Minimum Wage: Pros and Cons

Abstract The following report explores the topic of US government regulation of the minimum wage, and its advantageous or disadvantageous affects if the wage is raised. This report will also analyze the claims of the benefits and harms of raising the minimum wage by examining the validity and foundations for each argument, as well as provide alternatives to raising the minimum wage in order to help the poverty-stricken and low skilled workers that raising the minimum wage supporters are aiming to do.

Minimum wage has been a subject of many debates since its creation in 1938 as a part of the Fair Labor Standards Act. Pros and Cons of Increasing the Minimum Wage Introduction Minimum wage is a government-enforcedlaw in the labor market that does not permit employers to pay their employees below a certain wage, which is set by the federal and state governments. This antipoverty tool was set in the Fair Labor Standards Act of 1938 by the administration of President Theodore Roosevelt. As of 2011 in the United States, the minimum wage set by the federal government is at $7. 25.

Individual states are allowed to set their minimum wage according to how they see fit, as long as the wage is above the federal minimum wage. As of January 1, 2012, the state of California’s minimum wage was set at $8. 00. (Katel, 2005) The motivation behind minimum wage is toprotect employees from being exploited by getting paid an extremely low wage, as well as to provide low-skilled workers with a decent enough wage to live at or around the poverty threshold. The issue of whether to raise the minimum wage or not is prevalent today between democrats and republicans, and its utilization and effectiveness are highly scrutinized.

While those in favor of raising the minimum wage believe that the increase will aid the poor in earning a higher income, those against it believe that it will harm the very people it is trying to help. Relevant Stakeholders Although some believe that the issueonly affects the employees receiving the wage, those who support or are against theraising of the minimum wage believe that it has a profound affecton not only the employees, but also their families, employers, businesses, and even the overall economy. Whether this profound effect has a positive or negative impact has been debated since the verystart of the government mandate.

Introduction of the Pros of Raising the Minimum Wage Stakeholders who are in support of raising the minimum wage want the minimum wage to be raised because they believe it will alleviate poverty and to lessen the divide between low-income and middle class families. This reasoningsuggests that if the minimum wage were raised, then those low-skilled workers would be able to afford essential everyday items andestablish a minimum standard of living. Another reason to support the raising of the minimum wage is that it would act as an economic stimulus.

If the low-income families were to receive a salary increase, consumer spending would increase as well and pump money into the economy. Introduction of the Cons of Raising the Minimum Wage Those who oppose raising the minimum wage argue that increasing the minimum wage would lead to job loss and an increase in unemployment. If employers are forced to increase the wages for their employees, then the overall cost of labor will increase as well. In order to keep the business profitable, employers are then forced to lay off employees.

Another reason to oppose a raise in minimum wage is that it will encourage students to devalue their education and quit school to work as a minimum wage employee. Analysis of the Pros of Raising the Minimum Wage The main intention of the minimum wage is to alleviate poverty, and help the low-skilled workers to earn a wage they can live off of. Although alleviating poverty is a goal that is shared nation-wide, raising the minimum wage may not be directly affecting the target group that it is intended for. A majority of workers that work for a minimum wage are not the low skilled, working poor that the minimum wage is trying to help.

According to the Employment Policies Institute, “nearly 87 percent of the wage earners who benefitted from the 40 percent increase in the federal minimum wage between 2007 and 2009 were not poor – 56 percent lived in households with an income more than two times the poverty threshold, and one-third lived in households with an income more than three times thepoverty level. ” (Sabia& Nielsen, 2012) Only 13 percent of the wage earners benefitted from the increase in minimum wage were living at or below the poverty threshold.

More specifically, asBerman of EPI (2005) states, “the average family income of a minimum-wage worker is in excess of $44,000 a year. ” If a minimum wage worker works full-time at 40 hours per week, then their estimated salary is around $15,000. This statistic suggests that a majority of minimum wage workers are not the primary earners in the family, but are second or third earners of the household. Thus, a large portion of workers who benefitted from the minimum wage increase belongs to middle-income families, and not the working poor that the minimum wage is targeting.

Individuals who are in favor of raising the minimum wage are basing their support on the assumption that most minimum wage jobs are being held by the low-skilled and the poor, which is not the case. Another statistic provided by the EPI states that, “55% of poor, less-educated individuals between ages 16 and 64 do not work. ” (Sabia& Nielsen, 2012) There are other factors at work that impede the poor and low-skilled from obtaining minimum wage jobs and potentially benefitting from a raise in minimum wage. Are there enough jobs available for low-skilled and poor?

Are employers hiring them? Are the poor motivated enough to be pursuing these jobs? The effectiveness of raising the minimum wage as an antipoverty tool comes into question when observing national poverty rate. According to the United States Census Bureau, “in 2011, the official poverty rate was 15. 0 percent. There were 46. 2 million people in poverty. ” (United States Census Bureau, 2011) For the past three years, and concurrently since the last increase in federal minimum wage in 2009, the poverty rate for some groups of people have either been increasing or has remained stagnant.

Although a multitude of factors come into play, there is no correlation between raising the minimum wage and a decrease in poverty level, thus a raise in minimum wage would not serve as an effective anti-poverty tool. Supporters of raising the minimum wage also believe that raising the minimum wage will act as an economic stimulus. Because of an increase in income, the poor will have more spending power and the consumer demand will increase to inject more money into the economy, which in turn, will create more jobs.

