Minimum Wage in the United States Essay Example for Free

Minimum Wage in the United States Essay A minimum wage is the lowest hourly, daily, or monthly wage that employers may legally pay to employees or workers. The debate over minimum wage in the United States has been ongoing for over 100 years. It is a hot topic in labor, human interest, and especially in economics. Is the minimum wage too low? Is it too high? Should we have one at all? Does having a minimum legal wage help those who it is intended to help, or does it actually make them worse off? Theses questions are asked on a daily basis by interested parties. While there may not be one definitive correct answer, there are compelling arguments on both sides of the issue, and those who represent their â€Å"side† are passionate about their opinions. This is one of a few social topics about which people are generally not indifferent. Much of the adult workforce in the United States has worked a minimum wage job at some point in their career, so we can easily relate to the challenges that face today’s minimum wage workers. This paper is not intended to solve the debate over minimum wage, nor will it attempt to persuade the reader in one direction or the other regarding what should be done concerning minimum wage. The pages that follow will present a brief history of the minimum wage debate in the United States, and then present some of the arguments offered by both sides of the debate. A Brief History of Minimum Wage Although New Zealand was the first country to formally enact minimum wage legislation in 1896,[i] the United States was one of the first major industrialized nations to set a national wage floor for their workers. For decades during the industrial revolution, workers in the United States endured work environments that consisted of long hours, dangerous working conditions, and low wages. Small movements to develop a national minimum wage by labor unions and activist groups were met with predictable resistance from business people, and ultimately struck down by the U. S. Supreme Court. [ii] Finally, in 1938 President Roosevelt and Congress passed the Fair Labor Standards Act. This act was intended to alleviate some of the poor working conditions that mostly women and young children were subject to. Additionally, this act imposed a federally mandated minimum wage of $0. 25 per hour, with some exceptions. [iii] There have been subsequent pieces of legislation that continue to address and improve workers’ rights since that time, focusing more on quality of life issues rather than eliminating abuses by employers. Additionally, individual states now have the right to enact their own minimum wage, so long as it is no lower than the federally mandated minimum wage. Since 1938, the national minimum wage has been raised 21 times, most recently in 2009, and is currently $7. 25 per hour. Today, more than 90% of countries in the world have some sort of wage floor for their work force. [iv] The Case for Minimum Wage Those in favor of a minimum wage argue that it increases the standard of living of workers and reduces poverty. [v] Those workers that are paid minimum wage are unskilled laborers, perhaps first entering the job market. Without any marketable skills, the worker needs some protection that they will be paid a fair rate that will enable them to be self-sufficient until such time that they have learned a skill or trade that will allow them to work their way up from the low wage jobs. Without a minimum wage, employers would have significantly more market power than the workers – a monopsony – and that could result in the intentional collusion between employers regarding the wage they will offer. [vi] Absent this protection, workers would be forced to accept the artificially low wages, resulting in a very low quality of life. Additionally, the argument can be made that paying a â€Å"livable† minimum wage incentivizes workers to not only get a job, but to work hard to keep that job. When minimum wages are significantly greater than payments received through a social welfare system, people are rewarded for their hard work. If a person could receive an amount close to what they would earn at minimum wage through the welfare system, what motivation would they have to work the minimum wage job? In contrast, if workers are paid an amount that is considerably more, they will find and keep work. This serves another purpose, to decrease the cost of government administered social welfare programs by getting people off of welfare and onto payrolls. Another common argument made by those in favor of the minimum wage is that it actually helps to stimulate spending, improving overall economic conditions. [vii] The theory behind this argument is that low wage earners typically spend everything they make. Whether on necessities or luxury items, minimum wage earners are likely to spend their entire paycheck. If there were an increase in the minimum wage, the people who would receive the pay increase would turn around and spend their new money. This would help to cover the costs of the increased wages as many businesses would see an almost immediate return through increased sales. While this argument seems to make sense, it must be clarified that no empirical evidence to support this claim could be found. Another argument made is that an increase in minimum wage helps to improve the work ethic of those who receive the increase. The implication is that if their employer is forced to give them a raise, they will be compelled to work harder to improve their efficiency and increase their productivity in return. Again, there is no evidence to either support or refute this claim, and opinions run strong regarding this argument. Perhaps the most basic and most often made argument in support of a national minimum wage law is that it is simply the correct thing to do, morally speaking. The idea that we should want to take care of each other and make sure that everyone made a comfortable wage is one of the most basic tenets of the philosophy of those who support it. Arguments against Minimum Wage Laws: On the other side of the argument are those who are opposed to increasing the minimum wage, as well as some who think it should be abolished altogether. Many businesspeople and economists are on this side of the debate, and they present some pretty compelling arguments. They argue that imposing an increase on the federally mandated