Should Minimum Wage Be Increased?

According to the reference (Issues Surrounding the Minimum Wage Debate REVISION 2- Bruce D. Philips,NFIB Research Foundation, 11/30/05) increasing the minimum wage hurts low-skill employees. Most economists agree that increasing the minimum wage destroys jobs. This job loss is concentrated on the least skilled employees in the economy. Research from Duke University, the University of Wisconsin, and Michigan State University indicates that increases in the minimum wage hurt low-skill employees.

Cornell University economists found that groups such as high school dropouts and black young adults suffer four times more employment loss from a minimum wage increase than their non-black and more educated counterparts. Losses to small business owners from minimum wage increases may be direct losses, such as cutting jobs or hours, or indirect losses—such as rising numbers of job Vacancies, profit declines from increased costs, and price increases by small firm owners. Depending upon the stage of the business cycle, and specific industry/area conditions, these price increases may or may not stick and result in a loss of business.

For the question who Gains From Minimum Wage Increases? In theory, even with adverse employment effects, higher minimum wages might Benefit poor families if the wage gains were concentrated among low- income Workers in low- income families. And it would be useful to assume that all employment losses occurred to young persons from more affluent families. This however, is not the case. According to the Economic Policy Institute , poor women—disproportionately represented in low income households-are most likely to be helped by a minimum wage increase.

However, because it takes almost $17,000 to lift a family of four out of poverty, the amount of the minimum wage increase is likely to be insufficient to eradicate poverty by itself. Let us explore two different pointes of view that were discussed by New York Times magazine in 2005 and 2007. The first one was ECONOMIC VIEW; Revisiting a Minimum-Wage Axiom by EDUARDO PORTER Published: February 4, 2007 The New York Times According to the above article most economists believe that imposing a minimum wage will generally increase joblessness at

the bottom. More than 45 percent of respondents in a 2000 survey of members of the American Economic Association said they ''mainly agreed'' that minimum wages increased unemployment among young and unskilled workers. But over the last few decades there have been several increases in federal and state minimum wages, with little impact on the level of employment. This has led economists in the last decade to reconsider the link between wages and jobs at the bottom. In 2005, about 1.

2 million workers in the leisure and hospitality industry were earning no more than the minimum wage: restaurant cooks, hotel maids and others, accounting for almost 64 percent of all minimum-wage workers in the country. Unlike a manufacturer, a McDonald's in the United States will not relocate to China when its labor costs rise. And until a machine is developed to adequately saute the vegetables and toss the salad in America's sit-down restaurants, it will be hard for employers to replace them, even if Congress agrees to increase their pay to $7. 25 an hour from $5. 15 over a couple of years. In one study, Mr.

Krueger and David Card of the University of California, Berkeley, found that in the eight months after New Jersey raised its minimum wage to $5. 05 an hour from $4. 25 in 1992, employment in fast-food restaurants grew slightly faster there than in Pennsylvania, where the minimum wage didn't change. If there is a consequence to an increase in the federal minimum wage, it will more likely be seen in prices. Mr. Krueger and Mr. Card found that prices in restaurants in their study rose about 4 percent faster in New Jersey than they did in Pennsylvania. But that's unlikely to induce customers to stop eating fast food.

If labor accounts for about 30 percent of total costs in fast-food chains, even assuming that everybody at the restaurant works for the minimum wage, an increase of 40 percent, before inflation, is likely to add less than 10 percent to the price of your burger over two years The second point on minimum wage that was discussed by the New York Times magazine was under the title (“The Bare Minimum” by SARAH HAMERSMA, Published: March 8, 2007 The New York Times http://topics. nytimes. com/top/reference/timestopics/subjects/m/minimum_wage/i ndex. html ) This article states there’s a more direct path to improving incomes for the working poor.

Instead of requiring employers to pay more, and then allowing them to apply for reimbursement through tax subsidies, why not skip the middleman and subsidize the worker directly? Such a program already exists. The Earned Income Tax Credit is a federal tax refund for workers, who qualify based on family income rather than individual income or wages. This means that an upper-class teenager working at McDonald’s will not get a benefit, but someone trying to support a family will. Over the last 15 years, the credit’s subsidy rates have increased and the definition of eligibility has broadened.

These expansions have greatly improved labor force participation among single mothers. If we don’t think that people with low incomes are getting what they need, let’s not look to ineffective employer tax credits to try to create jobs. And let’s not burden employers with the costs of a higher minimum wage, most of which won’t even go to low-income families. If additional investments are to be effective — and directed toward the intended recipients — they should focus instead on making sure our Earned Income Tax Credit program provides an adequate income supplement for the working poor.