Perspectives on the minimum wage

Bethany Montgomery, Staff Writer

Brian Messing, Editor-in-Chief

 

If the effects of increasing minimum wage were straightforward and without any complications, it would undoubtedly not be such a controversial subject that it is today. Not only do the effects vary from state to state, but also from city to city, and between social classes. 

In a perfect world, the supply and demand of a product would determine the market equilibrium, and therefore the perfect market wage. With an increase in minimum wage, the quantity and cost of labor also increases, causing employers to search for new ways to compensate for this loss. Any basic knowledge of economics will indicate that an increase in worker pay will raise the expenses of production, but where the producer will counter this increase may vary.

 So, in what ways might this happen? Employers may eat the cost and invest in the business. Highly competitive businesses could close. According to Forbes, this is where the majority of job losses caused by increased minimum wage occur; not across the board firing of workers, but from reduced hiring or new workers, or even low-margin businesses closing all together. Employers that cannot afford to absorb the extra cost or fire employees will likely pass that extra cost onto consumers, which can also be risky, as it will theoretically lower the demand. This is notably common in restaurants or food services. 

Many relations can be presented about the minimum wage and how it relates to inflation. Those in support of the minimum wage argue that the minimum wage should be increased because of inflation. Indeed, the federal minimum wage has not increased from $7.25 since 2009, which means that if the minimum wage had kept up with inflation, it would be $8.67 today (in 2019). However, others argue that the minimum wage can be the cause of inflation. Their contention is that the minimum wage leads businesses to raise costs, making things more expensive, indicating that more workers have more money to spend-which is a cause of further inflation.  

However, the increased minimum wage affects different labor forces in various ways. Higher-wage cities are less likely to feel much of an impact than cities with a lower minimum wage. 

As described in Forbes, “for Seattle workers initially earning $10 per hour, the long-term decline in the employment rate is estimated to be over 10 percent. For workers earning closer to $15 per hour the estimated decline is only about 7 percent. Again, San Francisco’s estimated long-term decline is smaller since the city’s relatively high-wage economy is less impacted by the minimum wage increase.”

The largest groups panning for minimum wage jobs tend to be young people and old people. Some argue that employers are less likely to hire an inexperienced young person for such a high wage when they can hire an older, more skilled employee who has likely worked for many years and can easily perform their duties with less training or monitoring. This would negatively affect young people. 

The current $15 minimum wage in Seattle is one of the highest in the country, and has various results. While it may depend on the individual worker, a common finding in several studies has noted that as earnings go up, average hours worked for Seattle residents in this category have decreased. According to the Washington Post, the University of Washington conducted a research study on the new minimum wage in Seattle and noted: 

“On average, the minimum wage increases have caused employers to reduce hours, with a net effect of reducing low-wage employees’ earnings by $125 a month.”

The Congressional Budget Office has predicted that 17 million workers will receive increased wages, while nearly 4 million will lose their jobs as a result. However, multiple studies exist that claim this impact will be minimally negative and present positive results. The consensus is that the effect of minimum wage hikes are either neutral or negative, either rising to keep up with the market equilibrium or causing it to shift significantly. 

A definitive answer to the question, however, may be impossible to answer, as stated by the economics page Bigger Pockets. 

“Real world results have so many variables to be controlled for: general economic strength or weakness, what industries are highly represented in a given area, other trends in the market, percentage of people affected by a given wage law, what other laws or policies are in place or changing, and countless other factors that might impact unemployment and wages outside of simply changing the minimum wage.”

There is little, if any, consensus on when it is a “good” or “bad” time to raise the minimum wage. Some will argue that it is almost always a good time to raise the minimum wage, because they believe that it will create economic growth by putting more money into the hands of workers, reduce poverty, and reduce government welfare spending. Others will say that it is rarely, if ever, a good time to raise the minimum wage, because they believe that it would lead to an increase in unemployment, the closure of businesses, an increase in poverty, and a decline of youth participation in the work-force. This tends to be a partisan issue, and there are certainly good arguments on each side. The last time the federal minimum wage rose was in 2009, and it was previously increased in 2007 and 2008.

It is also relevant to look at the many countries that do not have any minimum wage. You may picture these as underdeveloped countries; however, there are first world countries that have no minimum wage. These include Sweden, Iceland, Denmark, Norway, and Switzerland. Instead, in these countries, wages are negotiated between labor unions and employers, who establish some sort of de facto minimum wage that varies by industry. Some of these countries have even rejected proposed minimum wages, such as Switzerland, where many Swiss saw the proposed minimum wage as unnecessary government intervention that would cost some people their jobs. 

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