minimum wage actually will do more economic harm than good. [viii] The main argument deals with the elasticity of demand regarding employment. A minimum wage increase actually reduces the quantity demanded of workers, either through a reduction in the number of hours worked by individuals, or through a reduction in the number of jobs. ix] Simply put, employers are likely not going to increase their salary budget, so if the hourly wages increase, then they must reduce the number of hours of work that they are paying for. This could result in the exact opposite impact of that which is intended. Those earning the minimum wage and are facing reduced hours or even being let go will find themselves much worse off as a result of an increase than leaving it at its current rate. Additionally, often the way out of e arning minimum wage is through skills learned through those minimum wage jobs. If there are fewer of these jobs as a result of the wage being higher, fewer people will be able to learn the skills needed to move up on a career path and break the cycle of poverty. Secondly, if employers are unwilling or unable to reduce the number of hours they pay their employees, they will simply attempt to make up the increased salary expense through increased prices. On a small scale, this may not have a large impact on the overall economy. When this is done on a large scale because many employers need to cover their increased costs, this is likely to lead to inflation. x] Higher salaries necessitate higher prices which will erode most if not all of the benefits of the increase in pay. The minimum wage workers will have the same buying power as before, but because of unnecessary inflation, the lower middle class will actually face the biggest impact because their wages will not have increased but their purchasing power will also have eroded. Another area that may be impacted by a mandated wage increase is training. As most workers who earn the minimum wage typically have little education and training, their biggest chance to work their way into a higher paying job is through on the job training. One part of an employer’s budget that could face cuts would be for providing training to employees. Often employers provide training to their employees that would help them advance in their career, but may not be completely necessary in their current position. Unnecessary expenses such as this will most likely be trimmed, resulting in fewer opportunities for the working poor. [xi] Perhaps the simplest argument is if a minimum wage worker is producing $4. 00 per hour worth of product, and then the federal minimum wage is raised to $5. 0, the employer must find a way to increase the workers marginal productivity or face operating loses due to underproductive employees. One final thought from opponents is that once all of the aforementioned arguments are considered, there are more effective ways of helping address the issue of poverty. The Earned Income Tax Credit is pointed to as a strong example of one of the more effective ideas, rather than putting the burden of poverty on em ployers, it is shifted to the government. [xii] Empirical Data: When considering both sides of this debate, it is important to realize who are the workers earning minimum wage, and what role they have in providing for their families. Of the 1. 9 million workers in the United States who were paid the minimum wage in 2005 (most recent information available), more than one half (53%) are between the ages of 16-24. These workers are most likely high school and college students, and most of them do not work a full time schedule. Two thirds are members of families who have a combined income of at least 2 or more times the official poverty level based on their family size. Less than 17 percent are the only wage earners in their families, and less than 6 percent are poor single mothers. [xiii] What does this information tell us? The most important thing is that an increase in the minimum wage would target a majority of people who may not be living in poverty and are otherwise not in need of direct assistance. The far-reaching effects of raising minimum wages across the board in order to get help to the approximately 22 percent of earners who are truly living in poverty seems to be at the least ineffective, and at worst it could epresent a terrible misstep in economic policy. It is difficult if not impossible to identify the jobs lost because of minimum wage, but it is very easy to identify the additional income for a minimum wage worker. This is often the first retort from minimum wage advocates in response to arguments made by the other side. Alison Wellington’s research found that a 10% increase in the minimum wage resulted in a 0. 6% decrease in teenage employment, with no effect on unemployment rates. [xiv] A study along the same lines by David Neumark and William Washer in 2008 found contrasting results. They concluded that minimum wage resulted in a reduction in employment opportunities for low skilled workers, it was most harmful to poverty-stricken families, and that it lowers the adult wages of young workers by reducing their ultimate level of education. [xv] There are countless studies on both sides of the issue, and each one only solidifies each side in their existing opinion. No matter what position one takes regarding the minimum wage debate, there are a multitude of studies available to support it. The seemingly obvious fact is that these small increases that are enacted every few years are never enough to truly make a difference in bringing a person or a family out of poverty. A fifty cent increase in the minimum wage results in about $20 more per week for a full time worker. In my estimation, it is quite unlikely that small amount is making the difference in a person or a family living in poverty and living comfortably. A study of PhD members of the American Economic Association found that 46. % of respondents wanted minimum wage completely eliminated while 37. 7% want the minimum wage increased. [xvi] Such division among even the most expert economists shows exactly how contentious this issue is, and that there is no black and white, right or wrong answer to solve the debate. Perhaps as time goes on and there is more historical data to review, there may be a more definitive answer regarding this debate. Until such time, both sides will most likely remain entrenched in their current position.