Cost of Minimum Wage

Price floor is the minimum price buyers are required to pay for a good or service. Now the question to find an answer to is how high we should raise minimum wages. Higher pay wages affect the price we pay at the store, the amount of work hours, and the young unskilled worker. Some companies will compensate the higher wage by hiring a more skilled worker than paying for an unskilled worker, therefore the younger generation without experience will find it harder to find jobs. Also firms can and will downsize, reducing hours because they are paying a higher minimum wage.

With a higher paid workforce, consumers will pay a higher cost for products. Everyone should have the opportunity to earn a decent wage. The minimum wage is not just about helping the impoverished, it is about the fairness, the value of work, and the opportunities that work provides. People do benefit from the minimum wages, because big vulnerable companies do not want to be seen breaking the law. Many smaller companies hire illegal aliens and pay them below minimum wage, recognizing that their workers cannot complain. According to the Bureau of Labor Statistics, 1. 8 million paid-hourly employees were paid the federal minimum wage of $7.

25 in 2010. These 1. 8 million employees can be broken down into two broad groups: Roughly half (49. 0 percent) are teenagers or young adults aged 24 or under, the other half (51. 0 percent) are aged 25 and up. In the case of nationwide minimum wage, large numbers of firms will be affected, although by different amounts depending on the industry, region of the country, and other factors. A federal minimum wage was first set in 1938. The federal minimum wage has ranged from only $0. 25 per hour in 1938 to the current federal minimum wage of $7. 25 per hour (which became effective July 2009).

“Labor economists refer to the "elasticity" of demand for labor to describe the ratio of jobs gained or lost when wages change. Estimates of this "elasticity" vary, but the average estimate by labor economists is that for a 10 percent increase in the minimum wage, employment among those affected drops by 5 percent. ” (Kersey,2004). If the minimum wage is increased from $5. 15 to $6. 65 per hour, demand for unskilled labor could drop by as much as 15 percent in jobs that earn the minimum wage, resulting in the loss of hundreds of thousands of jobs and making it more difficult for poor families to take this escape route out of poverty.

According to EPI: the impact on employment an estimated 988,000 jobs will be lost, many will be replaced by technology and self-service investments. In fact the most credible research on the minimum wage from the last two decades points to a loss of jobs following a minimum wage increase. Peter R. Crabb a professor of finance and economics at Northwest Nazarene University in Nampa writes; “The Bureau of Labor Statistics reports that there are 6. 6 million U. S. workers currently taking part-time jobs for economic reasons. The same report shows there are 10. 7 million part-time workers seeking full-time work.

Raising the minimum wage for these workers isn't going to change their condition. In addition to the mandated cost increase possibly causing employment reductions, a portion of the higher wage costs may be passed forward to consumers or backward to other workers or suppliers of business output. “When the government manadates a minimum wage, and if the government requires certain workers to be paid higher wages, then businesses make adjustments to pay for the added costs, such as reducing hours, cutting employee work hours, reducing benefits, and charging higher prices.

” (Wilson, 2012). Having higher labor costs means that fewer people get hired and employers have to find ways to do more with less and look for other ways to economize. Unskilled workers will ge laid off, replaced by machines and or higher-skilled workers who are more valuable. [pic] Figure 1 (Wilson, 2012). “An approach to the cost of increasing the minimum wage by 10% is estimated to lead to a 3% decrease in employment to 1% increase, estimated by economists. If we assume the worst (10% increase will lead to a 3% decrease), the benefits outweigh the costs to workers.

Before the increase, total wages of workers making 50% of average wages or less is $187 billion, after the increase total wages of workers would rise to $203 billion, (that is an increase of 8. 3% in total wages going to low-wage workers). ” (Vocis, 2013). Today’s employers demand more skills than they did in the past; they want employees with technological and organization skills. While college attendance is rising, the average youth today likely enters the labor market with more skills. Workers use more skills than they did in the past.

The changing occupational and industrial structure of the economy has led to a rising demand for cognitive and interpersonal skills and a declince in the demand for motor skills. While unskilled men have decreased their labor force participation, unskilled women have gradually increased their labor force. Within the last four to six years, low-skilled workers including high school dropouts have raised their employment levels. In part, the gains for low-skilled workers are the result of an economic expansion that has brought unemployment rates to 4. 5 percent, a 30 year low. “Of the 11.

7 million net increases in employment of workers 25 and over 90 percent have gone to college and over 50 percent have a BA degrees. With fewer competitors, more low-skilled workers have managed to find jobs. In the coming decade, the demographic shifts will be less favorable for low-skilled workers. ” (Lerman, 1999). Summing it all up there are still uncertainties as to what the overall effects of raising the minimum wage will bring in the future. Companies have downsized and reduced hours before the call to raise minimum wages and the cost of products and services continue rising too.

Employment rises and falls with the economy whether you are a skilled or unskilled worker. Raising the minimum; guess it all depends on who you are, what skills you have, or what income bracket you exist in and how it will help or hurt. References Crabb, P. R. (2013, June 4). The Economy: Higher minimum wage will curb hiring of low-skill workers. pp. http://www. idahostatesman. com/2013/06/04/2601849/higher-minimum-wage-will-curb. html. Employment Policies Institute. ( 2013 ).

Minimum wage by the numbers http://minimumwage. com/files/2013_EPI_MinimumWageByTheNumbers_finalv2.pdf: Kersey, P. (May 3, 2004). The economic effects of the minimum wage. Washington DC, 20002-4999: The Heritage Foundation. Lerman, S. (1999). An overview of economic, social, and demographic trends affecting the us labor market. Washington, DC: The Urban Institute. Vocis, V. (2013). The Effects of Increasing the Minimum Wage on Employment. Of politics and men! , http://www. ofpoliticsandmen. org/2013/02/the-effects-of-increasing-minimum-wage. html. Wilson, M. (2012). The negative effects of minimum wage laws. Washington, DC 2001-5403: CATO Institute.