Minimum Wage, Why and Why not it should be raised

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History of Minimum Wage

  • Federal Minimum wage started in 1938 at 25 cents an hour by the congress as part of the Fair Labor Standards Act (FLSA)
  • when the minimum wage began, estimates of what the minimum wage should have been were taken from the cost-of-living estimates given by the Bureau of Labor Statistics and also from considerations of the public hearing.
  • Other changes in the Minimum wage come from the ruling Political theory at the time.
  • In 1968 the minimum wage peaked at $9 and has had an overall downward trend since then. Currently, the min wage is $5.15.
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  • Since 1968, the trends of the minimum wage have tended to decrease and then increase but not quite to previous minimum wage level. This has happened because of political influence and the presidential policy at the time. The minimum wage was raised in 1997 under president Clinton who was a very liberal president and has not been raised in over nine years because we have a more conservative office under President Bush. Since the minimum wage was last raised the wage gap between the rich and the poor has greatly increased.
  • Many of the declines in the minimum wage have been substantial. The largest decline in minimum wage was 34% between 1978 and 1989—a decline of $2.74 per hour in 2006 dollars (or $5,700 a year for a full-time, year-round worker). Since 1938, the minimum wage has been raised 10 times and most increases have fallen in the 10-20% range. The current period is the second longest without a hike: the value of the minimum wage has dropped by 20% since the last increase in 1997.
  • Minimum wages relative to prices or purchasing power are very important. A minimum wage that does not buy as much as it used to lowers the value of work and essentially does even less for the minimum wage worker in that he cannot purchase as much as he used to.
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  • During the 50s and 60s the minimum wage varied between 44% and 56% of the average wage; now, it is only 31%. The gradual decrease and abrupt increases of the minimum wage affect workers financially.

Why We Should NOT Raise the Minimum Wage

  • Lately, there have been pushes from political figures at both the state and federal levels to increase the minimum wage to boost the economy and to decrease poverty. Unfortunately the effects of imposing a higher minimum wage may not necessarily be positive.
  • Statistics show that those getting the benefits from minimum wage hikes are not those who are living in low income families. In fact, most individuals living in poor families receive wage rates higher than $7 an hour and are actually living in poor families because they are not working full time, or because there are too many people in their family for their hourly rate to push them above the poverty level
    1. 15% of benefits from a hike in the minimum wage would go to families in poverty
    2. 60% would go to families receiving almost twice the poverty line
    3. the minimum wage increase is not positively affecting those in need
  • Research also shows that a wage increase would be causing non-high school graduates and teenagers to lose their jobs.
    1. A 10% increase in the minimum wage...
      • will cause up to four times more loss of employment for those workers without a high school degree than those who are more educated
      • is associated with a 0.9-1.1% decline in total retail employment (which is often where entry level and unskilled workers are employed) and a 2.7-4.3% decline in teenage retail employment
      • is also associated with a 0.8-1.2% decline in total employment in small businesses, and a 4.6-9% decline in teen employment for small businesses
  • Some predictions for the effects of raises in Missouri and Arizona
    1. Missouri
      • almost four fifths of the benefits of the raise in minimum wage would go to families above the poverty line, with 30% going to families with annual incomes over $60,000.
      • Labor costs would increase for employers approximately $44.4 million dollars a year
      • and there would be a projected 1552 employees losing their job
    2. Arizona
      • 70% of benefits would only reach those above the poverty line
      • approximated 29% job loss for high school drop outs
  • Furthermore, when faced with the inevitible increase in labor costs that will come with an increase in the minimum wage, employees have been known to cut low-skill level and entry level jobs and hire more skilled applicants. This increase in minimum wage will especially decrease employment opportunities for those at the entry level or who have little skill.
  • Some graphs in support of the data:
File:Effectoftradeunioninlabourmarket.png
  • In this graph, one commonly used to show the effect of the raise in minimum wage, the Wt (the wage at the new rate) would cause a decrease in labor demanded, causing an increase in unemployment (L2-L1). Although not shown on this graph, this raising of the minimum wage can cause inflation, as employers have to pay more, causing an increase in prices, and therefore making the new "higher" wage that is received in actuality not much higher at all.
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  • This graph is showing the unemployment rate and minimum wage relative to the average wake for workers who did not graduate. There is a strong association between the increase in the unemployment rate of these workers, and the raise in the minimum wage as a percent of the average wage.
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  • This graph, on the other hand, shows that this increase in minimum wage does not have a strong association with the unemployment rate of those workers with a college education
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  • This final graph shows the effects on teenagers versus adults. As shown, there is a much stronger rise in unemployment rates of teenagers than those of adults with the rise of the minimum wage
  • In conclusion, it seems the increase in minimum wage that is supposed to help with poverty problem may in fact be further creating problems, because it is not target efficient. Almost 77% of labor economists with the American Economics Association believe that a raise in minimum wage would have a negative effect on employment. If we are losing these entry level and low-skilled workers, they will not have the chance to become more skilledd workers through experience for the future.
  • "Proponents of the minimum wage hikes contend that the attendant job loss is minimal and worth it, but they’re ignoring the fact that it is almost exclusively low-skilled adults who lose their job. Minimum wage hikes end up hurting the very people they are intended to help by jeopardizing the jobs of those most in need of assistance" -Mike Flynn, Director of Liglastive Affairs at the Employment Policies Institute

