Should Minimum Wage Laws be Eliminated?
I. Introduction
Minimum wage legislation has represented one of the most controversial political and economic issues over the past century in the United States and throughout the world. Democrats and liberal economists tend to support minimum wage laws; President Franklin Roosevelt called minimum wage laws "the most far-sighted program for the benefit of workers ever adopted." Many Republicans and conservative economists consider minimum wage laws to be economically inefficient and a large contributor to rising unemployment rates; in 1923 Supreme Court Justice George Sutherland called minimum wage laws "an arbitrary interference with the liberty of contract which no government can legally justify in a free land." This sharp contrast in belief has caused a great variation of the real value of the minimum wage in the United States over the past eighty years, as politicians in both parties grapple with the issue and either increase or hold steady the minimum wage rate.
In an attempt to determine which point of view regarding minimum wage legislation is correct, a large amount of research will be required. For the sake of simplicity, the research, evaluation and conclusions will mostly concentrate on minimum wage laws within the United States, though some international perspective will be utilized. First, a brief examination of the history of minimum wage will help to provide a context to existing laws. Finding the original reason for these laws can help to determine whether or not minimum wage legislation is still necessary today. This examination will also consider differences in minimum wage legislation between states, and attempt to view the impact of higher minimum wages in some states. Next, clashing views of various economists on minimum wage will be considered heavily, with each argument evaluated for weaknesses and limitations before being balanced against the opposing point of view. Finally, I will record a conclusion after my research and evaluation of the issue of minimum wage and propose my solution to the controversy surrounding minimum wage legislation in the United States.
II. Minimum Wage History
In 1890 New Zealand and Australia became the first countries in the world to institute a minimum wage, a decision that was heavily influenced by workers through “frequent, bitter strikes” (Fitzpatrick). In 1912 the state of Massachusetts adopted minimum wage laws, becoming the first in the United States to do so.
The issue of minimum wage laws was brought before the Supreme Court in 1923 and was found to be unconstitutional in a 5-3 decision. The decision came after the District of Columbia attempted to set a weekly wage floor for women and children in certain industries. The reasons for striking the law as unconstitutional were the fact that “it violated the Due Process Clause of the fifth amendment because it abridged a citizen’s right to freely contract labor” and because the law “gave special protections to women over men” (McBride).
Minimum wage legislation became an issue in the 1936 presidential election, and after entering office Roosevelt worked to establish a minimum wage. In 1938, the Fair Labor Standards Act was passed. Along with banning child labor, the law created “a 25-cent-per-hour wage floor and a 44-hour workweek ceiling for most workers” (Fitzpatrick). The wage floor was implemented for both men and women. The law required that wages “ensure a minimum standard of living necessary for health, efficiency, and general well being” (Fitzpatrick).
The 25-cent minimum wage had a real minimum wage value of fewer than four-dollars-per-hour, based on inflation (in current value). The highest real minimum wage value came in 1968, with a real value of ten-dollars-per-hour. Assuming a 40-hour workweek and working 50 weeks out of the year, the 1968 real minimum wage value still fell short of the poverty level established by congress in 1959 (oregonstate.edu).
III. Minimum Wage Today
The minimum hourly wage in the United States is currently $7.25, up substantially from the rate of $5.15 that lasted from 1997-2006. 17 states and the District of Columbia have minimum wages higher than the federal standard (Department of Labor). There appears to be some connection between cost of living and the decision to increase the minimum wage; none of the eleven states with the lowest cost of living have implemented a minimum wage above $7.25, while four out of the five highest cost of living states have an increased minimum wage (cnbc.com).
The United States is not in the minority regarding minimum wages. Over 90 percent of countries have some sort of minimum wage legislation. Though the United States did not implement a minimum wage until nearly 40 years after the first countries to do so, the United States now has “one of the highest minimum wages in the world” (Smith).
