In this country, regardless of views and opinions, the controversial topic of minimum wage has resounding effects on workers, businesses, and consumers alike.
We will try to parse out the gory details by debating the pros and cons of: increasing the minimum wage.
We have done extensive research, as well as worked our fair share of minimum wage jobs giving us the ability to speak confidently on matters related to minimum wage.
It’s likely most of you have minimum wage jobs giving you something to relate. If you don’t work for minimum wage you are probably still a consumer and thus either through wage increases or cost increases the results of this debate will have an impact in your life.
There are strong arguments both for and against raising the minimum wage including
The potential to improve health, academics, and reduce crime rates.
The potential to lead to a spike in unemployment
The potential to reduce poverty levels
And finally the potential to lower demand
How might just a few dollars do all this? Well let’s start with the first: health academics and crime.
Pro Argument 1 (PATRICK TAWADROS): Increasing the minimum wage would have positive health effects, improve academics in the overall sense, and reduce crime rates.
Increasing minimum wage sustains a healthy population and lowers mortality.
In a study done by Rajiv Bhatia, MD, on the California minimum wage, it was found that a higher minimum wage would ultimately allow workers to have enough to eat, be more likely to exercise, and even prevent premature deaths (Bhatia).
In another study conducted by Barhii, he “concluded that policies that reduce poverty and raise wages of low-income people can be expected to significantly improve overall health and reduce health inequities” (Barhii).
To add to the added health benefits, increasing minimum wage would increase school attendance, while simultaneously decreasing high school dropout rates.
Teens living in poverty are twice as likely to miss 3 or more days of school per month when compared to teens who do not live in poverty (Bhatia).
A higher minimum wage would reduce crime.
In a study done by the Executive Office of the President’s Council of Economic Advisors, it was found that by raising minimum wage to $12 by the year 2020 that there would be a three to five percent crime decrease. This is primarily due to the fact that higher wages provide viable and sustainable employment. (Executive Office of the President)
In another study conducted at the University of Virginia, it was found that an increase in wages is associated with a reduction in property-related crimes. (Fernandez)
Response to pro argument (con) (YUANWEN): At first glance, the increasing of minimum wage would allow people of lower incomes to live a better life. But increasing minimum wages adds many potential threats to the equilibrium of the free market. The net effect of this interference is not necessarily good. To specify, increasing minimum wage will cause higher unemployment rate, and has no significant links to lowering the crimes..
There is few evidence to show that there is a link between the increasing of minimum wages and decreasing of crime rates. According to a study conducted by Boston College in 2013, “‘crime will increase by 1.9 percentage points among 14-30 year-olds as the minimum wage increases.’” (Fuller).
Due to the higher unemployment rate caused by the increasing of minimum wage, some of the next generation will not be able to afford the education. In 2009, a study by the American Journal of Economics and Sociology discovered that in Maryland, “a 25-percent increase in the real minimum wage was associated with a 0.55 percent increase in the dropout rate for Hispanic students.” (Crofton, Anderson, and Rawe).
Con argument (YUANWEN): On the contrary, increasing the minimum wage would force business to lay off more employees to save budgets and raise the unemployment rates.
Sub point 1: Increasing minimum wage will raise the cost of businesses, lower their employment levels, and cause higher unemployment rate.
Raising minimum wage will increase the cost of businesses, forcing businesses to lay off more employees. The Congressional Budget Office predicted a $7.25 to $10.10 minimum wage increase could potentially cost 500,000 jobs. (Congressional Budget Office).
Increasing minimum wages will lower the willingness of businesses to hire more employers, due to the rise of the cost. There was a survey conducted of 1,213 businesses and human resources professionals and 38% of the employers who payed minimum wage said they would resort to letting go some employees if it was raised to $10.10. Among them 54% said they would decrease hiring levels (Kast).
