Minimum Wage

Raising the federal minimum wage will benefit many Americans, but will it have unintended consequences?By Published On:
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Introduction

The federal minimum wage, which was established in 1938, is the lowest wage that a business can lawfully pay its employees. In recent years, many prominent political figures have spoken about the need to raise the federal minimum wage, which currently sits at $7.25, to $15 dollars or an appropriate amount based on the living expenses of the area. Many consider this issue to be vital to the tens of millions of Americans who earn less than $15 an hour, but some believe the push for raising the minimum wage will only result in dire economic consequences like joblessness and the closure of many businesses.

Republican

Republicans generally believe that raising the minimum wage is nothing more than a foolish proposition that will only inspire an economic downturn. They hold that the wage someone receives should only be based on what people will pay for a product and the existing labor market. For example, if you are selling a product for five dollars, but it costs 15 dollars to produce it, you are operating at a deficit and have no reason to continue selling that product. Equally unrealistic is to expect a company to pay above the market price for labor; if millions of people can perform a task, they will not be paid as if only thousands or hundreds could do that same task. For example, football players are paid tremendous sums of money since there is great demand for great football players, and there is a minimal supply. By contrast, low-paying jobs have a medium demand but a very high supply; hence, wages are low.

Minimum wage jobs are also very often the first jobs that people hold; according to the bureau of labor statistics, about a quarter of the people earning minimum wage are below the age of 25, and 8% of all teenagers also hold minimum wage jobs. It is also true that there are relatively very few people who are earning minimum wage, around 540 thousand. Additionally, most people earning minimum wage are also likely to move up the earnings ladder, and two-thirds of people in minimum wage jobs earn higher than minimum wage within a year of their employment.

This is all to say, that artificially raising the minimum wage will only serve to price people out of the labor market and make it much more difficult for them to get the job they need. This is evidenced by the Congressional Budget Office's recent evaluation of Joe Biden's plan to raise the minimum wage to $15 an hour, given that they found that although it would improve the salaries of 900 thousand Americans, it would put an additional 1.4 million out of a job.

Democrat

Democrats hold that a rise in the federal minimum wage is long overdue, especially when considering inflation and the increased cost of living. Many Democrats point out a statistic from the Center for Economic and Policy Research, which estimates that the current minimum wage should be $21.62 if accurately adjusted for inflation. They say that an inflation-adjusted minimum wage would not only yield more affordable housing but other benefits such as an increased level of productivity, reduced income inequality, and overall economic growth. In states like California, where housing is priced notoriously high, Democrats highlight the unrealistic labor expectations of minimum wage workers, estimated at 92 hours a week at $9 an hour. Even in reasonably-priced housing states, the minimum wage isn't enough to support a realistic standard of living, and at the current level, leaves many Americans living miserable lives.

Additionally, Democrats claim that raising the minimum wage would not only benefit millions of workers but would also contribute to job growth; the EPI stated that raising the minimum wage to $10.10 would add a net total of 22.1 billion dollars into the economy and create around 85,000 new jobs over three years. This increased capital that people would have due to the wage increase would mean that more people could spend money on goods and services, leading to an overall boost to the economy. Another reason Democrats support raising the minimum wage is the estimated 800 thousand people who would be lifted above the poverty line within six years of adopting the wage increase.

Perhaps more important than the increased economic activity is the importance of the individual Americans behind each paycheck; Democrats believe that raising the minimum wage would alleviate many of the personal problems these Americans face and allow them new freedom to explore educational and professional opportunities.

Discussion Questions

  • Should the government intervene when it comes to dictating the wages businesses have to give?
  • If they should, what should the minimum wage be set at? Higher than the current level of $7.25/hour?
  • What should the number be based on?
    • How comfortable should the life of a minimum wage earner be?
    • If we raise the minimum wage, should it happen only once, or should it be re-adjusted every couple of years?

Sources

Bureau of Labor Statistics. “Characteristics of Minimum Wage Workers, 2017 : BLS Reports: U.S. Bureau of Labor Statistics.” Bls.gov, March 22, 2018. https://www.bls.gov/opub/reports/minimum-wage/2017/home.htm.

Congressional Budget Office. “The Budgetary Effects of the Raise the Wage Act of 2021.” Congressional Budget Office, February 2021. https://www.cbo.gov/system/files/2021-02/56975-Minimum-Wage.pdf.

“Pros & Cons - ProCon.org.” Minimum Wage, June 22, 2020. https://minimum-wage.procon.org/.

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