Obama is calling on congress to increase the federal minimum wage by 40%, from $7.25/hr. to $10.10/hr. While this sounds nice, this would also reduce job opportunities (up to 500,000 jobs) for those who need them most. This WSJ article uses a restaurant as an example to prove how this massive increase is not a good idea, stating that while the feds can mandate a higher wage, some jobs just don't produce enough economic value to bear the increase. Thus, the article suggests that a better option may be to encourage the private-sector to create more middle-income jobs. The article also use geography as an argument, stating that states and cities should be able to adjust the minimum wage based on regional economic conditions or local needs. Do you agree with this article or do you think Obama's plan has greater intentions?
http://online.wsj.com/articles/andy-puzder-minimum-wage-maximum-politics-1412543682?mod=trending_now_5
I agree with the article that there will likely be many negative effects from such a large increase. The 40% increase does not give business time to adapt their policies. They are suddenly faced with a huge increase in the cost of wages and in order to bring this down must cut wages. The article also makes the point that the wage increase will not necessarily benefit heads of family. It states that only around 15% of minimum wage earners are heads of families. A larger percentage are teenagers. In this case it would be better to have a lower wage that could provide more jobs and experience to teenagers that need it, instead of risking job loss to help a smaller percentage whom are struggling to provide for their families.
ReplyDeleteScott you make a good point about how difficult a sudden, non-incremental 40% increase in the minimum wage could be for some people and smaller businesses. However, I still think that it is important to raise the minimum wage.
ReplyDeleteThe article’s breakdown of who earns minimum wage underemphasized how important a raise in the minimum wage would be for a lot of people. Yes 24% are teenagers, but this does not necessarily mean that they do not need to support themselves, and possibly also a child, on their own. The fourth of minimum wage workers that are between 20 and 24 are likely in one of two groups. The first group being made of people who are not in school (perhaps because their parents couldn’t afford tuition payments because of their low-paying jobs), and therefore need to make enough to support themselves. The second group being students who need higher hourly salaries so that they can afford to devote more time to studying in order to do well in school, and thus be more beneficial to economic output in the future. The 15% who are “breadwinners” obviously need more than $290 ($7.25 x 40 hours) a week to support their family. And the remaining 35% of households the article does not discuss are likely those with two earners, who could certainly use more than $590 ($7.25 x 40 hours x 2 earners) a week to support their family.
Clearly, these people need jobs that pay a living wage, and $7.25 per hour is certainly not that. So then the main concern is that we need to figure out a way to raise the minimum wage without pushing the under 24 category out of the labor market. Another potential solution that I find interesting is a maximum wage. The article below outlines some potential benefits. And even if not a legally enforced maximum wage, maybe increasing the minimum wage is more plausible for the overall economy if it is partially funded through a decrease in management’s wages, instead of strictly price increases.
http://www.vox.com/2014/8/6/5964369/maximum-wage
Some of the most recent and robust research has been reaching some surprising conclusions on the minimum wage, indicating that there is little to no employment loss from raising the minimum wage. So, it's no longer quite so crazy to think that the minimum wage could be a good poverty fighting tool.
ReplyDeleteNonetheless, I still have my reservations. Even the best empirical studies have a lot of uncertainty. Another wave of new techniques and data could change the consensus within a decade. Also, we're still very unsure of the long term impact and issues like capital substitution for labor. Therefore, I would prefer increasing the Earned Income Tax Credit, which would be a fairer way to help more families than just those who would be impacted by the minimum wage, without the potential effect on employment.
Economist Charles Brown wrote an academic journal entitled, "Minimum Wage Laws: Are They Overrated?". He discovered that on average a 10 percent increase in minimum resulted in a 1 to 2 percent decrease in employment. He also notes that there is almost no benefit on income distribution when minimum wage is increased even under the economic assumption that no employment is lost.
ReplyDeleteThis has not prevented companies such as Ikea from raising the average minimum wage for all stores to $10.59. This benefits roughly 50% of their American employees. This does not help individuals that cannot find or keep jobs.
I am trying to give an unbiased approach to this topic even though it is the core concept of my SIP. Every state, county and city will experience different effects from an increased minimum wage. Economics has not been able to predict outcomes; it appears to be a more trial and error situation than anything else at this point. It is a cheaper alternative than other proposed solutions.
Bouie, Jamelle. "The Ikea Illusion." Slate, June 26, 2014. Accessed September 28, 2014. http://www.slate.com/articles/news_and_politics/politics/2014/06/ikea_raising_wages_why_pay_hikes_aren_t_enough_to_solve_income_inequality.html.
Brown, Charles. "Minimum Wage Laws: Are They Overrated?" Journal of Economic Perspectives 2, no. 3 (1988): 133-45.
I personally don't think that the minimum wage should be increased. These jobs are minimum wage because they require little to no education to work them. I don't see the value of paying someone who works in a minimum wage job that high of a salary. They should not be given a high salary simply because they need it. Minimum wage jobs are not intended for the breadwinners of families. People should have a drive to get more education and a better job if their current job does not provide them enough money.
ReplyDeleteMinimum wage work may not require a high level of education to do, but that does not mean that those jobs are unimportant or require no skills. It also certainly does not mean that minimum wage workers’ hard work is any less deserving of a salary that can support them and/or their families.
ReplyDeleteI am sure that many people who have minimum wage jobs would prefer less labor intensive, higher paying jobs. However, many people do not have equal opportunity to attain higher education that makes them more competitive for higher paying jobs. It may be that even with government support they cannot afford rising college tuition, or it could be they did not receive the support needed at home to do well in primary school, meaning that they are not prepared for secondary education.