 40 percent as recently as 1998. Women and minorities make up a disproportionate share of the minimum wage workforce, which at least partly explains the continuing lag between their earnings and those of white men.

Even if times were good, there would be a case for increasing the minimum wage—and indeed, nineteen states plus the District of Columbia have already passed state laws that pay $7.25 or more, and most will be unaffected by the federal increase. Still, the EPI estimates that today’s raise will translate into $1.6 billion in additional annual income for minimum wage workers; which, given the perilous state of today’s economy, represents some much-needed security for workers who are too often used to doing without.

And they are not the only ones who will benefit. For the same reason that boosting social welfare payments in the form of unemployment benefits or food stamps have large positive effects on personal spending, the minimum wage hike will feed directly back into the overall economy at much faster rate than, say, tax cuts for the middle class. Low-income workers are far more likely to spend small windfalls (if a long overdue wage hike can be thought of as a “windfall”) during times of recession than middle- or high-income workers, who tend to sock it away as protection against future uncertainty. The EPI figures that raising the minimum wage to $7.25 will increase consumer spending by more than $5.5 billion over the next twelve months.

Critics of the minimum wage often complain that it increases unemployment by forcing businesses to hire fewer people or eliminate low-productivity jobs during recessions. But there’s very little evidence that this actually happens. Surveying a half-dozen recent studies which “have failed to find a significant impact on unemployment from raising the minimum wage,” Kai Filion of the EPI points out that “if raising the minimum wage leads to millions of families spending billions of more dollars, then this spending creates jobs for other workers and helps offset the theoretically negative impact on employment.”

Not only is the minimum wage’s direct impact on employment largely fictional, but as labor economists William Spriggs and John Schmitt suggested more than a decade ago, the devaluation of the minimum wage over the last quarter century is at least partly responsible for a parallel deterioration in wages throughout the labor market. “The dramatic decline in the real value of the minimum age did not lead firms to expand total job opportunities” like minimum wage criticisms would imply, Spriggs and Schmitt write, “as much as it induced them to alter the composition of employment by substituting low-wage, low-productivity jobs for what used to be higher-productivity, better-paying ones.” So long as the minimum wage remains so appallingly low, in other words, we all pay.

Today’s increase is the final step in a three-year minimum wage hike passed by Congress in 2007. During the 2008 election, Barack Obama promised to keep the upward trend going by increasing the minimum pay for the lowest paid workers to $9.50 by 2011. Let’s hope he can follow through—for their sake and for the rest of us.

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