It is important to gain an accurate depiction of the current profile of the average minimum wage earner, or near minimum wage earner. The relevance of those that earn near the minimum wage will be discussed during a later portion of the paper. The following statistics are based on a 2009 study done by the Bureau of Labor Statistics coinciding with the July 2009 increase of minimum wage from $6.55 to $7.25. As one might expect, workers that earn minimum wage are often young, “nearly 19 percent [of employed teenagers] earned the minimum wage, compared with about 3 percent of workers age 25 and over” (bls.gov). About 6 in 10 minimum wage earners came in service occupations “mostly in food preparation and serving related jobs” (bls.gov). It is important to mention that jobs in food preparation and serving cannot be outsourced to other countries. Another interesting discovery is the fact that race does not seem to have a large impact, 5 percent of white, black and Hispanic hourly-paid workers earned minimum wage. The only notable difference base on race or ethnicity was among Asian hourly-paid workers, 4 percent earned minimum wage. The racial factor is important during this examination of the minimum wage, in the past politicians against the minimum wage have been accused of hurting minorities. These statistics show that politicians against the minimum wage are equally affecting white, black and Hispanic workers.
IV. Arguments Against Minimum Wage
There are many arguments against an increase in minimum wage in the United States and many in favor of completely abolishing the minimum wage. While the topic of this paper questions if the laws should exist in the United States, both types of arguments will be utilized.
The first arguments against minimum wage legislation relate to simple supply and demand of the economy. In the simplest form, “employers pay a wage no higher than the value of an additional hour’s work. Raising minimum wage forces employers to dismiss low productivity workers…those with the least education, job experience, and maturity” (MacKenzie). The biggest issue with minimum wage arises if the wage floor created by the government is higher than the equilibrium between the supply of labor and the demand of labor. This leaves business owners between a rock and a hard place. They can either choose to operate inefficiently and likely go out of business, or they can lay off workers. MacKenzie points out the workers most likely to become unemployed in this scenario are the ones that minimum wage laws often aim to protect: those with little experience or education. Instead of increasing the wages of these employees, workers with low level of marketable skills could become unemployed simply because their productivity is not worth $7.25-per-hour to their employer. Another possibility is that rather than operate inefficiently or fire workers, business owners will increase prices in some industries. This move would hurt consumers and cause the cost of living to increase, lowering the real value of the minimum wage.
The quote by Supreme Court Justice George Sutherland used earlier in this paper is worth considering. While many view minimum wage laws as a protection for the employee, they also result in “arbitrary interference with the liberty of contract” according to Sutherland. If an employer believes that having constantly clean windows is worth $5.07-per-hour and an employee believes that $5.07-per-hour is worth standing in the sun and cleaning windows, there is no reason for the government to force the employer to pay the employee $7.25. In all likelihood, the employer will choose not to hire the employee and the government will have less revenue from income tax and less stimulation from the economy because the potential employee is now unemployed.
Economist David Neumark looks at the potential unemployment from another point of view. He recognizes that “Minimum wages, like most public policies, confront us with trade-offs. An employed, low-skilled worker who keeps his job earns a slightly higher wage. But a worker who loses his job, or a labor-market entrant or unemployed worker who cannot find a new job, pays a much higher cost” (Neumark). Before the 2009 increase from $6.55 to $7.25, an estimated 3.6 million Americans made minimum wage (bls.gov). Many economists stated that the minimum wage hike would cause job loss for as many as 300,000 Americans. One must consider whether a nine percent ($6.55 to $7.25) raise for 3.3 million workers is worth eight percent (300,000 of 3.6 million) of the most vulnerable Americans losing their jobs. With that said, multiple other reasons could explain an increase in unemployment, but many economists agree that at least 300,000 job losses were a direct effect of increase in the federal minimum wage.
