The Minimum Wage Debate

Minimum wage is defined as the lowest amount that employers can legally pay their workers per hour of labor. Most states have laws in place to enforce the minimum wage; those that do not are subject to the federal minimum wage of $7. 25. There are both benefits and drawbacks of this type of policy. Many supporters of a minimum wage believe it increases the standard of living and reduced poverty. Those that oppose a minimum wage believe it will increase unemployment and harms unskilled laborers. Introduction The Fair Labor Standards Act, passed in 1938, mandated a federal minimum wage that now applies to most work and most workers, in the United States. Originally the wage was set at 25 cents, the minimum wage has risen occasionally since 1938 to its current hourly level of $7. 25, where it has remained since 2009. When the minimum wage was roughly half the average wage, in the late 1960’s, full-time, year round minimum wage earnings for one worker lifted a family of three from poverty. Today, a minimum wage worker lives on $3,000 less than the poverty line – and the minimum wage is worth only 37 percent of the average wage (Owens, 2013). Minimum wage laws were established with certain goals in mind. Minimum wage was initially established to reduce poverty. Establishing a minimum wage in the United States removed sweat shops and insured individuals were paid properly for their work. Minimum wage additionally protects younger workers and minorities from being paid less than others. Support for an Increase in the Minimum Wage The positive effects of minimum wage are plentiful; it is believed that the minimum wage increases the standard of living for the poorest and most vulnerable classes in society and raises the average. It also stimulates consumption, by putting more money in the hands of low-income people who spend their entire paychecks. Minimum wage increases the work ethic of those who earn very little, as employers demand more return from the higher cost of hiring these employees. It decreases the cost of government social welfare programs, increasing incomes for the lowest-paid and encourages people to join the workforce rather than pursuing money through illegal means. The minimum wage also encourages efficiency and automation of industry and removes low paying jobs, forcing workers to train for, and move to, higher paying jobs (Fox, 2006). Many believe that minimum wage increases cause adverse employment effects. Three possible reasons minimum wages do not affect employment were suggested by Alan Blinder: higher wages may reduce turnover, and hence training costs; raising the minimum wage may â€Å"render moot† the potential problem of recruiting workers at a higher wage than current workers; and minimum wage workers might represent such a small proportion of a business's cost that the increase is too small to matter. He admits that he does not know if these are correct, but argues that â€Å"the list demonstrates that one can accept the new empirical findings and still be a card-carrying economist. † (Blinder, 1996). In discussing the minimum wage, Robert M. Solow, a Nobel laureate in economics at the Massachusetts Institute of Technology, told the New York Times, â€Å"The main thing about (minimum wage) research is that the evidence of job loss is weak. And the fact that the evidence is weak suggests that the impact on jobs is small. † (Norlund, 1997) The American public supports increasing the minimum wage by a solid margin. Nearly every survey finds overwhelming support for raising the minimum wage. For example, a poll recently conducted by the website Politico, conducted in March of 2013 found that 71% of Americans backed an increase in the minimum wage. Opposition of an Increase in the Minimum Wage Opponents of the minimum wage claim it hurts small business more than large business. By increasing wages, business owners must use their profits to increase wages or increase their prices. Cheaper labor helps small businesses employ younger and more inexperienced workers to perform less skill intensive work. It’s also argued that it may cause price inflation due to businesses increasing the price of goods sold. Small businesses with limited payroll budges cannot offer their most valuable employees fair and attractive wages above unskilled workers paid the artificially high minimum, and see a rising hurdle-cost of adding workers (Jr. , 2005). Some opponents claim that the goals minimum wage was created to accomplish have not been met. In some instances employment has decreased more than the increase in wages and thereby overall earnings are still reduced. Businesses are forced to hire fewer employees because paid wages have increased to meet the minimum. Some studies have shown that few low-wage workers actually come from families in poverty. Thus, minimum wage is more often imposed on the teenage worker with their first job than on people who would otherwise be unemployed. Additional arguments against the minimum wage include how it is ineffective compared to other methods such as basic income (or negative income tax), which is a system of social security that periodically provides each citizen with a sum of money that is sufficient to live on. This does not include a means test, the richest and the poorest would receive it as something similar to a dividend from the government. A guaranteed minimum income is another proposed system of social welfare. It’s similar to basic income, but it is normally conditional and subject to a means test. A refundable tax credit, such as the Earned Income Tax Credit is another alternative for minimum wage, which some claim was an effective stimulus for the economy. Opinion I feel very torn between the pros and cons of the minimum wage debate. I feel that a living wage for employees is necessary to ensure that poverty levels are avoided. In addition to avoiding poverty, fair wages for all is essential to reducing wage discrimination. However, I find that the increased wage paid to employees by small businesses can be crippling to their profits, particularly in our current economy and with how frequently small businesses fail. Conclusion Both sides present valid arguments, so what is the solution? One solution would be to raise the minimum wage to an acceptable higher level for â€Å"adult† workers, while retaining exceptions to allow the businesses to hire teenagers, students and temporary or seasonal workers at a lower minimum wage. This would protect those most impacted by a low minimum wage, families attempting to survive on a single minimum wage salary, while protecting the jobs of traditional â€Å"minimum wage† workers by allowing businesses to hire them at the previous rates. Though this solution has its flaws, however, employers might use a wage disparity as an incentive to hire more young workers at lower rates, leaving older workers jobless. This solution and others are highly debated by politicians and citizens and truly, no solution has been found. In time, the federal minimum wage will rise, as is dictated by laws both purposed and in effect currently. Perhaps a better solution for small businesses impacted would be a tax subsidy to balance the loss in profits from an increased minimum wage. It would increase hiring rates, and would keep small businesses at their previous profit levels. Employment would increase in a sector, small business, which our economy greatly relies on and provide those companies with incentive to increase their labor force.