Before proceeding, please write down 3 effects you believe minimum wage laws have on individuals, businesses, and governments. (do not just think, but make yourself commit by writing)
After reviewing 26 articles, I was unable to find high quality research of what effects individuals believe minimum wage legislation will produce. Rather than reliable poll data of large populations, my findings reflect a number of individual authors with a high degree of bias.
Article List
Tldr (too long didn't read)
Effect: Reduces number of citizens living in poverty
- Logic concludes by raising wages, citizens will experience greater income levels leading to less poverty and higher standards of living.
- Bryce Covert at ThinkProgress cites a Restaurant Opportunities United study concluding a minimum wage increase to $10.10 an hour would lift nearly 6 million people out of poverty.
- Mike Konczal at the Boston Review cites two figures. The first a Congressional Budget Office study which found increasing the minimum wage to $10.10 an hour would raise 900,000 people out of poverty. Mike then goes on to state an estimated 4.6 million people would be lifted out of poverty. (likely referencing University of Massachusetts-Amherst economist Arindrajit Dube)
Effect: Increases unemployment
- Textbook economic theory observes as production costs go up (labor in the case of minimum wage), the price of goods and services also go up. As prices increase, demand decreases. As demand decreases, less of the product is needed. Less production means less workers producing the good or service resulting in unemployment.
- A February 2014 Congressional Budget Office study estimates 500,000 jobs would be lost by 2016 with a minimum wage increase to $10.10 an hour.
- James Sherk from The Heritage Foundation cites each 10% rise in minimum wage increases unemployment of affected workers by 2 percent.
- Another article by James Sherk summarizes a case study of American Samoa's minimum wage increases.
- Please read Sherk’s article for details, however a synopsis from American Samoa’s Governor Tulafona: Gov. Tulafona pointed out that American Samoa’s unemployment rate jumped from 5 percent before the last minimum wage hike to over 35 percent in 2009. He begged Congress to stop increasing the islands’ minimum wage:
- “We are watching our economy burn down. We know what to do to stop it. We need to bring the aggressive wage costs decreed by the Federal Government under control. But we are ordered not to interfere …Our job market is being torched. Our businesses are being depressed. Our hope for growth has been driven away…Our question is this: How much does our government expect us to suffer, until we have to stand up for our survival?”
- Other American Samoa Resources
- Murray Rothbard at Ludwig von Mises Institute: “This [minimum wage legislation] means, plainly and simply, that a large number of free and voluntary wage contracts are now outlawed and hence that there will be a large amount of unemployment. Remember that the minimum wage law provides no jobs; it only outlaws them; and outlawed jobs are the inevitable result.”
- Peter Roth at USNews: “Unskilled workers get laid off, replaced by machines and higher-skill workers who are more valuable. Self-checkout lines appear in grocery stores. Credit card machines take the place of the fellow who used to take the money in the parking lot.”
- William Schmidter at Cincinnati.com: "According to The Bureau of labor statistics 45 percent of the working age people are unemployed. We are competing with the world for jobs making shoes, shirts, bicycles, televisions, computers, cars and many other things that we use. The world is paying $2.00, $4.00, $6.00 an hour for many of these jobs. Every time we raise the minimum wage we send more of these jobs overseas."
Effect: Reduces use of public assistance programs (food stamps, subsidized housing, etc.)
- Rationale: The majority of public assistance programs are income based. Raising individual incomes will reduce the number of public assistance recipients and therefore lower welfare expenditures.
- Rachel West and Michael Reich at Center for American Progress found a 10 percent increase in the minimum wage reduces SNAP enrollment by 2.4-3.2% and reduces program expenditures by an estimated 1.9 percent.
- “Our results imply that the effects of the Harkin-Miller proposal on wage increases ($10.10 per hour) would reduce SNAP enrollments by between 6.5 percent and 9.2 percent (3.3 million to 3.8 million persons). The total anticipated annual decrease in program expenditures is nearly $4.6 billion, or about 6 percent of current SNAP program expenditures.”
Effect: Only helps a small percentage of those who are in poverty (inefficient method for eliminating poverty)
- Economists Joseph Sabia and Richard Burkhauser concluded in their 2010 study:
- “Assuming no negative employment effects, only 11.3% of workers who will gain live in poor households… Our results suggest that raising the federal minimum wage continues to be an inadequate way to help the working poor.”
- James Sherk and Rea Hederman Jr. at The Heritage Foundation found in 2005:
- 1.3 million Americans earn the minimum wage or less per hour, or 1.1 percent of the total working population
- 19.5% of minimum wage workers are at or below poverty line with 56.1% living in households > 2 x the poverty line
- 61.7% of minimum wage workers only work part time (or not at all)
Effect: Boosts economy
- David Cooper and Doug Hall at the Economic Policy Institue write:
- “Economists generally recognize that low-wage workers are more likely than any other income group to spend any extra earnings immediately on previously unaffordable basic needs or services. This results in an immediate economic boost as money is transferred from individuals more likely to save to individuals more likely to spend.”
- “At the same time, it [minimum wage increase] would provide a modest stimulus to the entire economy, as increased wages would lead to increased consumer spending, which would contribute to GDP growth and modest employment gains.”
- Bryce Covert at ThinkProgress, Cameron Davis at ThinkProgress, and The National Employment Law Project with raisetheminimumwage.com all cite a study by Daniel Aaronson and Eric French from the Chicago Federal Reserve estimating raising the minimum wage to $9 an hour would create a $48 billion boost in 2012 GDP, $28 billion if account for potential job loss.