Statistically, comparing to countries that do not have minimum wage policy, countries with minimum wage policy have higher rate of unemployment. In 2014, Steve H. Hanke, Professor of Applied Economics at Johns Hopkins University, conducted a survey of the 21 European Union countries that had a minimum wage and discovered they had an average unemployment rate of about 11.8%, which was a third higher than the 7.9% average in the remaining EU countries with no minimum wage (Hanke).
Sub point 2: Increasing minimum wage will put lower-skilled worker at a disadvantage, since the rise of wage exposes those lower-skilled to the same competition with those more skilled.
Raising minimum wage will put lower-skilled workers at disadvantages. From an employer’s point of view, people of lower skills do not justify the rise of minimum wages, but they have no choice but to join the competition with the more skilled, if minimum wages are increased. James Dorn stated that a minimum wage increase by 10% “leads to a 1-3% decrease in employment of low-skilled workers” in the short term, and “to a larger decrease in the long run” (Dorn).
Increasing minimum wages puts lower-skilled workers at a disadvantages by forcing them to be exposed to the same competition with people who are more skilled. George Reisman stated that if the minimum wage was increased to $10.10, “‘jobs that presently pay $7.25 had to pay $10.10, than workers who previously would not have considered those jobs because of their ability to earn $8, $9, or $10 per hour, will now consider them. The effect is to expose the workers whose skills do not exceed a level corresponding to $7.25 per hour to the competition of better educated, more skilled workers presently able to earn wage rates ranging from just above $7.25 to just below $10.10.’” (Reisman).
Response to con argument (CORINNE): Despite the claim of a rise in unemployment, studies on past minimum wage hikes have shown little effect on unemployment in both federal mandated and state mandated hikes.
Sub point 1: A case study of the fast food industry which compared two states, New Jersey and Pennsylvania after New Jersey increased the minimum wage, and Pennsylvania did not, showed that there is “‘no evidence that the rise in New Jersey’s minimum wage reduced employment at fast-food restaurants in the state’” (Card, Krueger). The department of labor statistics further contends that in 65 years of federal minimum wage hikes, unemployment rates in the past have generally gone down, or stayed the same after increases in the minimum wage with only one exception in the 70’s and that unemployment spike is linked to other causes such as recession and an energy crisis (Real Minimum Wage…). History shows that it safe to assume that if anything a higher minimum wage will put more money in people’s pockets to be used for discretionary spending which will stimulate the market or keep it the same, but not increase unemployment.
Pro argument (CORINNE): What, hoever, minimum wage increases always do, is reduce poverty and in turn reduce government spending.
Sub point 1: Currently, the minimum wage is not enough to live on. The economic policy institute using government sources found that the average cost of living in the U.S., excluding discretionary spending is roughly $50,000 more than what a minimum-wage worker earns (Cooper). As a result many people are either barely making it by, or are below the poverty line entirely and relying on government assistance to do so. In the 2014 Congressional Budget Office report, it showed that increasing the minimum wage to $9 would lift 300,000 people out of poverty, while raising it to $10.10 would bring 900,000 people out of poverty (Congressional Budget Office). Accounting for inflation minimum wage should actually be even higher at $10.52 or more depending on where someone lives implying that poverty rates could shrink even lower with a more aggressive raise (Cooper).
Sub point 2: By helping families survive off the the diligent work that they do we are also helping the taxpayer burden. It was reported in 2014 by The Center for American Progress that by raising the minimum wage to $10.10, SNAP spending would decline by $4.6 billion (West, Reich). Likewise The Economic Policy Institute found out that by making the minimum wage to be $10.10, at least 1.7 million Americans would not depend on government assistance programs (Cooper). The wage increase would save $7.6 billion on annual government spending for income-support programs (Cooper). This money could either go back into the pockets of the everyday person or be used for other beneficial programs.
Response to pro argument (MARK HANNA): Unfortunately a decrease in government spending for income support programs could lead to unintended negative sideeffects down the road for the poor and unemployed.