Why We Should Raise the Minimum Wage

  • Studies show that the minimum wage will not cause mass firing
    1. The most recent research on the economic impact of raising the minimum wage has revealed that only positive effects will occur and there will be minimal job loss. David Card of Princeton University published a study which illustrated the results of raising the minimum wage. His study researched states with large amounts of low income workers that raised the minimum wage. The results: insignificant job loss and much happier better paid workers.
      • “Even the research that suggests a negative labor market effect shows only a minimal impact that is more than offset by the higher wage levels. The states that actually have adopted higher-than-federal minimum wages have seen low-wage workers’ incomes rise with no negative side-effects.”
      • “ Over 650 economists, including five Nobel Prize winners and six past presidents of the American Economics Association, recently signed a statement stating that federal and state minimum wage increases “can significantly improve the lives of low-income workers and their families, without the adverse effects that critics have claimed” (EPI 2006).
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  • Reasons why we need an increase in the minimum wage
    1. The living wage according to Carl Feuhr is $9.09; currently $3.94 higher than the minimum wage of $5.15 an hour. $5.15 an hour means approximately $10,712 dollars a year assuming that workers are given a 40 hour work week and work 52 weeks a year. This amount is still 35.5% below the 2006 poverty line of about f $15,735 for a family of three. This salary falls far short of an adequate amount of money to sustain a working-class family. More to be considered is the fact that 46% of all families with affected workers rely completely on those workers earnings, therefore, the minimum wage being so low is a severe a problem.
      • This minimum wage is so terribly low that people are not only unable to buy any luxuries with this sort of income; they are unable to buy even the simplest necessities.
      • The minimum wage is supposed to be a living wage, however, it has lost so much value over the years due to inflation that families who are reliant on the minimum wage as their sole source of income are unable to afford health care, food, rent, and transportation.
      • This country should not force working people to rely on the government for subsidies and yet many minimum wage families must do so. Nevertheless, any subsidies that a family may need and qualify for such as food stamps, health care, and child care must be provided by the federal government and therefore, raised through taxes that are coming out of the pockets of the public.
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  • Employer manipulation of the system
    1. Many employers do not even allow their employees to work full time. They do this because businesses are not required to provide benefits for their part-time workers. So not only are these employers getting paid the bear minimum, far below the poverty line, they also do not have access to health care and if one thing were to go wrong, their child gets sick gets sick or a relative gets hurt, families are forced into huge amounts of debt.
  • Facts about income in the United States
    1. The real median household income was $43,318 in 2003; close to $33,000 more than what a minimum wage worker makes.
    2. The inflation-adjusted value of the minimum wage is 30% lower in 2006 than it was in 1979.
    3. The minimum wage is 31% of the average hourly wage of American workers.
    4. The nation’s official poverty rate is rising. In 2002 it was 12.1 percent and by 2003 it had already increased to 12.5%.
    5. The number of people without health care coverage has risen too, from 15.2 percent in 2002 to 15.6 percent in 2003.
  • The government has not increased the minimum wage in almost nine years, this is the second-longest amount of time since the minimum wage was enacted in 1938. And inflation has clearly occurred:
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  • A proposal for raising the minimum wage
    1. If the minimum wage were raised to simply 7.25
      • 14.9 million workers would receive a raise and in other terms;
      • 7.3 million children would see their parents salaries rise
  • In sum, a minimum wage increase of just $2.10 by 2008 would do a great deal for the working-class (those who work in service sector jobs and receive the minimum wage). Although the living wage is up to $9.00 and in some areas more, increasing the minimum wage must be done is small increments in order to prevent inflation

Particular State that HAS NOT Raised the Minimum Wage

Currently, 25 states have a minimum wage equal to the federal minimum wage of $5.15/hour, 18 states have a minimum wage over the federal wage, six states have no minimum wage, and one state has a minimum wage that is less than the federal wage.
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Texas

Up until September of 2001, the minimum wage in Texas was $3.35/hour. Established on September 1, 2001, the Texas Minimum Wage Act adopted the federal minimum wage of $5.15/hour. Now this does not prohibit employees from bargaining collectively with their employees to hopefully gain a higher wage. It is though outlawed for any city within the state of Texas, to raise the minimum wage higher than the federal minimum wage.