Another argument against the minimum wage is more accurately a criticism of the argument in favor of minimum wage. Many minimum wage proponents point towards the fact that wages need to be high enough for employees to support themselves and their families, and that the average annual income of a minimum wage earner has never risen above the poverty line (oregonstate.edu). It bears mentioning that over a third of minimum wage earners (many are teenagers working summer or part-time jobs) come from families that earn at least three times more than the salary required to exceed the poverty line. Only 17 percent of minimum wage earners come from families below the poverty line, and many of those are not heads-of-household (Neumark). It is vital to recognize the lack of heads-of-impoverished-households when considering minimum wage legislation. Minimum wage laws are often based on an idea of what amount of income is needed to support a family, but most of the people earning minimum wage are not actually supporting families, or are not doing so alone.
Assuming most minimum wage earners are mostly teenagers working through or towards college, an increase in the minimum wage seems even less important. One could make the argument that job experience is more valuable in the long run to these teenagers than making a dollar more every hour. If no minimum wage existed, more teenage or unskilled labor jobs would become available. While the pay might not initially be ideal, these jobs allow the opportunity for teenagers to gain experience in their prospective fields, work their way up through the company to higher paying positions, and make connections that will help with future networking. Skyrocketing minimum wage rates mixed with an economic recession make it nearly impossible for some teenagers to get their foot in the door.
While a wide range of arguments against the minimum wage laws (or against raising the minimum wage) exist, most of the arguments seem to simplify down to similar conclusions. The existence of the minimum wage is widely considered economically inefficient, especially if a price floor is placed above the equilibrium. The minimum wage is bad for workers because it prevents them from negotiating their own wages and often causes an increase in unemployment, which is bad for workers and the economy as a whole. Simply put, these arguments state that the benefits of slightly increased pay for less than two percent of Americans (the 3.6 million workers on minimum wage) are not worth the cost to the economy as a whole.
V. Arguments in Favor of Minimum Wage
While it might seem that no reasonable arguments for minimum wage exist after reading the previous arguments against minimum wage legislation, there are actually numerous reasonable points made in favor of minimum wage by a wide range of economists. One important issue to keep in mind while comparing the points is the general difference in the way some economists view the “correct” role of government. In the most basic form, more conservative economists would argue that minimum wage is wrong simply because it represents government intervening in private business, while more liberal economists and politicians believe that it is the duty of government to protect it’s people, whether it be from big business or international foes.
One of the initial and most simple arguments in favor of minimum wage is the idea that “we live in a consumer society, so people who earn more spend more” (Hanson). The idea behind this is fact that those who make more money will be able to put more money back into the economy, stimulating it and creating even more jobs. This argument is contingent on the idea that a business would save their money if they were not utilizing it to pay for increased cost of labor. This argument does not consider the fact that business could be investing money in new technology allowing their product to be created more efficiently if they did not have to pay increased labor costs due to minimum wage hikes.
One argument in favor of minimum wage that is questionable is the idea brought up previously regarding the fact that the minimum wage prevents workers from negotiating their own wage. With unemployment rates at nearly ten percent today, many politicians worry that workers would not be able to reject a job offer, even if the offer was “unfairly” low. A high unemployment rate gives employers a huge advantage in labor “negotiations” because many employees do not have the option to reject a job. The argument could be made that the advantage will eventually swing back to the potential employees, but even four percent unemployment (the lowest rate in over forty years) would mean a potential pool of employees for an employer to choose if someone rejected a low wage. Unemployment of nearly ten percent means an even larger pool of potential employees to increase competition and lower labor costs and fewer companies hiring workers. It seems clear that the workers are losing in this situation, and while it seems clear that it is not the role of government to legislate fairness, minimum wage laws clearly help workers receive wages that will better support themselves and their families. This in theory would improve the standard of living in many communities across the United States, leading to a better quality of life for everyone in those communites.
One interesting way to look at the minimum wage is laid out by Steven Landsburg. He describes it as “nothing but a huge off-the-books tax paid by a small group of people, with all the proceeds paid out as the equivalent of welfare to a different small group of people” (Landsburg). While taxes are not popular, and describing it as a tax does not by any means justify minimum wage legislation, it is a relatively efficient way to provide increased funding to those in society making an effort to get jobs but not possessing the skills, experience, or education to earn more than the poverty level.