People who have then been laid off would suffer from reductions in benefits because of congressional budget cuts to programs such as the supplemental nutrition assistance program (SNAP, formerly called food stamps), temporary assistance for needy families (TANF), the Earned Income Tax Credit (EITC), child-care subsidies, housing vouchers, and Women, Infants, and Children (WIC) due to the benefit rates fading as income rises (Sherk, 2013). Those people still employed would be able to afford more so the need for these programs would diminish and as more people will have to use those defunded programs as unemployment increases, poverty will rise as the budget will not be able to support them (Sherk, 2013).
The standard of living will also increase as minimum wage increases. In a study conducted by Purdue University’s School of Hospitality and Tourism Management, they found that increasing wages to $22 an hour raises consumer prices by 25% (McClure, 2015).
Con argument (MARK HANNA): Thus, raising the minimum wage would actually lower demand for market development and products as a result of higher prices, resulting in negative long term outcomes for families and the economy.
Studies show that if the minimum wage was to increase from $7.25 an hour to $10.10 an hour, the demand for workers would decrease and many people would get laid off. Meanwhile, those who were not laid off pay 15% more on payroll and income taxes for each additional dollar that is added to the minimum wage (Sherk, 2013). This decrease in demand will have unavoidable negative consequences for unskilled workers and their families in the long run in the form of less opportunity for employment and skill acquisition. Chaplin, Mark, and Andreas (2003) found through a study they conducted that increasing the minimum wage would “lower the continuation rate for grades 9-12 in states with dropout ages under 18.”
Raising the minimum wage will cause demand to fall for what James and Mary Kau (1973) call “industrial incentive,” which is described as the incentive for industry to progress itself forward. This fall in incentive was documented in a study conducted by Van Sickle (1946), where he found that the south was booming with industrialization for a few decades then plummeted after the Fair Labor Standards Act was passed. The rising costs created by low demand for work would also impede competition, as the cost of production of goods from the south to the north would increase (Kau & Kau, 1973).
Response to con argument (PATRICK TAWADROS): Long term effects of the minimum wage being increased do not affect educational opportunities for teen workers and do not hurt demand for consumer goods.
In an journal article by Warren and Hamrock (2010), they describe how the effects of a minimum wage increase would not impact teen workers who were not already doing poorly academically as others say it may. They claim it would only impact those who would have had “a history of failure; who are not engaged in meaningful extracurricular, social or athletic activities in school; and, perhaps most importantly, who are in a position to meaningfully increase their levels of labor market participation” (Warren & Hamrock, 2010). They continue to state that if the raise would impact a certain educational subset, it would be those students who are competing with adults for jobs and/or who would be dropouts either way (Warren & Hamrock, 2010).
Minimum wage increases do not impact market development as innovation has always been outrunning minimum wage increases. This is shown in an article published by The Economist (2015), stating that in most developed countries minimum wages rise with income levels, but in America that is not the case, as one would think that in a country with a GDP of $53,000 per person, the minimum wage should be at least $12 an hour, but it is not. Therefore, because it has not kept up with income rises, it cannot be safely said that raising the minimum wage kills innovation.
Thus far, what have we learned from our discussion? Let’s recap.
Ultimately, increasing minimum wage could reduce poverty, hence, improving health, academic performance, and decreasing crime rates. However, on the other hand, increasing minimum wage could pressure business to lay off employees and could decrease demand for labor and products.
Regardless of perspective, the controversial and divisive topic of minimum wage is a far reaching issue in the United States of America and so it is important to weigh all sides equally to come to a balanced conclusion.
Patrick’s Pro Argument Sources
Executive Office of the President, Council of Economic Advisors, “Economic Perspectives on Incarceration and the Criminal Justice System,” whitehouse.gov, Apr. 2016
Fernandez, J., Holman, T., & Pepper, J. V. (2014). The Impact of Livingaˆ?Wage Ordinances on Urban Crime. Industrial Relations: A Journal of Economy and Society, 53(3), 478-500.
