Economic Series Part 1: To Raise or not to Raise the Minimum Wage?

Welcome to the first part of my three topic series on Economics. If you haven’t read this blog before then you should check out my last two posts that explain exactly what this series will be about. One post is here, and the introduction to this series is here. I would also suggest reading some of my previous posts, many of which cover this very topic of Minimum Wage. In particular, this post and this post among others. I have already prefaced this topic on multiple occasions so in this post, I will dive straight into the question that I want to present both arguments for and against. I will briefly explain what the minimum wage is, first. Then I will give you brief history of it. The bulk of this post will be my arguments, however, it will be up to you to decide what side you are on.

The title of post implies that my question is about raising the minimum wage. This has been in recent years, a hotly debated and controversial question. My question is: Should the government raise the minimum wage? Now it’s not a simple yes or no question. If you say yes, then you have to explain why you think that raising it is such a good idea. Or If you say no then why not raise it?  The principle of minimum wage is fairly simple to understand. Minimum wage is the base wage of all workers in the United States. Typically, the federal government sets a standard wage. However, the states also have the ability to set their own wage higher than the federal government if they choose. Right now, the federal wage is 7.25 an hour. There are 29 states that have minimum wages above the federal level.

The history of the minimum wage starts in the beginning of 20th century. The progressive movement that help develop labor laws and other regulations on business helped bring about the minimum wage. Before the minimum wage existed, workers were paid based on how much skill their job involved. They were also paid according to market value. Just like today, typically the less skilled your work, the less pay you received. According to the Department of Labor website, the minimum was officially brought into law on June 26, 1940. The name of the act bringing it to life was called Minimum Wage and Maximum Hours Standards Under the Fair Labor Standards Act. It originally started out at 1 dollar then worked its up. In January 1980 it was $3.10 and by 2007 it had increased to $5.85. Now in 2016, we see movements to increase it even further from 7.25. This is where the controversy and debate starts.

There are two distinct sides, I want to present arguments for and against raising the minimum wage. I want to present it fairly. So I feel obligated to tell you that I am against raising the minimum wage. However, I’m not against raising a reasonable amount that is in accordance with the market value of labor. In other words, if the economy can handle a raise in the minimum wage then so be it. Let me first present the supposed arguments for raising it. This is even hotly debated among economists. So you can expect to be baffled by the contradictory arguments for each side.

For Raising the Minimum Wage:

The line of reasoning for raising the minimum wage is that it will help the poor and single parents. The various other reasons for raising it are that big corporations can afford it, CEO’s make too much and workers deserve it. Typically the Democrats champion these raises in Minimum wage. In recent years, there has been push to raise to 15 dollars an hour. You might hear about the rationale to raise it as a living wage. A living wage really means an increase that is adjusted for inflation. These are just some of the arguments made for the minimum wage to be raised. I want to quote some interesting pro-minimum wage Mythbusters facts from the Labor Department website. (I seriously couldn’t believe this government website sounds like a liberal Facebook page. Talk about propaganda) Without further or ado:

Myth: The federal minimum wage is higher today than it was when President Reagan took office.

Not true: While the federal minimum wage was only $3.35 per hour in 1981 and is currently $7.25 per hour in real dollars, when adjusted for inflation, the current federal minimum wage would need to be more than $8 per hour to equal its buying power of the early 1980s and more nearly $11 per hour to equal its buying power of the late 1960s. That’s why President Obama is urging Congress to increase the federal minimum wage and give low-wage workers a much-needed boost.

Myth: Increasing the minimum wage lacks public support.

Not true: Raising the federal minimum wage is an issue with broad popular support. Polls conducted since February 2013 when President Obama first called on Congress to increase the minimum wage have consistently shown that an overwhelming majority of Americans support an increase.

Myth: Increasing the minimum wage will result in job losses for newly hired and unskilled workers in what some call a “last-one-hired-equals-first-one-fired” scenario.

Not true: Minimum wage increases have little to no negative effect on employment as shown in independent studies from economists across the country. Academic research also has shown that higher wages sharply reduce employee turnover which can reduce employment and training costs.

Once again these are straight from the Department of Labor website. They tried to make the argument that the minimum wage being higher is actually good for the economy. I want to show just a few more for the sake argument. You might read all of this and say looks the minimum wage being 15 dollars an hour isn’t so bad?  If you believe the Department of Labor’s website then yes. Here those other myths before I move onto to the against argument:

Myth: Increasing the minimum wage will cause people to lose their jobs.