There are many facts and figures that seem to show why the minimum wage should be increased.

  • Texas ranks 1st in the United States with more than 900,000 workers - 10% of the workforce - that would be affected by a minimum wage increase to $7/hour. Florida is 2nd with 430,000 workers.
  • Texas has 3rd highest percentage of workers earnig at or below the minimum wage.
  • 235,000 hourly workers in Texas are earning at or below $5.15/hour.
  • 28.6% of jobs pay below the poverty line.
  • Texas' minimum wage workforce accounts for 7.2% of the national minimum wage population.
  • Someone working full time on the minimum wage and supporting just him or herself would only earn a pre-tax income of $10,712/year.
  • Purchasing power of the minimum wage is plummeting.

The suggested raise for the Texas Minimum Wage is to at least $6.15/hour. A one dollar increase.

As of right now, only Democratic representatvies have stepped up and filed a bill to raise the state minimum wage, but in the Republican dominated Texas legislature, it is unlikely that the bill will get anywhere. They are scared that an increase will result in widespread layoffs of low-income workers, bring on a rash of small-business failures, and fan a sharp rise in inflation.

Brian Ellis, a McDonald's franchise owner of 23 restaurants in Southwest Texas has several reasons of his own why he feels that an increase in the minimun wage would have a negative effect.

Ellis feels that if he has to increase wages, it will ultimately reach the consumers anyways. To counteract the more money he has to pay his employees, he will raise prices up, and therefore people will have to pay more for food. He is quoted as saying, "I always look at it this way - you could make the minimum wage $10 an hour, but what's the business world going to do? They're going to raise their prices to accomodate it." He also faces an issue which he calls the "Compression Effect". If the minimum wage is increased, he will be put in a jam. He will have to figure out what to do for employees that have worked for him for several years that could all of a sudden be earning as much as a 16 year old getting his or her first job.

Particular State that HAS raised the Minimum Wage

New Jersey

  • New Jersey’s minimum wage has exceeded the federal wage since 1992, when the state raised its minimum wage to $5.05 an hour.
  • New Jersey now joins 17 other states and Washington DC that have the state minimum wage exceeding the federal minimum wage.
  • In 2005 The purchasing power of minimum wage was at an historic low. Coupled with the relatively high cost of living in New Jersey, the state's lower income workers were being pushed to the brink

The Codey Proposal

  • Acting Governor Richard Codey believed that all New Jerseyans deserved the fair proposition that an honest day's work should garner a living wage.
  • In April 2005 Codey signed a bill into a law that would increase the state minimum wage and establish a Minimum Wage Advisory Commission.
  • He planned for New Jersey’s hourly wage to increase from $5.15 to $7.15 in two phases. It would first rise from $5.15 to $6.15 on October 1, 2005, and then again from $6.15 to $7.15 on October 1, 2006.

Reasons for an Increase

  • Inflation and the state's high cost of living make this wage increase a necessity.
  • New Jersey's cost of living is estimated nearly one-third higher than the national average.
  • Also, Inflation has eroded the value of today's $5.15 to be worth only $4.48 in 1999 dollars.
  • In addition, raising the minimum wage in NJ would put the state in line with its region. The majority of Northeastern states have set their minimum above the federal level as well. This includes CT ($7.10), VT ($7.00), Massachusetts ($6.75) and Delaware ($6.15). These neighboring states would put New Jersey in a very competitive environment if they did not chose to raise their wage as well.
  • It is clear that after looking at all of the contributing factors that NJ should raise the minimum wage.

So, What's The Solution?

  • Our research shows that even raising the minimum wage $2 could affect the economy negatively. Although there really is no right answer, we suggest two possibilities:
  1. Raising the minimum wage a few cents at a time may slowly offset the decline in minimum wage since the 70's, without creating an inflation.
  2. Resorting to other policies, such as the Earned Income Tax Credit
    • A policy that gives can effectively target benefits to families in need without necessarily jeopardizing jobs by giving a 40% return on every dollar made up to a certain income level. This hopes to give the families in poverty more income, without raising the minimum wage, without the negative effects of the minimum wage, and hopefully the tax money spent on EITC will be slightly offset by the boost in the economy (i.e. more workers in the job force)

Works Used

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