Issues Surrounding Increasing the Minimum Wage

1. Introduction

The minimum wage in the United States was implemented in 1938 by President Franklin Delano Roosevelt. Minimum wage began at twenty five cents per hour and has since been increased twenty two times. The most recent increase was from $6.55 to $7.25, which happened in 2009 (“Should the Federal Minimum Wage Be Increased?”). Twenty nine states, in addition to the District of Columbia, have a minimum wage that is higher than the federal minimum wage. Currently, the United States has more than two and a half million workers who earn the federal minimum wage or less (“Should the Federal Minimum Wage Be Increased?”). Currently, raising the minimum wage is a popularly debated topic; particularly with the upcoming presidential election. While many believe that the people deserve to work full time and be above the poverty line, others feel that an increase in the federal minimum wage would do more overall harm than good. There are several issues surrounding an increase in the minimum wage. First, many are concerned with its effect on job growth and the economy; while proponents of raising the minimum wage states that the increase would have positive effects on employment rates and could help stimulate the economy, others fear that it could have the opposite effect. Second, while advocates of a higher minimum wage feel that it would help bring large numbers of American workers out of poverty, their opponents believe that it would, instead, cause more people to fall into poverty than there are currently. Finally, many believe that inflation should be considered when debating on raising the minimum wage; those who support an increase feel that the minimum wage should keep up with inflation, while those who oppose the increase feel that it would lead to a rise in the general cost of goods. 

2. Economic and Job Growth 

The main concern around raising the minimum wage is the effect is will have on economic prosperity and job growth. It is estimated by the Economic Policy Institute that increasing the minimum wage from $7.25 to $10.10 per hour would inject more than twenty two billion dollars into the economy and create eight five thousand jobs over a period of three years (Cooper). Similarly, economists from the Federal Reserve Bank of Chicago estimate that an increase of $1.75 to the minimum wage would increase collective household spending by almost fifty billion dollars by the following year; this would boost the United States’ economy’s gross domestic product and lead to widespread job growth (“Should the Federal Minimum Wage Be Increased?”). While some fear that raising the minimum wage would be detrimental to job growth, proponents for raising the minimum wage consider that fear to be irrational. Economists Alan Krueger, PhD, and David Card, PhD, compared the fast food industry in New Jersey, after the state raised its minimum wage by eighty cents, with the fast food industry of Pennsylvania, where there was no raise in wage. It was observed that job growth within the industry was relatively similar in both states and there was no suggestion that employment was reduced when the minimum wage was raised (“Should the Federal Minimum Wage Be Increased?”). These findings were corroborated by the evaluation of sixty four studies on the minimum wage in the United States. It was wound in this study, as well, that there was nothing to indicate a negative relationship between employment rates and the minimum wage (Doucouliagos and Stanley). Considering these studies, it seems that neither the economy nor job growth would suffer with an increase in minimum wage.

Still, though, there are others who feel that raising the minimum wage would have negative effects on economic growth and the employment rate. It has been estimated by the Congressional Budget Office that raising the minimum wage from $7.25 to $10.10 would lead to a loss of half a million jobs (Congressional Budget Office). A survey of more than one thousand  businesses found that almost forty percent of employers who currently pay minimum wage would lay off employees if $10.10 became the new minimum wage and more than half said they would decrease their hiring levels (“Should the Federal Minimum Wage Be Increased?”). Another study, done by San Francisco’s Office of Economic Analysis states that increasing the minimum wage to $15 per hour would reduce more than fifteen thousand private sector jobs within the city (“Should the Federal Minimum Wage Be Increased?”). A study done in 2014 on the minimum wage in Europe revealed that the minimum wage had an adverse effect on employment rates. Twenty one of the countries in the European Union have an established minimum wage; the average unemployment rate in those countries is almost twelve percent while those without a minimum wage have an unemployment rate of just below eight percent (Hanke). Another concern is that increasing minimum wage would hurt small businesses and force them to close. A poll conducted in 2013 revealed that sixty percent of small business owners said that raising the minimum wage would hurt their business (“Should the Federal Minimum Wage Be Increased?”). A change in minimum wage could even be powerful enough to effect larger companies, as well. The vice president of the White Castle fast food chain announced that if the minimum wage were raised to fifteen dollars per hour, they would have to close almost fifty percent of stores and fire several thousand workers (“Should the Federal Minimum Wage Be Increased?”). In addition, Forbes reported that an increase in minimum wage led to the closure of a number of Wal-mart stores and the cancellation of plans to open more (Worstall). While some studies may suggest a hike in minimum wage would have positive effects on the economy and job growth, others offer very different possibilities. 

