In 1938, the Federal Labor Standards Act (FLSA) was enacted and became the first federal legislation to establish a minimum wage in the United States. Since that time, the federal minimum wage rate has increased 22 different times to the present rate that was set at $7.25 an hour in 2009 (Bradley, 2015). However, recently many have been arguing for an additional increase in the federal minimum wage as seen with the increasingly popular ‘Fight for $15’ movement. The debate on whether the minimum wage should be increased has become very prominent and created a large divide within the United States due to the fact that the two major political parties in the country have opposing views on the subject. All of the Democratic Party nominees supported an increase in the minimum wage, runner-up Democratic candidate Bernie Sanders even supported a $15 minimum wage; republican candidates, on the contrary, felt that this should not be done and senator Marco Rubio even said that doing so would be a “disaster” (Kashen, 2015). Currently, there are approximately 3.3 million workers that are paid the federal minimum wage and many more are paid at their state’s minimum wage (Bradley, 2015). However the minimum wage does not only affect those earning minimum wage, it affects the whole country because minimum wage has an effect on all workers, consumers, employers, and those searching for employment. Thus the argument on whether the minimum wage should be raised is even more significant than many believe due to this issue having broader implications than just the workers earning minimum wage.
The argument of increasing the minimum wage seems like the most logical because it would provide a better livelihood to the workers that are earning minimum wage, however those who follow this argument tend to undermine the negative effects that this causes. The additional money that would have to go into the salaries of these workers would cause employers to either reduce the number of workers, reduce the salaries of higher-earning workers, or increase the prices of their products to compensate for the additional expense in some of their workers’ salaries. Reducing the salaries of higher-earning workers in order to raise the salaries of those working at minimum wage might seem to be the best option but one must consider whether it is right, or ethical to do this. Adam Smith, the most renowned economist of the Enlightenment period, in his most famous book, The Wealth of Nations, explains the reasons as to why different jobs pay different amounts. He says that the principle circumstances that make up for the differences in pecuniary gains are, “first, the agreeableness or disagreeableness of the employments themselves; secondly, the easiness and cheapness, or the difficulty and expence of learning them; thirdly, the constancy or inconstancy of employment in them; fourthly, the small or great trust which must be reposed in those who exercise them; and fiftly, the probability or improbability of success in them.” He also states that if these advantages and disadvantages of labor didn’t exist or did not balance each other, then one employment would be significantly more crowded than the others. A majority of minimum wage jobs require little skill and education, almost no trust is reposed on them, and the work is usually very easy to perform. Because they can be easily replaced and lack difficulty, it would be irrational to pay the workers who perform these jobs as much as those that have a difficult job that requires expertise. If the government interfered with this balance by increasing minimum wage and the jobs that require more expertise therefore received less pay to compensate for the salaries, then the easy jobs would be overcrowded because nobody would want to work harder to receive the same salary as an easier job.
An additional negative consequence that could come out of raising the minimum wage would be higher prices in products, which would have a negative impact on all consumers. The group negatively impacted by this would be very broad and would include almost all minimum wage workers, whom we are attempting to help by doing this. For those living in poverty that are not working at minimum wage, an increase in the minimum wage would be catastrophic because several things that they might need, including food, could have a price increase but their salaries would remain constant. Furthermore, rising prices as a result of rising wages could also hurt the companies employing these workers because they might lose many customers due to price increases.
The most prominent and convincing argument for not raising the minimum wage is that it would further the unemployment rate. Employers would fire some low wage workers and allocate the money that would be used for their salaries to pay for the salaries of their other workers, because those salaries would have to be higher. For instance, an employer that has ten people working for him at the current minimum wage of $7.25 would have to fire half of his workers if the minimum wage was doubled in order to pay for their salaries without spending more money. Not only would this cause for five of those people to be left without a job, but it would also result in the five people remaining to be left with double the amount of work. This would therefore cause less productivity and more stressful working conditions. However, there are many who argue that raising the minimum wage would not cause unemployment. John Schmitt, a Senior Economist at the Center for Economic and Policy Research, concludes that after analyzing data and research from several other economists that, “the minimum wage has little or no discernible effect on the employment prospects of low-wage workers.” Despite these results concluded from extensive professional research, many economists believe that minimum wage still causes unemployment. The reason that there was no significant relationship between employment and minimum wage was that previous increases of the minimum wage have been very small. There has never been an increase of the minimum wage by more than a dollar in the United States. Because of this, research on previous increases of the minimum wage would not show a drastic change on unemployment, but if the minimum wage was changed to $15 there would be a significant decrease in employment. (NEED TO INCORPORATE MORE EVIDENCE AND PROVIDE REASONING FOR IT)
Despite the previously discussed negative effects of raising the minimum wage, advocates of such increase argue that it is unethical to have workers being paid less than what they need to live. According to MIT’s living wage calculator -a resource that calculates living costs across different areas in the United States- an adult providing for him/herself and a child in Texas would need an annual salary of $45,747 which translates to a $21.99 hourly wage. Texas has no minimum wage legislation at the state level and therefore goes by the $7.25 federal minimum wage; a person working forty hours a week throughout the whole year at this rate would only have an annual salary of $15,080 which is $4,000 below the poverty threshold. Even a person providing only for him/herself would have to earn $22,185 a year just to cover their living expenses. Because of the substantial differences between minimum wage and living wage in Texas and almost every other state in the country, many argue that it is wrong to provide an employment that doesn’t provide the worker with enough money to live properly.
