Debates over raising the minimum wage are considered one of the most contentious subjects of discussion for any nation. Proponents of the notion claim that a raise would significantly benefit a nation’s economy, while its critics claim that raising the minimum wage would be disadvantageous to minimum wage employees, as it would lead to decrease of jobs offers. Although numerous state-specific studies have been conducted to determine the impact of an increase in minimum wage, there has not been much evidence to distinguish the positive impact of an increase of the minimum wage.
Raising the minimum wage would improve living standards in America since a pay rise would be a much-needed step to meeting employees’ basic needs and improving their lifestyles. An increase in pay would also improve employee morale, which could ultimately boost productivity and decrease turnovers. Consumer spending would also go up, which could trickle down to merchants and boost the economy. On the contrary, a raise in the minimum wage could have businesses raising their price of goods and services as a way of dealing with employee pay rise. Alternatively, businesses could reduce the number of employees or slash their working hours, as well as reduce worker benefits. The efforts to maintain profits could lead to unemployment. Unemployment would push the affected individuals onto black markets. In addition, an increase would encourage employee complacency and reduce the desire for career advancement. The poorest in society will not benefit from the increase since they rely on benefits rather than the minimum wage.
The current minimum wage in the USA is $7.25 per hour with many public figures, including President Barrack Obama, suggesting an increase to $10.10 an hour. Proponents argue, “It would lift wages for over 28 million Americans, give customers more spending money, and develop the economy for everyone” (“Raise The Wage”). On the other hand, the critics suggest that such beliefs should not endure from an economic point of view. After all, legislators cannot reverse the laws of demand as they state that a rise in the price of labor would result in a drop in quantity demanded (Dorn). Jobs would decrease for the low-skilled workers with time, as employers would go for laborsaving methods of production. Additionally, increasing the minimum wage would not be socially beneficial for the nation. As Dorn states, “The workers who maintain their jobs would enjoy the benefits, but at the expense of the unskilled workers who would either be laid off or fail to find one at the legal minimum.”
One of the most commonly used approaches to determining the impact of minimum wages on employment is the study the specific sectors of the country’s economy that are likely to pay workers the minimum wage. Fast food restaurants are considered among the low-wage sector in America’s economy. The findings from the studies conducted, however, have presented little support for the theory that higher minimum wages would lead to lower employment rates (Addison, Blackburn, and Cotti 1). The general retail sector also falls under low-wage sectors in the country and studies reveal that an increase in the minimum wage could fairly increase employment rates in the sector. Addison and colleagues argue that the findings from the conducted research “provide inadequate support for the existence of disemployment effects in all retail trade sectors studied” (3).
Conversely, a recent study was conducted by Jonathan Meer and Jeremy West who used various empirical approaches to determine the exact effects of the minimum wage on employment. The study shows that previous traditional approaches used to study the effects of the minimum wage using state-specific time trends are indeed inaccurate. The researchers’ approach reveals that the current minimum wage decreases job growth with time “through various changes in growth rather than an immediate drop in the employment levels” (Meer and West 1).
Increasing the minimum wage would cause an immediate increase in employment rates, but it will not assure the availability of jobs. In any economy, when the minimum wage goes above the predominant market wage, which is determined by demand and supply, a significant amount of low-skilled workers would be at risk of unemployment or have their hours reduced. In fact, the existing evidence suggests that increasing the minimum wage by 10% would result in an average of 2% drop in the employment rates of low-skilled workers (Dorn).
The innovative capacities of employers would enable them to find ways to curb high-priced labor through an intense consumption of new technologies and laborsaving investments. Skilled workers will replace the unskilled workers, and unemployment rates among the unskilled will increase, which will cause a mass exit from the formal labor market. Most unskilled workers in the United States are minorities and their mass exit from the labor market would have a ripple effect on the country in almost every perspective.
A recent proposal to raise the minimum wage to $15 by venture capitalist Nick Hanauer was riddled with questions regarding its long-term effects on employment. After studying compelling arguments made by economists Alan Krueger and David Card, Hanauer maintains that “contrary to traditional economic beliefs, increases in the minimum wage would raise employment” (Matthews). From the compiled research, a modest rise in the federal minimum wage saw a hike in employment in the fast food industry. Moreover, Hanauer cited the analysis performed by William Lester, Nick Bunker, and David Madland where they had studied 35 states that took the initiative to raise their minimum wage. From the analysis, 60% of the observed states realized higher employment growth than the average national employment rate.
Critics, however, claim that Hanauer’s entire argument is based on mischaracterized evidence, so they brand it inaccurate. Card and Krueger refined their research in their 1995 book, Myth and Measurement. The authors wrote, “On average, our findings shows that either employment remains unchanged or rises slightly due to raises in the minimum wage” (Matthews). In addition, the analysis conducted by Lester et al. was concluded by uncertainties in the relationship between minimum wage and employment rate. Lester et al. concluded by saying the analysis did not have the meticulous controls needed for a full-blown academic research” (Matthews).
Recent findings by economists Meer and West propose, “The most noticeable employment effect of minimum wage regulations is the acute decline in hiring of new employees”. The decline would take place during the shift by employers to alternative laborsaving production methods. Additionally, the overall earnings of the unskilled workers will be affected negatively due to the delayed access to job opportunities. To support Meer and West’s general opinions, Sabia, Hansen, and Burkhauser held a case study on New York State’s strategy to increase the minimum wage. The state raised the minimum wage from 5.15 dollars per hour to 6.75 dollars per hour in 2004 to 2006. From the case study, there was “a 20.2 to 21.8 % drop in employment rates of younger individuals” (Sabia, Burkhauser, and Hansen 1). The case study, therefore, makes it difficult to dismiss the negative impact an increase in the minimum wage would have on low-skilled workers. The greatest impact of the New York case study was on the individuals from 16 to 24 years of age.
In conclusion, while a minimum wage could have an individual positive impact on the low wage earners, it could also have damaging effects on businesses. With the country’s looming security concerns and global issues, there is no room for making tentative decisions. At present, the minimum wage should not be increased, but there is the need for deeper research regarding the issue to determine the precise impact of increasing the minimum wage in the United States.
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