Rajiv Bhatia, “Health Impacts of Raising California’s Minimum Wage,” Human Impact Partners website, May 2014
Bay Area Regional Health Inequities Initiative (BARHII) “The Minimum Wage and Health: A Bay Area Analysis,” barhii.org, Oct. 2014
Warren, J., & Hamrock, C. (2010). The Effect of Minimum Wage Rates on High School Completion. Social Forces, 88(3), 1379-1392. Retrieved from http://www.jstor.org.proxy.libraries.rutgers.edu/stable/40645895
The Economist. (2015, May 20). Pay dirt. Retrieved from http://www.economist.com/blogs/graphicdetail/2015/05/minimum-wages
Corinne’s Pro Sources:
Card, D., & Krueger, A. B. (2000). Minimum Wages and Employment: A Case Study of the Fast-Food Industry in New Jersey and Pennsylvania: Reply. American Economic
Review,90(5), 1397-1420. doi:10.1257/aer.90.5.1397
Cooper, David. Raising the Federal Minimum Wage to $10.10 Would Save Safety Net Programs Billions and Help Ensure Businesses Are Doing Their Fair Share. Issue brief no. 387. New York: Economic Policy Institute, 2014. Print.
Real Minimum Wage Rate vs Unemployment Rates January 1950 to January 2013 [Chart].
(2013.). In Bureau of Labor Statistics .
Reich, Michael, and Rachel West. “The Effects of Minimum Wages on Food Stamp Enrollment and Expenditures.” Industrial Relations: A Journal of Economy and Society 54.4 (2015): 668-94. Web.
The Effects of Minimum-Wage Increase on Employment and Family Income. Rep. no. 4856. N.p.: Congressional Budget Office, 2014. Print.
Yuanwen’s Con Sources:
Congressional Budget Office, “The Effects of Minimum-Wage Increase on Employment and Family Income,” cbo.gov, Feb. 2014
Kast, S., “New Express Employment Professionals Survey of Employers Shows 38% of Those Who Pay Minimum Wage Will Lay Off Workers If Wage Is Hiked,” prweb.com, Mar. 19, 2014
Hanke, S.H., “Let the Data Speak: The Truth Behind Minimum Wage Laws,” Cato Institute website, Apr. 2014
Dorn, J., “The Minimum Wage Delusion, and the Death of Common Sense,” Forbes, May 7, 2013
Reisman, G., “How Minimum Wage Laws Increase Poverty”, Mises Institute website, Apr. 4, 2014
Crofton, S.O., Anderson, W.L., & Rawe, E.C., “Do Higher Real Minimum Wages Lead to More High School Dropouts? Evidence from Maryland across Races, 1993-2004,” American Journal of Economics and Sociology, Apr. 2009
Fuller, D., “Multilevel Study Finds No Link Between Minimum Wage and Crime Rates,” uc.edu, Nov 18, 2013
Mark’s Con Sources
Sherk, J. (2013, June 25). What is Minimum Wage: Its History and Effects on the Economy. Retrieved from http://www2.heritage.org/research/testimony/2013/06/what-is-minimum-wage-its-history-and-effects-on-the-economy
Chaplin, D. D., Turner, M. D., & Pape, A. D. (2003). Minimum wages and school enrollment of teenagers: a look at the 1990’s. Economics of Education Review, 22(1), 11-21.
Van Sickle, John, “Geographical Aspects of a Minimum Wage,” Harvard Business Review, XXIV (Spring 1946), 288.
Kau, J., & Mary L. Kau. (1973). Social Policy Implications of the Minimum Wage Law. Policy Sciences, 4(1), 21-27. Retrieved from http://www.jstor.org.proxy.libraries.rutgers.edu/stable/4531512
McClure, G. (2015, July 27). Study: Raising wages to $15 an hour for limited-service restaurant employees would raise prices 4.3 percent. Retrieved from http://www.purdue.edu/newsroom/releases/2015/Q3/study-raising-wages-to-15-an-hour-for-limited-service-restaurant-employees-would-raise-prices-4.3-percent.html