Minimum Wage: Why Minimum Wage Should not be Increased
INTRODUCTION
The subject of minimum wages and their effect on unemployment levels is a controversial issue. A study that raised many questions for economist on weather increasing the minimum actually help the poor, which was the whole point in raining the minimum wage, was the study done in 1992 by David Card and Alan B.Kruege. The majority of Americans, however, favor increases in the minimum wage. They look at these increases as a way to help the poor, and see it as a beneficial thing to do. Politicians exploit these feelings by raising the minimum wage to gain popularity. However, these raises in the minimum wage often hurt the very people that need the help. With this in mind, we are going to explain the effects of raising the minimum wage and considers alternatives.
DEFINITIONS
Unemployed - a person is considered unemployed if he/she is above the age of 16, does not hold a job and has actively looked for employment in the last 4 weeks. If a person does not have a job and is not looking, he/she is not considered unemployed. Therefore, if a person needs a job, but has stopped looking because they are discouraged by the job market, they are not considered unemployed. Long Term Unemployment - unemployed for more than 26 consecutive weeks.
Employed - a person who holds any job, full or part time is considered employed. Labor force - the sum of all employed and unemployed individuals.
Unemployment rate - number of people unemployed divided by the labor force. Past U.S. unemployment rates have typically been averaging in the 6 to 7% range. See Appendix A for a table of the unemployment rate over the last 30 years in the U.S. Any dynamic labor market will experience some unemployment, so a zero rate of unemployment is never achievable. It is important to note that there are different duration�s of unemployment. In the U.S., 50% of unemployment is very short term, lasting for less than 5 weeks. 35% is medium term, lasting up to 6 months, and 15% is long term, lasting over 6 months. It is also very important to note that rates of unemployment can vary significantly across race, gender, and ethnic groups. Policies therefore, that may seem like a good idea, can often have a disparate impact on certain groups within the population. One group often hurt the most by minimum wage increases is African-American teenagers, whose unemployment rate still tops 30%8. Natural rate of unemployment - the average rate of unemployment that is sustainable. It has been around 5.5% in the recent past (see Appendix A). Recent data suggest it may be moving closer to 4%.
Employment to population ratio - the number of workers relative to the entire population. The Bureau of Labor Statistics breaks this ratio down into groups of like individuals (ex., teenagers), so employment levels among various groups can be observed.