According to a study by the Chicago Federal Reserve Bank, “for every dollar increase for a minimum wage worker results in $2,800 in new consumer spending for the following year. ” (Aaronson &Agarwal& French. 2011)Another study by Economic Policy Institute states that a raise in minimum wage to $9. 50 would add $60 billion of spending into the US economy. (Filion, 2009) Although these studies present a positive result in economic spending from raising the minimum wage, there is minimalhistorical evidence to show that raising the minimum wage will result in economic growth.

In the past three years, where the federal minimum wage has increased every year, consumer spending has barely fluctuated around the average of $49,000. For the unemployment rate, the rate actually increased from 7. 8% in the beginning of 2009, to 10% at the end of the year, then has been slowly decreasing back down to the current rate of 7. 9%. (Bureau of Labor Statistics, 2012) The raises in minimum wage had no apparent affect on the growth of the economy as shown in its signifiers, consumer spending and the unemployment rate.

Analysis of the Cons of Raising the Minimum Wage Those who oppose raising the minimum wage believe that the raise will lead to job loss, especially employees of small businesses, and an increase in unemployment. The reasoning behind it is that if there is a raise in minimum wage, not only will the wage of the minimum wage workers increase, but also the wages of all the other employees will increase as well. The overall cost of labor will increase and employers will be pressured to cut costs by laying off employees.

This would lead to decreasing profits for business owners and ultimately slow down the growth of the economy. If employers are reluctant to layoff employees, the employers are forced to increase market prices for their products, while the demand stays the same. A decrease in sales of small business will occur, which makes up 70% of the economy, and will also lead to an economic downturn. There are so many factors that can be attributed unemployment and job loss, such as economic recession, so it is difficult to pinpoint a singular cause like raising the minimum wage.

Another reason those who oppose raising the minimum wage bring up is that a raise in minimum wage will encourage students to quit school to pursue these minimum wage jobs. Those who are already at-risk of discontinuing their education would be even more tempted with an increased minimum wage. Statistics according to the Bureau of Labor Statistics show that workers between the ages of 16-19 describe more half of the workers who are paid the federal minimum wage or less. More than two-thirds of those workers do not even have a high school diploma.

(Bureau of Labor Statistics, 2012) Though this may bring to light the condition of the US education system, it does not necessarily connect raising the minimum wage to the drop out rate. Since the 1980’s, as the minimum wage has been raised many times, the high school drop out rate has been decreasing from 12% in the 1980’s to almost 8% today. (U. S. Department of Education, 2012) Though this is a viable reason, there is no hard evidence to suggest that an increase in minimum wage will increase the number of students to drop out.

Recommendations and Conclusion There are alternatives to solving the issue that raising the minimum wage tries to solve. Minimum wage aims at aiding the poor and low-skilled, but statistics show that a majority of middle-income families benefit more so from it. An increase in Earned Income Tax Credit (EITC) is an alternative that only provides those families with low-income with a refundable tax credit. This motivates the poor and low-skilled to work and will also provide them with a sizable sum of money to help achieve a stable standard of living.

Another alternative that targets the poverty-stricken is providing training programs for workers that will help build up the necessary skills to be able to land jobs that are in-demand and pay more than the current minimum wage. Training Programs will give a leg-up to those who are trapped in minimum wage jobs, and help them earn more than the poverty threshold. The arguments presented on the topic of raising minimum wage are able to make evident some of the possibilities of benefits or detriments that may occur from raising the minimum wage, but none are backed by direct evidence.

The issue of poverty is a nation-wide, especially an international issue, and efforts must be made to remedy it. References Aaronson, D. &Agarwal, S. & French, E. (2011, February). The Spending and Debt Responses to Minimum Wage Increases. Federal Reserve Bank of Chicago. Retrieved from: http://www. chicagofed. org/digital_assets/publications/working_papers/2007/wp2007_23. pdf Berman, R (2005 December). Minimum wage. CQ Researcher . Retrieved from:http://library. cqpress. com/cqresearcher/document. php? id=cqresrre2005121600.

Bureau of Labor Statistics. (2012, March) Characteristics of minimum wage workers in 2011. Retrieved from: http://www. bls. gov/opub/ted/2012/ted_20120306. htm Filion, K. (2009, May) A Stealthy Stimulus: How Boosting the Minimum wage Is Helping to Support the Economy. Issue Brief #255. Economic Policy Institute. Retrieved from: http://www. epi. org/page/-/IssueBrief255_Final. pdf Katel, P. (2005, December 16). Minimum wage. CQ Researcher, 15, 1053-1076. Retrieved from http://0-library. cqpress. com. patris. apu. edu/cqpac/ Sabia, J.

&Niellsen, R. B. (2012, April). Can Raising the Minimum Wage Reduce Poverty and hardship?. Employment Policies Institute. Retrived from http://epionline. org/study_detail. cfm? sid=141&group=mw U. S. Census Bureau. (2011) Statistical data on poverty in the United States. U. S. Department of Commerce. Retrieved from: http://www. census. gov/hhes/www/poverty/about/overview/index. html U. S. Department of Education (2012) The Condition of Education 2012 (NCES 2012-045). Retrived from: http://nces. ed. gov/programs/coe/tables/table-sde-1. asp.