One issue not often brought up in the minimum wage debate is the ripple effects of a minimum wage hike. The statistics surrounding the impact of a minimum wage increase on workers earning minimum wage have been heavily analyzed to this point, but the effect it has on hourly workers earning more than minimum wage has been ignored to this point. The idea behind ripple effects is the fact that a worker making $7.25 before an increase from $6.55 to $7.25 will want a raise once their wage becomes the new minimum wage. These ripple effects caused 11 million Americans to receive pay raises during the 1997 minimum wage increase, while just 4 million employees received a required raise because of the minimum wage hike (Wicks-Lim). According to one study, this large increase in labor cost “less than one-half of 1%” (Wicks-Lim). Many argue that this small increase provided a great boost to 15 million Americans while only slightly increasing the cost for businesses and subsequently their customers. It is also important to note that the ripple effect pay raise effects three out of ten 16 to 24-year-olds, while the required minimum wage increase impacted four out of ten. This means that the minimum wage hike actually helps more adults and their families than originally thought, through ripple effects that aid a large portion of the workforce.
Many arguments support the implementation of a federal minimum wage, and a majority of the points concentrate more on a moral argument (the workers need to be protected from employers that wish to take advantage of them) than a fiscal point of view. With that said, some strong economic arguments in favor of minimum wage legislation exist, making this debate even more difficult for politicians, economists and voters.
VI. Conclusion
After large amounts of research and deep thought, I have come to the conclusion that the most intelligent economic decision is the elimination of the minimum, or at the very least holding the nominal minimum wage constant for a very long time. The two issues that had the largest impact in my decision were the enormous amount of job loss that often accompanies minimum wage hikes, and the fact that minimum wage legislation represents government intervention into the negotiation of a private contract. While I do not at all consider myself a libertarian, laws like the minimum wage that are so clearly harmful to the economy infuriate me. It seems absurd that the government could force two private parties to do something that is so harmful to the economy. I also recognize the necessity of
With that said, I have no expectation of drastic change in minimum wage legislation any time soon. Minimum wage is a hot button issue that is still viewed by many as a protection to employees large, and politicians have little or no motivation to change it. While most economists and many politicians recognize that elimination of the minimum wage is actually in the best interest of the employee, it’s destruction would be dangerous politically as the politicians would likely lose the support of unions. While it is clear that the elimination of the minimum wage is necessary for the improvement United State’s economy, it is unreasonable to expect legislative change any time in the near future.
Works Cited
"America's Top States for Business." CNBC. Web. 28 Apr. 2011. <http://www.cnbc.com/id/31765935>.
"Characteristics of Minimum Wage Workers: 2009." U.S. Bureau of Labor Statistics. Web. 28 Apr. 2011. <http://www.bls.gov/cps/minwage2009.htm>.
Fitzpatrick, Laura. "A Brief History of the Minimum Wage." Time 24 July 2009. Web.
Hanson, Joyce. "Four Arguments For Raising the National Minimum Wage - Careers Articles." Jobs, Careers, and Job Listings - AOL Jobs. Web. 28 Apr. 2011. <http://jobs.aol.com/articles/2010/06/30/minimum-national-wage/>.
Landsburg, Steven E. "The Real Case against the Minimum Wage. - By Steven E. Landsburg." Slate Magazine. Web. 28 Apr. 2011. <http://www.slate.com/id/2103486/>.
MacKenzie, D.W. "Mythology of the Minimum Wage." Print. Taking Sides: Clashing Views on Economic Issues. By Frank J. Bonello and Isobel Lobo. New York City: McGraw-Hill, 2010. 216-19.
McBride, Alex. "The Supreme Court . Capitalism and Conflict . Landmark Cases . Adkins v. Children's Hospital (1923) | PBS." PBS: Public Broadcasting Service. Web. 28 Apr. 2011. <http://www.pbs.org/wnet/supremecourt/capitalism/landmark_adkins.html>.
