Minimum Wage: Why Minimum Wage Should be Increased

Introduction

President Roosevelt established the federal minimum wage in 1938 as part of the Fair Standards Labor Act. The minimum wage was designed to protect workers from exploitation by their employers. Originally set at $0.25, minimum wage has been periodically increased as it is devalued by inflation. From 1997 to July 2007 the federal minimum wage was $5.15, and then increased to $5.85, where it stands today. Workers and economists argue minimum wage does not pay a sufficient amount to stay out of poverty. To counteract this, 31 states have enacted higher minimum wages, but the remaining 19 states still abide by the nation minimum wage. The federal minimum wage can and should be increased and used as a tool to reduce poverty and stimulate the economy.

Small Business

Affect of Minimum Wage on Small Business

Conservatives traditionally argue that raising the minimum wage hurts small businesses that cannot afford to pay hiring wages, and therefore are forced to layoff workers, further augmenting poverty. In a study done by the Levy Institute, the vast majority of small business owners interviewed said a raise in minimum wage would not cause them to layoff workers, or decrease the number of new workers they could hire. The Levy Institute interviewed 560 businesses with under 500 workers each, asking them questions about their hiring practices, particularly with regard to a possible increase in the minimum wage. Of those businesses, only 6.2% said a raise in the minimum wage would negatively affect their hiring practices. When the minimum wage was increased in 1997, economists and lawmakers feared there would be significant job losses, but instead it was the best job market in 30. This shows the demand for labor is wage inelastic; meaning changes in wages does not affect the amount of labor demanded.

Benefits of Increase

The Problem with the current Minimum wage is that it has failed to keep up with inflation and rising cost of living. This means that over time the purchasing power of the minimum wage has decrease. The current minimum wage is not longer enough to keep working families from meeting their most basic needs such as cost of housing and food, health care, education and child care. According to Economist Jared Bernstein from the Economic Policy Institute the cost of basic necessities has increase by almost 50% between 1991 and 2007. As a result low income families are stock in poverty and the income gap between the low and high class is continuously increasing.

Summery Facts about the Minimum Wage:

1) The current minimum wage is insufficient for low income workers and families to meet basic needs.

2) High costs of living leave families that earn the minimum wage, below the federal poverty level. As a result taxpayers have to pay more for public assistance.

3) A person who earns the minimum wage and works full time (40 hrs/week, 52 weeks/yr) only earns about $10,500 a year. This is $2,000 below the poverty line.

4) The federal minimum wage has not increase in almost eight years.

5) Cost of basic necessities such as food, clothing, housing, health care, education and fuel have raise significantly. The “Break out of Poverty Minimum Wage” (meaning the hourly rate at which a full time worker’s earnings will just exceed the federal poverty level) for a family of two and three are: Family Size Federal Poverty Level “Break Out of Poverty” Wage Family of 2 $12,830 $6.17 minimum wage Family of 3 $16,090 $7.36

Benefits of Increasing the Minimum Wage: 1) Raising the minimum wage can increase the annual income of working families and aid families to get out of poverty. 2) Raising the minimum wage will create a “ripple effect” by benefiting those workers who earned more than the previous minimum wage but less than the new minimum wage. Employers will pay these workers a higher wage to keep compensation differences among workers. 3) Raising the minimum wage increases spending. With a higher minimum wage consumers would be more likely to spend more, which in turn puts money back into the economy.