A loud and vibrant issue discussed
today is that of the minimum wage. I have stated my position on this
issue already: a person who works a full time job in the legitimate
labor market deserves a living wage. This is, I am claiming a
federalist position in that that view of governance and politics
holds as a basic value one of equality – not of results, but of one
that strives to secure equal opportunity in the most perfect sense
possible. This is held above all other considerations, short of
societal survival, and is surely held above the amount of employment
such a policy affects. Whether one agrees with this position or not,
if one were to be guided by a federalist construct in determining
content in civics instruction, one can be justified in introducing
this topic and asking students what they believe to be moral and
prudent concerning the minimum wage. In doing so, a teacher should
present all relevant information. This posting presents some of
those relevant facts.
Let's put some of the basic
figures concerning the minimum wage into more meaningful quantities.
First, the national minimum wage is $7.25 an hour. Assuming a worker
on minimum wage works a forty hour week, the weekly amount is $290;
the yearly rate is $15,080. The highest state minimum wage, in the
state of Washington, is $9.32 an hour. Again, under the same
assumption, the weekly amount in that state is $372.80; the yearly
rate is $19,385.60. The Obama Administration is proposing that
Congress pass legislation that would increase the national minimum
wage to $10.10 an hour. The weekly amount would be $404; the yearly
rate would be $21,008. According to the Federal Register, the
poverty level in 2013 for one person is $11,490 a year. Twenty
states and the District of Columbia have minimum wages above the
federal minimum. Eighteen states have the federal minimum wage.
Five states have no minimum wage law. Four states have a minimum
wage lower the federal level. It should be noted that not all
workers are covered by the minimum wage law or have a lower rate as
is the case for workers who traditionally earn tips (for example,
servers in restaurants – the amount varies by state).
Most of the discussion over the
minimum wage and the potential consequences of raising it is whether
a raise will cause lower employment. The simple reason for this
would be that an increase in its cost will engender lower demand for
labor. This is a straight supply and demand analysis. But what is
often not mentioned is that a lower minimum wage, in real terms, will
cause a lower supply of workers. For example, if you are a young
person from a modestly well-off family, a too low wage will
discourage you from seeking employment. Lower supply encourages
higher wages. Now this would be a minimal effect because when we are
talking about the minimum wage, we are usually referring to low
skilled, entry level jobs and a great many of the people who hold
them are the most vulnerable and most needful of employment –
they'll seek work at just about any level. According to the Bureau
of Labor Statistics, youth hold about half of the jobs that pay
minimum or below minimum wage; the other half are older. About
three-fifths of those holding minimum or below minimum wage jobs are
in the service industries, mostly in restaurants and food preparation
positions. The Bureau is a good source for basic information
concerning the minimum wage.1
The number of jobs affected by raising or lowering a wage rate is
called the elasticity of demand for labor, and the number of workers
who are willing to work for varying wage rates is called the
elasticity of supply for labor.
Raising the minimum wage will have
many consequences, some obvious, some not so obvious. For example,
Kirk Johnson2
reports that Oregon, where the minimum wage is $1.85 higher than in
nearby Idaho, is experiencing a large commuting worker force from the
lower paying state into Oregon. Of course, that means the supply of
workers in Idaho has decreased. On the other hand, Kirk observes
that in a particular restaurant, a higher minimum wage meant that the
business dismissed the dishwasher and is demanding that its remaining
workers work many more hours and have heavier work loads. How does
the higher minimum wage affect business activity?
… while some business owners
along the border said raising the minimum wage could keep them from
adding extra employees, they also said larger economic forces were
more important. For example, minimum-wage service jobs in stores,
restaurants and motels have boomed on the Oregon side, despite its
higher rate, mostly because Oregon has no sales tax.3
One argument for raising the
minimum wage is that the extra money goes to low income people who
are more apt to spend any extra income. This will increase the
circulation of money and increase demand. In turn, that means more
business activity. At the same time, as Kirk and others have warned,
increased wages will also mean an increase in prices. This is
especially true in markets where the businesses operate on small
margins (the differences between costs and revenues) or in businesses
where there is little competition.
From this short review of some of
the facts, for people with no preconceived notion or vested interest,
the argument seems heated and unable to be finalized with any
satisfaction. Will increasing the minimum wage have a beneficial or
detrimental effect on the economy? The countervailing forces seem to
indicate the overall effect to be a wash.
All of this, in my mind, just adds
further reason to look elsewhere for justifications for or against
raising the minimum wage. I will leave this debate for now with one
last word: in real terms, we had a much higher minimum wage in
previous years during both times of prosperity and in times of
recession. Does this just further indicate that any raise in the
level, assuming it is under a reasonable amount, will not make much
difference to the overall health of the economy, one way or the
other? Yet for those who receive the extra pay, it can go a long way
in adding to their quality of life and to the opportunities for
themselves and their children.
2Kirk,
J. (2014). Crossing borders and changing lives, lured by higher
state minimum wages. The New York Times,
February 16, pp. 17 and 23.
3Ibid.,
p. 23.
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