Messerli, Joe. "Minimum Wage (Pros & Cons, Arguments For and Against)." BalancedPolitics.org. Web. 28 Apr. 2011. <http://www.balancedpolitics.org/minimum_wage.htm>.
Neumark, David. "Delay the Minimum Wage Hike." Editorial. Wall Street Journal 12 June 2009. Www.online.wsj.com. Web. <http://online.wsj.com/article/SB124476823767508619.html>.
Smith, Lisa. "The Minimum Wage: Does It Matter?" Investopedia.com - Your Source For Investing Education. Web. 28 Apr. 2011. <http://www.investopedia.com/articles/07/minimum_wage.asp>.
"U.S. Department of Labor - Wage and Hour Division (WHD) - Minimum Wage Laws in the States." The U.S. Department of Labor. Web. 28 Apr. 2011. <http://www.dol.gov/whd/minwage/america.htm>.
"U.S. Minimum Wage History." Oregon State University. Web. 28 Apr. 2011. <http://oregonstate.edu/instruct/anth484/minwage.html>.
Wicks-Lim, Jeannette. "Measuring the Full Impact of Minimum and Living Wage Laws." Print. Rpt. in Taking Sides: Clashing Views on Economic Issues. By Frank J. Bonello and Isobel Lobo. New York City: McGraw-Hill, 2010. 220-25. Print.
Minimum wage legislation has represented one of the most controversial political and economic issues over the past century in the United States and throughout the world. Democrats and liberal economists tend to support minimum wage laws; President Franklin Roosevelt called minimum wage laws "the most far-sighted program for the benefit of workers ever adopted." Many Republicans and conservative economists consider minimum wage laws to be economically inefficient and a large contributor to rising unemployment rates; in 1923 Supreme Court Justice George Sutherland called minimum wage laws "an arbitrary interference with the liberty of contract which no government can legally justify in a free land." This sharp contrast in belief has caused a great variation of the real value of the minimum wage in the United States over the past eighty years, as politicians in both parties grapple with the issue and either increase or hold steady the minimum wage rate.
In an attempt to determine which point of view regarding minimum wage legislation is correct, a large amount of research will be required. For the sake of simplicity, the research, evaluation and conclusions will mostly concentrate on minimum wage laws within the United States, though some international perspective will be utilized. First, a brief examination of the history of minimum wage will help to provide a context to existing laws. Finding the original reason for these laws can help to determine whether or not minimum wage legislation is still necessary today. This examination will also consider differences in minimum wage legislation between states, and attempt to view the impact of higher minimum wages in some states. Next, clashing views of various economists on minimum wage will be considered heavily, with each argument evaluated for weaknesses and limitations before being balanced against the opposing point of view. Finally, I will record a conclusion after my research and evaluation of the issue of minimum wage and propose my solution to the controversy surrounding minimum wage legislation in the United States.
II. Minimum Wage History
In 1890 New Zealand and Australia became the first countries in the world to institute a minimum wage, a decision that was heavily influenced by workers through “frequent, bitter strikes” (Fitzpatrick). In 1912 the state of Massachusetts adopted minimum wage laws, becoming the first in the United States to do so.
The issue of minimum wage laws was brought before the Supreme Court in 1923 and was found to be unconstitutional in a 5-3 decision. The decision came after the District of Columbia attempted to set a weekly wage floor for women and children in certain industries. The reasons for striking the law as unconstitutional were the fact that “it violated the Due Process Clause of the fifth amendment because it abridged a citizen’s right to freely contract labor” and because the law “gave special protections to women over men” (McBride).
Minimum wage legislation became an issue in the 1936 presidential election, and after entering office Roosevelt worked to establish a minimum wage. In 1938, the Fair Labor Standards Act was passed. Along with banning child labor, the law created “a 25-cent-per-hour wage floor and a 44-hour workweek ceiling for most workers” (Fitzpatrick). The wage floor was implemented for both men and women. The law required that wages “ensure a minimum standard of living necessary for health, efficiency, and general well being” (Fitzpatrick).
