It’s Time to Raise the Minimum Wage

The federal minimum wage that was established in 1968 is $7.25, but 29 states have still proceeded to pass legislation raising the minimum wage. Critics of minimum wage increases have strong grounds that fall under economics 101. Economics 101 says when the price of a good goes up, people buy less of it. In this case if the input price of labor rises then business owners will buy less labor. They will hire fewer people, which means unemployment will rise. Some economists believe that based off this logic the low-wage jobs will suffer, ironically, the largest hit. But what if economics 101 is wrong, or does not apply to the case of America?

States and cities that implemented a minimum wage bump have seen little effect on unemployment. In 2014, Seattle imposed a $15 minimum wage. Since then unemployment has actually fallen by 17.4%, from 6.3% to 5.2%. A couple years ago the Congressional Budget Office released a report indicating that one-million people would actually rise above the poverty threshold if minimum wage increased to $10.10.

For a variety of reason unemployment is not rising with spikes in the minimum wage. One reason being that employers can not reduce their staff without cutting their revenues. Additionally, higher minimum wages tend to stimulate the economy because low-wage earner are likely to spend and not save any additional income. A final theory is that worker productivity increases when being paid a higher wage. This was first displayed during Henry Ford’s $5 days which paid workers double the average rate and worker productivity increased as a result. This leads to less worker turnover. While businesses may suffer a small loss they can increase revenue based on worker productivity.

An additional factor that is overlooked is the amount the government would save if a higher minimum wage was imposed. 53 percent of workers earning less than $12 rely on some form of government assistance, such as food stamps, Medicaid, refundable tax credits, and housing and energy subsidies. EPI estimates that the government could save $78 billion dollars each year that supports the families of workers earning less than $12 an hour. This prediction also does not account for Medicaid or premium subsidies in healthcare exchanges.

Although it does seem contrary to basic economics, raising the minimum wage would not be overly burdensome on businesses and it would not affect unemployment to any significant extent. Raising the minimum wage is a unique opportunity to help families in poverty and save the government some of the money spent on assistance programs.

-Luke Reynolds

Sources:

https://www.bloomberg.com/view/articles/2015-05-27/finally-an-answer-to-the-old-minimum-wage-question

https://www.cbo.gov/publication/44995

http://www.cnbc.com/2016/07/21/adjusted-for-inflation-the-federal-minimum-wage-is-worth-less-than-50-years-ago.html

http://www.epi.org/publication/the-impact-of-raising-the-federal-minimum-wage-to-12-by-2020-on-workers-businesses-and-the-economy-testimony-before-the-u-s-house-committee-on-education-and-the-workforce-member-forum/

https://www.forbes.com/sites/timworstall/2015/03/16/we-are-seeing-the-effects-of-seattles-15-an-hour-minimum-wage/#63ad3c4c3a22

https://www.usnews.com/opinion/economic-intelligence/2014/02/14/why-raising-the-minimum-wage-doesnt-kill-jobs?int=opinion-rec

 

 

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5 thoughts on “It’s Time to Raise the Minimum Wage

  1. alexha18

    Very interesting post! Honestly minimum wage should be adjusted annually like salaries (COLA) according to inflation and general price levels within the state. Any increase should be introduced incrementally (i.e California’s plan) so businesses can adjust and because it has proven that in a large company like Ford, increases in pay actually increases MPL and lowers turnover, it could have the same effect to other businesses.

    Reply
  2. coreymanley25

    Good read. One question: the national unemployment in the same timeframe (2014-present) has decreased 33%, from 6.6% to 4.4%, so relatively it appears that Seattle’s unemployment rate has gone from right on pace with the average to about a full percentage point over the national average. Would this be evidence that a large raise in minimum wage does actually cause unemployment?
    – Corey Manley

    Reply
  3. emmawarren18

    Interesting post. I especially liked the parts about workplace turnover and how minimum wage puts more money into people’s hands which they’ll spend. I think another part to that is when spending increases, jobs can be created.

    Reply
  4. lukemadden19

    The aspect of the government benefiting from a raised minimum wage is one that I had never thought about and it addresses an interesting argument to raise the wages. You make great arguments in support of raising minimum wages and going against the mold that is set by basic economic theory, the decision to eventually raise it will be something to keep an eye on.

    Reply
  5. seancobb29

    I agree with all of your points here, Luke. I actually wrote a paper, while I was abroad in Ireland last semester, on the same topic. The empirical evidence on minimum wage increases is the same across the board in America and Europe. Economists will continue to cite economic theory as a reason not to raise minimum wages, but all the data seems to show that gradual increases in the minimum wage do not lead to the unemployment increase that those economists predict. Also, to echo what Luke said above me, I had not thought of the minimum wage increase as a way for the government to save money. Interesting point. I am curious how realistic it actually is and how much the minimum wage would really have to increase to see government savings.

    Reply

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