Minimum Wage - The Dubious Policy

As early as 4:00 am in the dark and cold morning of winter, a few people walking on an wet sidewalk. Under chilling wind, those people walk to a large, old building. Inside the building, the people work for repetitive, backbreaking low waged jobs. In the same day, late at night, you can see similar scene: some people walking out of the building under heavy humidity. I'm not one of those people, I don't know the feeling of a minimum waged worker. Like all of those workers, I feel exhausted after finishing my job.

Everyday, I wait with impatience to hear my supervisor say “That's it, go home. ” After I drop my load and park my truck and wipe my sweat, I can only think to return to My home and sleep. I lost most of my time and energy just for a few dollars. There are a lot of people that work harder and earn less than me. The poor, especially less-skilled workers, have access only to “bad jobs at bad wages”. Those workers always face bad situations. They are poor. They are struggling to sustain the life of their resoective families.

On the contrary, the owners of the companies where we work have a high standard of living. Low wages are advantageous for the group of people known as traditional elites who own labor-intensive firms because it lowers production cost, thus increase the competitiveness of the product. For that reason, it is natural for the traditional elites to keep wage as low as possible. This action creates what Karl Marx wrote in The Communist Manifesto as ”naked, shameless, direct, brutal exploitation”. The minimum wage seems to be an appealing solution against these abusive exploitations.

Applying a minimum wage law, government can force a wealth distribution among the owners and their lowest level workers. On Saturday, June 25, 1938, The U. S. Congress first instituted a minimum wage with the Fair Labor Standard Act. The minimum wage was set at 25 cents per working hour (US Department of Labor). The federal minimum wage is increase overtime, adjusted for higher living cost due to accumulated inflation. The minimum wage level is currently set at $8. 00 per working hour (2013). An increase in minimum wage can help the poor by substantial amount. A $2.

00 per hour increase in the minimum wage means an additional $4,160 for a minimum wage earner who works full-time, year round – “as much as the average family spends on groceries in 12 months” (Bureau of Labor Statistics). For a minimum wage worker, this fund injection is greatly helpful. Minimum wage increase is undoubtedly favorable for low waged earners, even if their current wage is well above the minimum wage. A theory known as the “ripple effects” (Welch 26) said that an imposed minimum wage increase all wages, and lowest wages are affected most. There is at least another advantage of imposing higher minimum wage.

According to Gregory Mankiw, one of the “ten principles of microeconomics” is “people respond to incentives”. Higher wages give stronger incentive to the labors, and as a result, a stronger effort to work. In other words, higher wages can generate higher profit. This opinion sounds too good to be true, but when Henry Ford open his famous car factory, the theory is proofed. With a very generous wage in his time, Ford recorded one of the greatest successes in the history. As popularly believed, minimum wage provides a win-win situation to deprive poverty.

If it is so advantageous then we should raise the minimum wage with a substantial ammount. The vast majority of Americans will agree to raise the minimum wage to $10 per hour or more. How many will agree to increase minimum wage to $50 per hour? I am sure that most well educated person will not agree to such an extreme increase. According to the law of supply, a high price level will raise the quantity demanded. With a very few exception, this law prevail for all kinds of market, including the market of labor. Thus, an upsurge in the minimum wage will promote the number of people interested to join the labor force.

The new labor emerge from many different groups. Some of them are people known as discouraged workers, labors who are no longer eager to find any job. There will be no negative effect from this new force. There are also strong correlation between female employment and wage level. More mothers will leave their children as a result of higher minimum wage. On one hand, it means a higher family income. On the other hand, it can create some psychogical effect on the children. Another groups that possibly enter the job market is the teenage worker.

Statistical data shows a strong trend that this is the group that most influenced by the minimum wage level. Typical study finds that a 10 percent increase in the minimum wage depresses teenage employment between 1 and 3 percent. High minimum wage encourages more teens to work on part time or full time job. This action require these teens worker to reduce their studying time. In some cases, it is done by dropping out from school. In long term, high drop out rate among highschool or college students due to enchanced wage is disadvantegeous to the society as a whole.

On the demand side, a minimum wage means higher cost to hire new worker. A minimum wage raise leads to a drop in the employment opportuinities. Business are encouraged to reduce their labor force size and apply more machinary that require less workers. This phenomenon, together with an increase in labor force supply side, take the whole society to a high unemployment level. Although economists frequently have opposing arguments, they speak in unisound that minimum wage reduces unemployment. There are a lot of studies, especially those funded by the Department of Labor, that conclude that a raise in minimum wage does not cost jobs.

Those studies are reasonable in the short run. Firms cannot reduce their employment immediately and students will not dropped their school instantly. But in the long run, firms will start to purchase more worker-efficient machinary or reduce the size of their business. More teenagers choose to work directly after finishing their highschool rather than enrolling in college. All of these factors will drive up unemployment among less-skilled workers. A lot of critics said that minimum wage is “hurting those it is intended to help”.

Workers who remain employed are gaining some benefit from a higher wage, but those who loose their jobs are worse off. Even if minimum wage law really benefited the low-waged workers, it is a poorly targeted policy. Most of the minimum wage workers are second or third earners in their families. They are dominated by teenagers from middle class families who work on part time job. In fact, only about “two-fifths of minimum wage workers live in poor families”. Furthermore, not all of them are the main workers in their families. As I am not one of the low wage workers, I will not benefit from a higher minimum wafe.

But higher wage means that I will easily loose my job by someone willing to do it for a minimum price. Because of the above reasons, minimum wage is not a very attractive policy. It is poorly targeted, encourage teenagers to drop their school, and creates unemployment. In an economist point of view, like many other free market interference, the policy is more destructive than productive. As the vice chairman of the house of representative Jim Saxton said, “the minimum wage cannot repeal the law of supply and demand any more effectively than they can repeal the law of gravity”.