The 25-cent minimum wage had a real minimum wage value of fewer than four-dollars-per-hour, based on inflation (in current value). The highest real minimum wage value came in 1968, with a real value of ten-dollars-per-hour. Assuming a 40-hour workweek and working 50 weeks out of the year, the 1968 real minimum wage value still fell short of the poverty level established by congress in 1959 (oregonstate.edu).
III. Minimum Wage Today
The minimum hourly wage in the United States is currently $7.25, up substantially from the rate of $5.15 that lasted from 1997-2006. 17 states and the District of Columbia have minimum wages higher than the federal standard (Department of Labor). There appears to be some connection between cost of living and the decision to increase the minimum wage; none of the eleven states with the lowest cost of living have implemented a minimum wage above $7.25, while four out of the five highest cost of living states have an increased minimum wage (cnbc.com).
The United States is not in the minority regarding minimum wages. Over 90 percent of countries have some sort of minimum wage legislation. Though the United States did not implement a minimum wage until nearly 40 years after the first countries to do so, the United States now has “one of the highest minimum wages in the world” (Smith).
It is important to gain an accurate depiction of the current profile of the average minimum wage earner, or near minimum wage earner. The relevance of those that earn near the minimum wage will be discussed during a later portion of the paper. The following statistics are based on a 2009 study done by the Bureau of Labor Statistics coinciding with the July 2009 increase of minimum wage from $6.55 to $7.25. As one might expect, workers that earn minimum wage are often young, “nearly 19 percent [of employed teenagers] earned the minimum wage, compared with about 3 percent of workers age 25 and over” (bls.gov). About 6 in 10 minimum wage earners came in service occupations “mostly in food preparation and serving related jobs” (bls.gov). It is important to mention that jobs in food preparation and serving cannot be outsourced to other countries. Another interesting discovery is the fact that race does not seem to have a large impact, 5 percent of white, black and Hispanic hourly-paid workers earned minimum wage. The only notable difference base on race or ethnicity was among Asian hourly-paid workers, 4 percent earned minimum wage. The racial factor is important during this examination of the minimum wage, in the past politicians against the minimum wage have been accused of hurting minorities. These statistics show that politicians against the minimum wage are equally affecting white, black and Hispanic workers.
IV. Arguments Against Minimum Wage
There are many arguments against an increase in minimum wage in the United States and many in favor of completely abolishing the minimum wage. While the topic of this paper questions if the laws should exist in the United States, both types of arguments will be utilized.
The first arguments against minimum wage legislation relate to simple supply and demand of the economy. In the simplest form, “employers pay a wage no higher than the value of an additional hour’s work. Raising minimum wage forces employers to dismiss low productivity workers…those with the least education, job experience, and maturity” (MacKenzie). The biggest issue with minimum wage arises if the wage floor created by the government is higher than the equilibrium between the supply of labor and the demand of labor. This leaves business owners between a rock and a hard place. They can either choose to operate inefficiently and likely go out of business, or they can lay off workers. MacKenzie points out the workers most likely to become unemployed in this scenario are the ones that minimum wage laws often aim to protect: those with little experience or education. Instead of increasing the wages of these employees, workers with low level of marketable skills could become unemployed simply because their productivity is not worth $7.25-per-hour to their employer. Another possibility is that rather than operate inefficiently or fire workers, business owners will increase prices in some industries. This move would hurt consumers and cause the cost of living to increase, lowering the real value of the minimum wage.
The quote by Supreme Court Justice George Sutherland used earlier in this paper is worth considering. While many view minimum wage laws as a protection for the employee, they also result in “arbitrary interference with the liberty of contract” according to Sutherland. If an employer believes that having constantly clean windows is worth $5.07-per-hour and an employee believes that $5.07-per-hour is worth standing in the sun and cleaning windows, there is no reason for the government to force the employer to pay the employee $7.25. In all likelihood, the employer will choose not to hire the employee and the government will have less revenue from income tax and less stimulation from the economy because the potential employee is now unemployed.
