State minimum wage hikes: Help or hindrance?

Minimum wage increase: Good for workers, expensive for biz
Minimum wage increase: Good for workers, expensive for biz

Minimum wages recently increased in 20 states, igniting the decades-old debate of how a higher wage floor affects businesses and consumers.

Proponents argue that higher wages allow workers to afford basic living expenses and pump additional money into the economy, while others decry potential cuts to hours or jobs as a result of mounting labor expenses.

"When economists have looked at this, they've found that any short-term stimulus to the economy actually becomes, not too long out, a drag on the economy after the minimum wage goes up," Michael Saltsman of the Employment Policies Institute told CNBC's "Closing Bell" on Friday.

Fast food workers and activists demonstrate outside the McDonald's corporate campus, May 21, 2014, in Oak Brook, Ill.
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After the hikes went into effect, more than half of the U.S.—29 states in total—held minimum wages exceeding the federal rate of $7.25 per hour. California now has the highest minimum wage in the U.S. at $9 per hour.

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When employers are required to pay workers more than they would have otherwise, it forces them to cut costs in other ways, Saltsman contended. Companies employ fewer people or resort to automation, cutting off "the bottom rungs of the career ladder," he said.

But higher wages can give existing workers a more comfortable lifestyle, opening up disposable income and ultimately increasing spending in other areas, said Arun Ivatury, campaign strategist at the National Employment Law Project. Since consumer spending has a direct influence on business vitality and job creation, wage hikes will ultimately stimulate the U.S. economy, he contended.

"When workers don't have money in their pockets, they're not able to spend money at businesses, and that's a drag on the economy," Ivatury told "Closing Bell."

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