3. Poverty 

Another issue surrounding raising the minimum wage is the effect it would have on poverty. Many believe that an increase in minimum wage would help reduce poverty. If a person works forty hours per week, which is full time, and makes the federal minimum wage of $7.25, then they earn $15,080 per year. This number, while being twenty percent higher than the 2015 federal poverty level for a household of one under the age of sixty five, is eight percent below the 2015 federal poverty level for a single-parents household with one child under the age of eighteen (“Should the Federal Minimum Wage Be Increased?”). Raising the minimum wage would make a huge difference to a lot of people. A 2014 Congressional Budget Office report revealed that increasing the minimum wage to $9 would lift three hundred thousand people out of poverty in the United States, while an increase to $10.10 would bring three times that out of poverty (Congressional Budget Office). The University of Massachusetts at Amherst conducted a study that projected that increasing the minimum wage to $10.10 per hour would reduce the number of non-elderly citizen living in poverty by almost eight million when long term effects are taken into account (“Should the Federal Minimum Wage Be Increased?”). If people are lifted out of poverty, their quality of life increases, as does the amount of disposable income they are able to pump back into the economy.

Still, other sources suggest that raising the minimum wage would, in fact, increase poverty rates. The Federal Reserve Bank conducted a study in which it was found that while the wage increase may seem like a positive thing for low-income workers, “their hours and employment decline, and the combined effect of these changes if a decline in earned income… minimum wages increase the proportion of families that are poor or near-poor” (“Should the Federal Minimum Wage Be Increased?”). An increase in wages could lead to an increase in production costs and an increase in cost. If prices are higher, there can be a decrease in the demand for the product and the number of workers employed to produce them. Economics experts stated that, “the net effect of higher minimum wages would be unfavorable for impoverished households, even if there are no job losses. To the extent that some poor households also lose jobs, their net losses would be greater.” (Grennes and Strazds). This would suggest that an increase in minimum wage would have more of a negative impact than a positive one.

4. Inflation 

A third issue surrounding raising the minimum wage is inflation. Those in favor of raising the minimum wage say that it has not kept up with economic inflation. The federal minimum wage does not increase with inflation, meaning that the amount of goods that can be bought with it has seriously declined since a peak in 1968. That year, the minimum wage was $1.60; in January 2016, that would be the equivalent of $11.16, which is almost fifty four percent higher than the actual current minimum wage of $7.25 (“Should the Federal Minimum Wage Be Increased?”). The minimum wage has certainly lost a lot of its purchasing power. In fact, between the last minimum wage increase in 2009 and July of 2015, inflation has led to a loss in the purchasing power of the federal minimum wage by more than eight percent (“Should the Federal Minimum Wage Be Increased?”). These numbers would be compounded if workforce numbers decreased due to workforce automation. By indexing the minimum wage for inflation, low-wage workers would be guaranteed a wage that is able to keep pace with the rest of the economy as the price of goods and services rise. It makes sense for the minimum wage to rise with the regular inflation of the economy.

