Minimum Wage Does it Work?

Early attempts by labor unions to create a mandatory minimum wage were ruled unconstitutional by the U. S. Supreme Court on the grounds that they "restricted the worker's right to set the price for his own labor". This allowed employers to continue exploiting their workers through the Great Depression of the 1930s, when incredible demand for jobs caused wages to drop even further to an all-time low. With poverty becoming a huge national issue, President Franklin D. Roosevelt promised to constitutionally protect American workers as a key part of his 1936 re-election campaign(Raising the Minimum Wage:

Pros and Cons, n.d. ). Minimum wage is an economic concept with controversy ranging from its effects on employment, quality of life for the impoverished to the apparent defiance of minimum wage to classic supply and demand theory. Increasing the minimum wage is unlikely to reduce employment opportunities for the working-poor. A growing body of both empirical and theoretical work has called into question this long-held prediction and the simplistic supply and demand theoretical model from which it is generated.

More sophisticated models of how the economy operates suggest that employers are likely to respond to a wage increase by improving the skills of their workers and becoming more efficient, and that slightly higher wages would be offset by savings from reduced turnover and higher productivity. Recent historical evidence supports this richer understanding of how labor markets operate. Assessments of the 1996 and 1997 federal minimum wage increases, using various analytical methods, found that the employment effects were statistically insignificant (Parrott J,.& Cooke O, 2004).

More over the effects of minimum wage often effect a limited group of the prospective employment pool mainly teenagers seeking part time work and those who are completely unskilled. In the case of the poor, many of whom are minorities, they suffer because of the inverse relationship between price and quantity demanded. As the price of something rises, people tend to demand less of that thing. Similarly, when the price of the least-skilled workers of society increases (their wages), employers demand fewer of them (Lafive. M. 1997).

This ideology is based on the simple definitions of supply and demand. The argument that state minimum wages have had a substantially negative effect on a state's labor market is an extreme repackaging of the perennial claim that minimum wages do more harm than good because they cause many low-wage workers to lose their jobs. While this argument was once more prevalent among economists, recent studies with improved methodologies have reached the opposite conclusion. In general, there is no valid, research-based rationale for believing that state minimum wages cause measurable job losses.

Making the extreme case that the job losses are severe enough to show up in a noticeably elevated state unemployment rate is a wild extension of a largely unfounded theory. In recognition of its high cost of living, for decades Alaska set its minimum wage to be 50 cents above the federal rate. 2 In 2002, the Alaska legislature passed a minimum wage increase. As a result, on January 1, 2003 the Alaskan minimum wage went to $7. 15, two dollars above the federal rate—an immediate bump of $1. 50 per hour.

This increase seems to have had no impact on the state's unemployment rate, which has remained constant since the summer of 2002. (Chapman J. , 2004). Minimum wage has had a positive effect on families living at or below the poverty line. Women, who account for 49% of New York’s workforce, would comprise 61% of those with such low wages that they would directly benefit from a minimum wage increase. Because Hispanics are over-represented among very low-wage workers, they would particularly benefit from an increase in the minimum wage.

As Figure 7shows, Hispanics represent 13. 5% of the state’s overall workforce, but would constitute 19. 6% of all direct beneficiaries of a higher minimum wage. To a lesser degree, Black non-Hispanics and the Asian and other Non-Hispanic category are also overrepresented at the bottom end of the wage spectrum. Immigrants, who account for 26% of the state’s workforce, would constitute 30% of all beneficiaries. As Appendix Figure 2 shows, immigrants would constitute a considerably greater share (65%) of direct beneficiaries in New York City

compared to the state overall (Parrott J,. & Cooke O, 2004). The President's Council of Economic Advisers reached similar conclusions in evaluating the benefits of the 1996 and 1997 increases in the federal minimum wage that raised it, in two steps, from $4. 25 to $5. 15 an hour. In the 1999 Economic Report of the President, the Council wrote: "Almost half (46%) of the affected workers worked full time, and most lived in low-income households. Over half the benefits from the higher minimum wage went to households in the bottom 40 percent of the income distribution.

In1997 the earnings of the average minimum wage worker accounted for 54 percent of his or her family's total earnings. " Increasing the minimum wage is unlikely to reduce employment opportunities for the working-poor. A growing body of both empirical and theoretical work has called into question this long-held prediction and the simplistic supply and demand theoretical model from which it is generated (Chapman J. , 2004). In recognition of its high cost of living, for decades Alaska set its minimum wage to be 50 cents above the federal rate.

2 In 2002, the Alaska legislature passed a minimum wage increase. As a result, on January 1, 2003 the Alaskan minimum wage went to $7. 15, two dollars above the federal rate—an immediate bump of $1. 50 per hour. This increase seems to have had no impact on the state's unemployment rate, which has remained constant since the summer of 2002 (Chapman J. , 2004). While the devastation of Washington's manufacturing industry is timed closely to the rise of the state minimum wage, there is no relationship between the minimum wage increase and manufacturing's decline.

Because manufacturing has wages that are much higher than average, significantly fewer manufacturing workers are affected by an increase in the minimum wage than workers in other industries. For example, restaurants, an industry much more likely to be affected by a minimum wage hike, added about 2,500 jobs between 2000 and 2003 despite the recession. (During this same period manufacturing lost 65,000 jobs and all industries combined lost 49,000 jobs. ) If the minimum wage were the cause of job loss in Washington, one would expect losses to be concentrated in industries more affected by the minimum wage.

The fact that the contrary is true is evidence that job losses in Washington are not due to the rise in the minimum wage (Chapman J. , 2004). The debate over the effect of minimum wage on the availability of employment will persist as long as there is an economy to be driven. Minimum wage is a positive factor in American life. It has offered at least a foot in the door for some of the most disenfranchised peoples in our country. There is an article that suggests a four step process to potentially solving the minimum wage issue.

First, both Federal and State governments must establish an appropriate floor for minimum wage and allow the states in high cost areas to adjust their rates accordingly. Second, establish an acceptable definition of minimum wage, or a living wage. Third, tailor a means of tracking inflation and tying it to the increases of the minimum wage on a regular basis. Last, establish a minimum wage for teenaged workers, temporary and seasonal workers. References Parrott J,. & Cooke O. , (2004).

Raising the Minimum Wage in New York, Retrieved, April 18, 2011, from www.fiscalpolicy. org/minimumwagereport. pdf. ) Employment and the Minimum Wage: Evidence from Recent State Labor MarketTrends. Retrieved April18,2011,from www. epi. org/publications/entry/briefingpapers_bp150/) Raising the Minimum Wage: Pros and Cons (n. d. ) Retrieved April 18, 2011, from www. minimum-wage. org/raising-minimum-wage. asp) LaFaive, M. Minimum Wage and Fairness Nov. 1, 1997. Retrieved 5/7/2011 www. mackinac. org/article. aspx? ID=674 Haussamen, B. Fixing America's Minimum Wage System, n. d. Retrieved 5/7/2011 from www. raiseminwage. org/id12. html.