Not true: In a letter to President Obama and congressional leaders urging a minimum wage increase, more than 600 economists, including 7 Nobel Prize winners wrote, “In recent years there have been important developments in the academic literature on the effect of increases in the minimum wage on employment, with the weight of evidence now showing that increases in the minimum wage have had little or no negative effect on the employment of minimum-wage workers, even during times of weakness in the labor market. Research suggests that a minimum-wage increase could have a small stimulative effect on the economy as low-wage workers spend their additional earnings, raising demand and job growth, and providing some help on the jobs front.”

Myth: Small business owners can’t afford to pay their workers more, and therefore don’t support an increase in the minimum wage.

Not true: A July 2015 survey found that 3 out of 5 small business owners with employees support a gradual increase in the minimum wage to $12. The survey reports that small business owners say an increase “would immediately put more money in the pocket of low-wage workers who will then spend the money on things like housing, food, and gas. This boost in demand for goods and services will help stimulate the economy and help create opportunities.”

Let’s move onto why one might be against raising the minimum wage. The against argument will consist of a series of rebuttals. In my personal experience, I can rebuke quite a few of the arguments to raise minimum wage. Let’s start with the things I can agree with. I do agree that the public supports raising the minimum wage. More people are for it than against it. Its obvious why too, being paid more money is not something that most would have objections. However, I believe the Department of Labor website completely contradicts a different government agency report on raising minimum wage and the effects it would have on the economy. In order to keep this post from becoming a book, I will just list my rebuttals to the common Pro-minimum wage arguments:

  1. It’s true that minimum wage has not been adjusted for inflation, however, it’s not advisable to raise too quickly since businesses are used to the current level.
  2. It’s a false notion to say that minimum wage WILL NOT cause job losses because according to a Congressional Budget Office study done in 2014, a raise of the minimum wage to just 9 dollars an hour would lead to a short-term decrease in both employment and hiring of low skilled workers. In the long-term it would see the hiring of  higher-skilled workers. The effect would be a little more pronounced at 10.10 an hour and potentially more so at 15. However, the study only takes increases to 9 or 10.10 into account.
  3. The notion that people will won’t lose jobs once again is rebutted by the CBO study on minimum wage. (I will make sure to link the study to this post)  Also just based on a basic knowledge of economics you can make an argument. The way that businesses work and the economy works with the minimum wage is complicated but its a simple concept. Workers who make minimum wage are usually low skilled. Low skilled workers are needed in any capitalist market economy. They are typically the majority and typically short-term. Raising the minimum actually hurts them. Businesses are in business for profits. If they have to pay workers more than that hurts their bottom line. They either have to raise prices or cut workers. Which is different from a business raising their wages on their own.
  4. Small Business owners are for a minimum wage increase. This has to be bullshit because I work for a small business. I’ve worked in companies with low skilled workers. In fact, I am one of those such workers. Let me tell you that most employers in my experience would rather cut the hours or cut the workers than raise prices. A minimum wage increase would only cut employment for the majority of workers in low skilled positions.
  5. My last rebuttal, is that minimum wage will help the poor or single parents. This is the biggest lie ever told. Since the conception of minimum wage it has not helped anybody. Even if it was adjusted for inflation, money is always fluctuating in value according to the markets. Also if the minimum wage is let’s say 15 dollars an hour. That is the base wage for everybody in the country. If the base wage is higher than companies won’t keep their prices lower, they will increase their prices. Not only because they have to pay workers more, but also because people will have more money. So in the end, the rich get richer, the poor stay poor. Minimum wage can’t help poor people because when the government arbitrarily raises the price of labor it only hurts the workers and consumers.

There are my arugments for and against the minimum wage being raised. I know I said I am against it. However, I would be ok with a small increase because of inflation. According to the CBO study it would help a little bit at 9 dollars an hour. But I think there will adverse effects if we raise it to 15 dollars too soon. I also think that theres other options like Baisc Income. I would suggest you read my post on that. So consider my arguments and my sources. Look into some articles about minimum wage yourself. The problem is truly not that raising minimum wage is a bad thing, its only bad if the government is trying to force it on an economy that isn’t ready for it. Like I said if a business raises its own wages thats ok but because the business made that decision on its own. For example, Starbucks recently give all its workers a 5 to 10 percent raise. They also raised their prices. The cause and effect of minimum wage is more important than the amount of the wage itself.

Thank you for reading! Have a great day! My sources are linked below:

CBO Minimum Wage Study: 2014

Department of Labor Website Mythbusters

History of Minimum Wage; also DOL Website

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One thought on “Economic Series Part 1: To Raise or not to Raise the Minimum Wage?

  1. Pingback: Economic Series Part 3: What is Gross Domestic Product? – Garrett's Life Experience's Blog

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