Economics- Minimum Wage Essay

Minimum wage is imperative to our economic well being. It is defined as the minimum hourly wage an employer can pay an employee for work (Minimumwage. com). Some may assume minimum wage is for the purpose of the employers and healthy composition, while others argue it is for fair and just wages at the expense of the workers. Whether the wage is for the employers, workers, or government the matter of lowering or higher the wage may have a more drastic effect.

Minimum wage has been altered many times since it was put into place in the United States in 1938, while also leading to arguments of increasing minimum wage and decreasing minimum wage and the effects this would have on the economy. Minimum wage was first instituted in Australia and New Zealand. This establishment of a required compensation was in response to bitter and frequent strikes. In 1912, minimum wage was installed in Massachusetts for women and children due to the sweatshop working conditions and regulations.

In 1923 talk of minimum wage arose but was shot down my Supreme Court because it conflicted with a worker’s right to set his own price for labor. The Fair Labor Standards Act was derived in 1938 by president Franklin Delano Roosevelt in correspondence to his “New Deal”. FLSA establishes minimum wage, overtime pay, recordkeeping, and youth employment standards affecting employees in the United States. According to FDR the labor standards act was, ”the most far-reaching, far-sighted program for the benefit of workers ever adopted in this or any other country”(FDR).

In 1938, minimum wage was set at $0. 25 per hour. Since July 24, 2009 the federal minimum wage is $7. 25 while, many states have set minimum wage laws in accordance to the standard of living in the state. Since the establishment of minimum wage critics and supporters have been arguing over the issue of increasing or decreasing minimum wage. Employers say it simply destroys jobs by making it too tough for employers to have the finances to keep workers. President Obama has proposed to raise the US federal minimum wage to $9 per hour.

Researchers at the University of California at Berkeley found that after an 80-cent New Jersey minimum wage increase in 1992, employment in the state’s fast-food restaurants rose slightly faster rather than in Pennsylvania, where the minimum wage did not change. Overall, New Jersey’s restaurant workers’ job rate grew four percent faster than Pennsylvania’s (Holcom). We tend to push for a higher minimum wage, hoping that it will somehow decrease the poverty level or help us get through this lull in our economy.

Meanwhile, Economists David Neumark and William Wascher researched the mandating of minimum wage laws and found that; “these laws lead to a reduction in employment opportunities for low-skilled worker” (Romer). They also found minimum wage laws do not help the number of families living below the poverty line. Raising the minimum wage leads to greater unemployment, lower profits of firms and businesses, and ultimately stunts the growth of the US economy to a substantial extent.

Decreasing minimum wage has become a difficult argument the past few years. The belief that lower wages would raise the overall employment rests on a fallacy of composition. “In reality, reducing wages would at best do nothing for employment; more likely it would actually be contractionary” (Krugman). Lower wages leads to an overall lower price level. This increases the real money supply, and therefore liquidity. As people try to make use of their excess liquidity, interest rates go down, leading to an overall rise in demand.

Minimum wage is imperative to our economic well being. It is defined as the minimum hourly wage an employer can pay an employee for work (Minimumwage.com). Some may assume minimum wage is for the purpose of the employers and healthy composition, while others argue it is for fair and just wages at the expense of the workers. Whether the wage is for the employers, workers, or government the matter of lowering or higher the wage may have a more drastic effect. Minimum wage has been altered many times since it was put into place in the United States in 1938, while also leading to arguments of increasing minimum wage and decreasing minimum wage and the effects this would have on the economy. Minimum wage was first instituted in Australia and New Zealand.

This establishment of a required compensation was in response to bitter and frequent strikes. In 1912, minimum wage was installed in Massachusetts for women and children due to the sweatshop working conditions and regulations. In 1923 talk of minimum wage arose but was shot down my Supreme Court because it conflicted with a worker’s right to set his own price for labor. The Fair Labor Standards Act was derived in 1938 by president Franklin Delano Roosevelt in correspondence to his “New Deal”. FLSA establishes minimum wage, overtime pay, recordkeeping, and youth employment standards affecting employees in the United States.

According to FDR the labor standards act was, ”the most far-reaching, far-sighted program for the benefit of workers ever adopted in this or any other country”(FDR). In 1938, minimum wage was set at $0.25 per hour. Since July 24, 2009 the federal minimum wage is $7.25 while, many states have set minimum wage laws in accordance to the standard of living in the state. Since the establishment of minimum wage critics and supporters have been arguing over the issue of increasing or decreasing minimum wage. Employers say it simply destroys jobs by making it too tough for employers to have the finances to keep workers.

President Obama has proposed to raise the US federal minimum wage to $9 per hour. Researchers at the University of California at Berkeley found that after an 80-cent New Jersey minimum wage increase in 1992, employment in the state’s fast-food restaurants rose slightly faster rather than in Pennsylvania, where the minimum wage did not change. Overall, New Jersey’s restaurant workers’ job rate grew four percent faster than Pennsylvania’s (Holcom). We tend to push for a higher minimum wage, hoping that it will somehow decrease the poverty level or help us get through this lull in our economy.

Meanwhile, Economists David Neumark and William Wascher researched the mandating of minimum wage laws and found that; “these laws lead to a reduction in employment opportunities for low-skilled worker” (Romer). They also found minimum wage laws do not help the number of families living below the poverty line. Raising the minimum wage leads to greater unemployment, lower profits of firms and businesses, and ultimately stunts the growth of the US economy to a substantial extent.

Decreasing minimum wage has become a difficult argument the past few years. The belief that lower wages would raise the overall employment rests on a fallacy of composition. “In reality, reducing wages would at best do nothing for employment; more likely it would actually be contractionary” (Krugman). Lower wages leads to an overall lower price level. This increases the real money supply, and therefore liquidity. As people try to make use of their excess liquidity, interest rates go down, leading to an overall rise in demand.