Economist David Neumark looks at the potential unemployment from another point of view. He recognizes that “Minimum wages, like most public policies, confront us with trade-offs. An employed, low-skilled worker who keeps his job earns a slightly higher wage. But a worker who loses his job, or a labor-market entrant or unemployed worker who cannot find a new job, pays a much higher cost” (Neumark). Before the 2009 increase from $6.55 to $7.25, an estimated 3.6 million Americans made minimum wage (bls.gov). Many economists stated that the minimum wage hike would cause job loss for as many as 300,000 Americans. One must consider whether a nine percent ($6.55 to $7.25) raise for 3.3 million workers is worth eight percent (300,000 of 3.6 million) of the most vulnerable Americans losing their jobs. With that said, multiple other reasons could explain an increase in unemployment, but many economists agree that at least 300,000 job losses were a direct effect of increase in the federal minimum wage.
Another argument against the minimum wage is more accurately a criticism of the argument in favor of minimum wage. Many minimum wage proponents point towards the fact that wages need to be high enough for employees to support themselves and their families, and that the average annual income of a minimum wage earner has never risen above the poverty line (oregonstate.edu). It bears mentioning that over a third of minimum wage earners (many are teenagers working summer or part-time jobs) come from families that earn at least three times more than the salary required to exceed the poverty line. Only 17 percent of minimum wage earners come from families below the poverty line, and many of those are not heads-of-household (Neumark). It is vital to recognize the lack of heads-of-impoverished-households when considering minimum wage legislation. Minimum wage laws are often based on an idea of what amount of income is needed to support a family, but most of the people earning minimum wage are not actually supporting families, or are not doing so alone.
Assuming most minimum wage earners are mostly teenagers working through or towards college, an increase in the minimum wage seems even less important. One could make the argument that job experience is more valuable in the long run to these teenagers than making a dollar more every hour. If no minimum wage existed, more teenage or unskilled labor jobs would become available. While the pay might not initially be ideal, these jobs allow the opportunity for teenagers to gain experience in their prospective fields, work their way up through the company to higher paying positions, and make connections that will help with future networking. Skyrocketing minimum wage rates mixed with an economic recession make it nearly impossible for some teenagers to get their foot in the door.
While a wide range of arguments against the minimum wage laws (or against raising the minimum wage) exist, most of the arguments seem to simplify down to similar conclusions. The existence of the minimum wage is widely considered economically inefficient, especially if a price floor is placed above the equilibrium. The minimum wage is bad for workers because it prevents them from negotiating their own wages and often causes an increase in unemployment, which is bad for workers and the economy as a whole. Simply put, these arguments state that the benefits of slightly increased pay for less than two percent of Americans (the 3.6 million workers on minimum wage) are not worth the cost to the economy as a whole.
V. Arguments in Favor of Minimum Wage
While it might seem that no reasonable arguments for minimum wage exist after reading the previous arguments against minimum wage legislation, there are actually numerous reasonable points made in favor of minimum wage by a wide range of economists. One important issue to keep in mind while comparing the points is the general difference in the way some economists view the “correct” role of government. In the most basic form, more conservative economists would argue that minimum wage is wrong simply because it represents government intervening in private business, while more liberal economists and politicians believe that it is the duty of government to protect it’s people, whether it be from big business or international foes.
One of the initial and most simple arguments in favor of minimum wage is the idea that “we live in a consumer society, so people who earn more spend more” (Hanson). The idea behind this is fact that those who make more money will be able to put more money back into the economy, stimulating it and creating even more jobs. This argument is contingent on the idea that a business would save their money if they were not utilizing it to pay for increased cost of labor. This argument does not consider the fact that business could be investing money in new technology allowing their product to be created more efficiently if they did not have to pay increased labor costs due to minimum wage hikes.