Although minimum wage is significantly lower than living expenses in the United States, it is also argued that wages should relate to the productivity of the workers rather than what it costs to live. This is the most logical way of coming up with wages as it results in the workers reaping the benefits for their work but at the same time the employer will not lose money by raising all of his workers salaries at a higher rate than production. According to an article by Mark A. Calabria, Ph.D., Director of Financial Regulation Studies at the Cato Institute, the reason minimum wage workers earn so little is because they are just not very productive. He says that since half of minimum wage workers are under 25, two-thirds of them only work part time, and 92 percent of them don’t have a college degree these workers are inexperienced and not very productive. Even in the fast food industry, where many people argue that workers are underpaid, employee compensation increased at a rate of 5.1 percent a year while productivity grew at a rate of only 0.6 percent a year. Thus, currently employees have progressively been receiving even more benefits than they have produced by their work, and a sudden mandatory rise enforced by the government would disrupt this natural, healthy rise of worker benefits.
In addition, while a higher minimum wage claims to help reduce poverty it is not very effective at accomplishing this. According to a study on the 1990 minimum wage increase done by David Card, labor economist and Professor of Economics at UC Berkeley, and Alan Krueger, Bendheim Professor of Economics and Public Affairs at Princeton University and Research Associate at the National Bureau of Economic Research, the reason many families are poor is not because of low wages but rather because of unemployment. According to 2014 data from the Current Population Survey, “57% of poor families with heads of household ages 18–64 have no workers.” Therefore, a higher minimum wage, which as previously mentioned can further unemployment, would not improve the conditions of many poor families and it would make it even more difficult to find employment. Additionally, according to David Neumark, Chancellor’s Professor of Economics at the University of California, Irvine, and director of the Economic Self-Sufficiency Policy Research Institute, increasing the minimum wage targets individuals with low wages instead of families with low income and therefore he says, “a large share of the higher income from minimum wages flows to higher-income families.” Furthermore he proves that the relationship between working for low-wages and being in a low-income family is small. This is because many families are poor because they are unemployed or work low hours and therefore don’t make much money, as CPS data shows that 46% of poor workers have hourly wages above $10.10. Also, many low-wage workers, especially teenagers and young adults, are not in poor families so a higher minimum wage would benefit many high income families and would put some low income families at a disadvantage.
One alternative to more efficiently reduce poverty proposed by many renowned economists such as Richard Burkhauser, Joseph Sabia, and David Neumark, all PhD in economics, is for the Earned Income Tax Credit (EITC) to continue to be expanded upon. The EITC is a policy that works to reduce poverty by subsidizing low income workers, particularly parents. The way this policy functions is that the government provides a federal tax credit based upon a percentage of the worker’s income until it reaches a maximum level and it then declines and phases out as the income further increases. The EITC encourages working while also effectively reducing poverty, as “in 2015, the EITC lifted about 6.5 million people out of poverty, including about 3.3 million children.” This policy, unlike minimum wage, targets low income families instead of low wage workers and it does not result in lower employment rates, doesn’t cause for an increase in prices, nor does it require for other workers’ wages to be reduced.
Ultimately, an increase in minimum wage is not effective in reducing poverty and could lead to many negative outcomes such as higher rates of unemployment, higher prices, and lower wages for other workers in an effort to compensate to an unnatural rise in expenses because of the higher wages. Higher minimum wage also benefits members of wealthy families because many people working at minimum wage are not in poverty. Hence, the minimum wage should not be increased, rather other policies such as the EITC which is more efficient in reducing poverty by supporting poor, working families should be expanded upon so as to further alleviate poverty in the US.