However, those opposed to raising the minimum wage maintain that in doing so, we would be contributing to sharp increases in inflation. In 2013, the Federal Reserve Bank of Chicago noted that almost one hundred percent of increased labor costs in the fast food industry would be passed onto consumers if the minimum wage increased (Aaronson and French). Purdue University conducted a study in 2015 that found that if the wage of restaurant employees increased to fifteen or twenty two dollars per hour, the prices would increase at a rate of just over four percent and twenty percent, respectively; that, or a reduction in the size of the products by anywhere from twelve to seventy percent (“Should the Federal Minimum Wage Be Increased?”). An article reported by NBC News called attention to the rise in a cup of coffee in Oakland, California after an increase in minimum wage. The thirty six percent increase to $12.25 reportedly led to an increase in the cost of a cup of coffee by about fifteen percent; the same report found that when the minimum wage rose in Chicago to $10 per hour, coffee prices rose almost seven percent (Abramo). Similar results were predicted outside the United States as well. It was estimated by the Alberta Hotel and Lodging Association in Canada that any sudden or significant increase to the minimum wage would cause an, “[increase in] prices for food and beverage, guest rooms, and meeting facilities.” (“Should the Federal Minimum Wage Be Increased?”). In these cases in which the minimum raise was been increased, the general price of consumer goods has increased as well.

5. Conclusion 

With so many American citizens working for minimum wage, it is no surprise that its possible increase would be a highly-publicized topic. Several issues surround raising the minimum wage that effect its support and opposition. The most common factors when considering an increase in the minimum wage are its effect on job growth and the economy, the way it could influence poverty levels, and economic inflation. The topic is expected to be a popular topic of debate in the impending presidential election.

Works Cited 

Aaronson, Daniel, and Eric French. “How Does a Federal Minimum Wage Hoke Affect Aggregate Household Spending?” Federal Reserve Bank of Chicago. Federal Reserve Bank of Chicago, 27 Jun. 2013. Web. 14 Jul. 2016. <https://www.chicagofed.org/publications/chicago-fed-letter/2013/august-313>

Abramo, Allegra. “Cost of Cup of Coffee Often Climbs After Minimum Wage Hikes”. NBC News. NBC News, 19 Jul. 2015. Web. 14 Jul. 2016. <http://www.nbcnews.com/business/consumer/cost-cup-coffee-climbs-after-minimum-wage-hikes-n394076>

Congressional Budget Office. The Effects of a Minimum-Wage Increase on Employment and Family Income. The Congressional Budget Office, 2014. Congressional Budget Office, CBO. Web. 13 Jul. 2016. < http://citesource.trincoll.edu/mla/mlagovdocweb_003.pdf>

Cooper, David. “Raising the federal Minimum Wage to $10.10 Would Lift Wages for Millions and Provide a Modest Economic Boost”. Economic Policy Institute. Economic Policy Institute, 19 Dec. 2013 Web. 13 Jul. 2016. <http://www.epi.org/publication/raising- federal-minimum-wage-to-1010/>

Doucouliagos, Hristos and T.D. Stanley. “Publication Selection Bias in Minimum-Wage Research? A Meta-Regression Analysis.” British Journal of Industrial Relations 47:2 (2009): 406-428. Print.

Grennes, Thomas and Andris Strazds. “Is the Minimum Wage an Effective Way to Reduce Poverty or Inequality?” EconoMonitor. EconoMonitor, 02 Jun. 2015. Web. 14 Jul. 2016 <http://www.economonitor.com/thoughtsacrossatlantic/2015/06/02/is-the-minimum- wage-an-effective-way-to-reduce-poverty-or-inequality/>

Hanke, Steve H. “Let the Data Speak: The Truth Behind Minimum Wage Laws.” Cato Institute. Cato Institute, Apr. 2014. Web. 14 Jul. 2016. <http://www.cato.org/publications/commentary/let-data-speak-truth-behind-minimum-wage-laws>

“Should the Federal Minimum Wage be Increased?” ProCon.org. ProCon.org, 2016. Web. 14 Jul. 2016. <http://minimum-wage.procon.org/view.resource.php?resourceID=006456>

Worstall, Tim. “Walmart’s Oakland Store Closure: Oakland’s Minimum Wage Is Blamed.” Forbes. Forbes, 18 Jan. 2016. Web. 14 Jul. 2016. <http://www.forbes.com/sites/ timworstall/2016/01/18/walmarts-oakland-store-closure-oaklands-minimum-wage-is-blamed/#29950bcd6432>