One argument in favor of minimum wage that is questionable is the idea brought up previously regarding the fact that the minimum wage prevents workers from negotiating their own wage. With unemployment rates at nearly ten percent today, many politicians worry that workers would not be able to reject a job offer, even if the offer was “unfairly” low. A high unemployment rate gives employers a huge advantage in labor “negotiations” because many employees do not have the option to reject a job. The argument could be made that the advantage will eventually swing back to the potential employees, but even four percent unemployment (the lowest rate in over forty years) would mean a potential pool of employees for an employer to choose if someone rejected a low wage. Unemployment of nearly ten percent means an even larger pool of potential employees to increase competition and lower labor costs and fewer companies hiring workers. It seems clear that the workers are losing in this situation, and while it seems clear that it is not the role of government to legislate fairness, minimum wage laws clearly help workers receive wages that will better support themselves and their families. This in theory would improve the standard of living in many communities across the United States, leading to a better quality of life for everyone in those communites.
One interesting way to look at the minimum wage is laid out by Steven Landsburg. He describes it as “nothing but a huge off-the-books tax paid by a small group of people, with all the proceeds paid out as the equivalent of welfare to a different small group of people” (Landsburg). While taxes are not popular, and describing it as a tax does not by any means justify minimum wage legislation, it is a relatively efficient way to provide increased funding to those in society making an effort to get jobs but not possessing the skills, experience, or education to earn more than the poverty level.
One issue not often brought up in the minimum wage debate is the ripple effects of a minimum wage hike. The statistics surrounding the impact of a minimum wage increase on workers earning minimum wage have been heavily analyzed to this point, but the effect it has on hourly workers earning more than minimum wage has been ignored to this point. The idea behind ripple effects is the fact that a worker making $7.25 before an increase from $6.55 to $7.25 will want a raise once their wage becomes the new minimum wage. These ripple effects caused 11 million Americans to receive pay raises during the 1997 minimum wage increase, while just 4 million employees received a required raise because of the minimum wage hike (Wicks-Lim). According to one study, this large increase in labor cost “less than one-half of 1%” (Wicks-Lim). Many argue that this small increase provided a great boost to 15 million Americans while only slightly increasing the cost for businesses and subsequently their customers. It is also important to note that the ripple effect pay raise effects three out of ten 16 to 24-year-olds, while the required minimum wage increase impacted four out of ten. This means that the minimum wage hike actually helps more adults and their families than originally thought, through ripple effects that aid a large portion of the workforce.
Many arguments support the implementation of a federal minimum wage, and a majority of the points concentrate more on a moral argument (the workers need to be protected from employers that wish to take advantage of them) than a fiscal point of view. With that said, some strong economic arguments in favor of minimum wage legislation exist, making this debate even more difficult for politicians, economists and voters.
VI. Conclusion
After large amounts of research and deep thought, I have come to the conclusion that the most intelligent economic decision is the elimination of the minimum, or at the very least holding the nominal minimum wage constant for a very long time. The two issues that had the largest impact in my decision were the enormous amount of job loss that often accompanies minimum wage hikes, and the fact that minimum wage legislation represents government intervention into the negotiation of a private contract. While I do not at all consider myself a libertarian, laws like the minimum wage that are so clearly harmful to the economy infuriate me. It seems absurd that the government could force two private parties to do something that is so harmful to the economy. I also recognize the necessity of
With that said, I have no expectation of drastic change in minimum wage legislation any time soon. Minimum wage is a hot button issue that is still viewed by many as a protection to employees large, and politicians have little or no motivation to change it. While most economists and many politicians recognize that elimination of the minimum wage is actually in the best interest of the employee, it’s destruction would be dangerous politically as the politicians would likely lose the support of unions. While it is clear that the elimination of the minimum wage is necessary for the improvement United State’s economy, it is unreasonable to expect legislative change any time in the near future.
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