Minimum Wage: A Compromise

One of the many polarizing topics that is brought up in Politics is should we raise the minimum wage? People that are against it argue that it will cause large unemployment and raise prices. Advocates argue that people need a living wage and that it hasn’t kept pace with inflation. Both sides have good points to be made. So instead of starting a polarizing argument let’s take a look at some information together to see if we can find a middle ground.

The first thing that we can look at is will raising the minimum wage cause job loss? So far the answer has been rather mixed in the United States. Policy.Mic states: “According to the Bureau of Labor Statistics, the majority of states with higher than national unemployment also pay a rate higher than federal minimum wage.” This is a simply true statement. Let’s not jump the gun though. We can’t just simply assume that minimum wage itself causes unemployment or the other way around. As job growth in states that have raised the minimum wage is above average compared to those that haven’t. Local, state, and national factors are all hard things to account for when we look at something as big as what causes job loss and job growth. So you can go find the meme to your liking that you can post to social media to prove how much more right you are than everyone else. But you might want to consider a few things before taking such a polarizing stance.

Let’s do a test to see if minimum wage can tell us something about unemployment. If we look at Europe and I give you the youth unemployment rates and the seasonally adjusted unemployment rates  of each country could you label the countries with the highest minimum wage? How correct would the extreme sides be of higher unemployment = higher minimum wage and lower unemployment = higher minimum wage be? Clearly after you see the minimum wages of European countries you’ll notice that neither side wins. France has one of the highest minimum wages in Europe (9.47 euros) but their unemployment is also one of the highest at 10.5% seasonally adjusted and unemployment of those under 25 years old at 23.7%. But look at Germany, their minimum wage (8.51 euros) is higher than the U.S and they only have a unemployment rate of 4.8%. Sweden has no minimum wage at all and they have 7.8% unemployment. To finish off the United Kingdom has an unemployment rate of 5.4% with a fairly low minimum wage (6.5 pounds). What is the point of this? It’s to show that we shouldn’t be so one sided and blind to external factors when looking at minimum wage. Clearly pointing to one area and saying, “Well look at them that means I’m right” isn’t sufficient enough to give us a clear idea on what to do.

Here are a few deal breakers that are hard to ignore. Minimum wage’s purchasing power was at it’s highest point in the late 1960s at $9.22 an hour in 2012 dollars. That is above the current level we have set at $7.25. As the article states that doesn’t even account with the productivity level which was increasing side up side with minimum wage up until the 1970’s. If companies were able to pay workers significantly more back then, why not as least keep the minimum wage consistent with inflation? People against the raise might argue that raising it might actually cause inflation. However, if companies have been able to pocket profits over the years due to workers lack of bargaining power to get a higher wage increasing the pay would just mean different people receiving the money. With basic knowledge of economics we know that redistribution of this money won’t affect inflation due to MPC. That’s also ignoring the fact that higher wages are likely to increase productivity among workers making businesses get more bang for their buck.

Some people might have concern about raising the minimum wages effect on younger peoples ability to get jobs. Maybe some people are also mad that, “These people aren’t getting an education so I have to pay them more?” Here are a few quotes from the BLS Report on Characteristics of Minimum Wage Workers, 2014  that could shed some light on this: ” Among hourly paid workers age 16 and older, about 7 percent of those without a high school diploma earned the federal minimum wage or less, compared with about 4 percent of those who had a high school diploma (with no college), 4 percent of those with some college or an associate degree, and about 2 percent of college graduates.” “Minimum wage workers tend to be young. Although workers under age 25 represented only about one-fifth of hourly paid workers, they made up nearly half of those paid the federal minimum wage or less.”

“Among employed teenagers (ages 16 to 19) paid by the hour, about 15 percent earned the minimum wage or less, compared with about 3 percent of workers age 25 and older.”

Why should we take this with a grain of salt? Because these statistics only apply to those people recieving the federal minimum wage or less. Many states have higher minimum wages then the federal wage. That makes raising it affect a larger group of people. You should as look at the Department of Labor’s Minimum Wage MythBuster. This is very well sourced information to help you understand minimum wage. Also Policy.Mic in this article explains that raising the minimum wage helps growing families more than it does help teens receive extra spending money.

So what about the rising cost of goods caused by price hikes? People were very quick to point out that Chipotle has had to raise the prices of some of it’s items by 10% due to hikes in minimum wage in San Francisco. I personally find the article a bit funny when it suggests “And jacking up the prices by 14% might not seem like much to you, but for some of them it’s going to translate into going to McDonald’s instead. Or maybe just staying home because the folks at the Golden Arches are going to have to raise their prices also.” Making the assumption that McDonalds will raise their prices that much is probably not true seeing that they are already starting to raise wages for some of its workers. I am yet to find anymore click bait stories on companies raising their prices due to this increase. Until there is more proof that the wage increases will have more costly effects on prices then it shouldn’t be that big of a deal. But this does bring up something that we should all remember.

Even though Economic theory (which I used to bring up all the time in these conversations) leaves out real world factors it has truth to it. If minimum wage increases didn’t cause unemployment then why not raise it to $100? Well it’s because if that occurred we would we high levels of unemployment. However the Econ 101 states unemployment will rise with minimum wage increases doesn’t consider the fact that employees loss of bargaining power has allowed companies to absorb profits from not keeping minimum wage at level with inflation rates. If the people opposed to minimum wage have a good argument it is that raising the minimum wage might not even be what needs to be done. If the purchasing power of the dollar could go farther then we wouldn’t have to increase the amount of money people make to buy more, they could simply buy more with the money they are making. However, I am one person and I have a limited amount of time.  I won’t be able to go into what affects pricing and purchasing power and if that might be what we should focus on instead.

To be honest for a long time I was that person who would continuously bring up the “This is simply Econ 101, minimum wage increases, increase unemployment.” However, after reading through much I have come to change to mind. This isn’t meant to be polarizing. As I have mentioned both sides have their points. The question we should pose ourselves is not if we should raise the minimum wage or not, (I hope this article convinced you we should raise it at least a little) but by how much, because Econ 101 might kick in if we aren’t diligent with that answer.

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4 thoughts on “Minimum Wage: A Compromise

  1. I agree with your statement: “higher wages are likely to increase productivity among workers making businesses get more bang for their buck.” I agree because people are motivated by incentives.

    It is a politically incorrect statement though because it suggests that many people who earn low wages don’t give 100% effort in their jobs.

    Like

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