- One important caveat to note is the authors concluded:
- “Finally, it’s important to stress that the aggregate household spending response discussed in this article is relevant for only the first few quarters after a minimum wage hike. Beyond that time frame, households must pay off debt they incurred in the short run by spending less. Thus, a minimum wage hike provides stimulus for a year or so, but serves as a drag on the economy beyond that.”
- None-the-less, short-term economic boosts can get the ball rolling to continued growth.
Effect: Increases consumer costs
- Another textbook economic theory. Raising production costs (cost of labor) will require producers to increase prices which will be paid for by the end user/consumer.
- Christina Romer from the New York Times and Dustin Hawkins from About.com cite increased consumer prices as a consequence of minimum wage legislation. In addition, Romer further argues passing along production costs to consumers in the form of higher prices will disproportionately affect low income earners as they are more likely to purchase those low cost goods and services which would be most affected by a minimum wage (McDonalds, Wal-Mart, etc.).
Effect: Increases worker productivity and decreases employee turnover
- Governor Peter Shulmin and Governor Dan Malloy in a CNN article: “In fact, recent studies conclude that raising the minimum wage makes workers more productive and therefore helps businesses retain profitability.”
- Mike Konczal of the Boston Review: “The minimum wage becomes an incentive for bosses to do a better job managing their employees. Higher earnings also encourage employees to work harder. Economists call this the ‘efficiency wage’: when workers have more to lose, they do their jobs better in an effort to keep their gains.”
Effect: Increases difficulty of low skilled workers finding entry level jobs to acquire skills, experience, references, etc.
Effect: Reduces gender and racial income inequality
- James Sherk at The Heritage Foundation: "A higher minimum wage helps only those workers who actually wind up earning that wage and further disadvantages lower-income workers, who suffer fewer job opportunities and working hours."
- Anthony Davis at LearnLiberty: “It [minimum wage] helps the more productive workers as the expense of the less productive workers. What’s worse is the more productive workers normally don’t need the help.”
- Linda Gorman at Library of Economics and Liberty: "In practice they [minimum wage laws] often price low-skilled workers out of the labor market. Employers typically are not willing to pay a worker more than the value of the additional product that he produces. This means that an unskilled youth who produces $4.00 worth of goods in an hour will have a very difficult time finding a job if he must, by law, be paid $5.15 an hour.
- William Dunkelberg at Forbes: "Firms cannot pay a worker more than the value the worker brings to the firm. Raising the minimum [wage] denies more low skilled workers the opportunity to get a job and receive 'on the job' training. The impact of raising the minimum wage in 2009 on teen employment makes it very clear that this is especially harmful for young teen workers looking for their first opportunity to have a job. Raising the cost of labor raises the incentive for employers to find ways to use less labor.
Effect: Reduces gender and racial income inequality
- Mike Konczal at the Boston Review: "The minimum wage affects women disproportionally, especially women of color. According to the Center for American Progress, more than 64 percent of those earning the minimum wage or less are women. African American and Latina women are 15.8 and 16.5 percent of female minimum wage earners, respectively, though only about 12.5 percent of employed workers.
- David Cooper and Doug Hall at the Economic Policy Institute: "Women would be disproportionately affected, comprising 56 percent of those who would benefit. Although workers of all races and ethnicities would benefit from the increase, non-Hispanic white workers comprise the largest share (about 54 percent) of those who would be affected."
- Bryce Covert at ThinkProgress:
- "It would help close the gender wage gap: Women make up two-thirds of the minimum wage earners in the country, which is why 13.1 million would be impacted by a raise. Evidence already suggests that a higher minimum wage is related to a smaller gender wage gap at the state level, pointing to a raise as a good way to help change the fact that women make 77 cents for every dollar a man earns."
- "It’s an important racial justice issue: Three and a half million people of color would be lifted out of poverty with a minimum wage raise to $10.10, representing the majority of those lifted out of poverty. People of color are much more likely to work minimum wage jobs, making up 42 percent of those workers even though they make up 32 percent of the overall."
Effect: Majority want it
Effect: Morally just
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| Bandwagon |
- Governor Peter Shulmin and Governor Dan Malloy in a CNN article: “common sense”
- "We'll do so [raise minimum wage] with the benefit of having the American people on our side. Democrats, Republicans and independents alike overwhelmingly support raising the minimum wage. A recent Wall Street Journal/NBC poll shows 63% of Americans support it."
- Bryce Covert at ThinkProgress: "Americans support a raise: A poll released on Wednesday shows that 80 percent of Americans support a raise to $10.10 an hour, including more than 90 percent of Democrats and even two-thirds of Republicans, as well as 83 percent of low-income adults and nearly 80 percent of those who make more than $100,000."
Effect: Morally just
- Mike Konczal of the Boston Review: "Catholic doctrine provides a religious case for a minimum wage, which is all about balancing the needs of the family with those of the marketplace. As Pope John XXIII argued in a 1961 encyclical, the wage of the poor 'is not something that can be left to the laws of the marketplace,' as 'workers must be paid a wage which allows them to live a truly human life and to fulfill their family obligations in a worthy manner.” In the words of Pope John Paul II, 'A just wage is the concrete means of verifying the whole socioeconomic system.'"
Positive Effects:
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Negative Effects:
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Minimum wage legislation is a complex and highly emotionally charged issue polarizing many individuals and groups. How do the effects you wrote down compare to these? Which effects do you find valid and which do you question? Referring back to my previous post, what are you for and against? Poverty alleviation? Fair and just wages to reduce income, gender, and racial inequality? Economic stability? Based on the above cited effects, do you feel minimum wage legislation is an effective method for achieving your desired outcomes? Why or why not?
Next Post Topic: Minimum Wage Part III: My Thoughts
