Young Economics’ Take on Minimum Wage (In Its Entirety)

The topic of minimum wage has been under discussion for quite some time.  It is one of the United States’ most controversial political issues because there are many different ideologies surrounding the proper value of the minimum wage floor.  Over the past several months it has received much more attention due to President Obama’s State of the Union declaration of raising the minimum wage for all new federal contracts to $10.10.  This comes just one year after he urged Congress to raise the minimum wage to $9 per hour in his 2013 State of the Union.  Currently, the minimum wage stands at $7.25.  The present-day wage contributes to about 49 million Americans (14.5% of the U.S. population) living impoverished.

Minimum wage is such a debated issue because of the paradigm it creates for unskilled laborers.  Economists and politicians often argue that the wage levels should differ because unskilled workers are earning more money than they should.  We have this predicament because it is difficult to place a value on labor in the first place.  On the other hand though, skilled workers who may have been unemployed before taking a minimum wage paying job are now working for pay that correlates to living below the poverty line (a full-time employee earning $7.25/hour will make $15,000 a year, which is below the poverty level for a family of three).  Moreover, other analysts and politicians (Republicans) argue that raising the minimum wage will result in less job creation and more unemployment.  On a strictly economic and financial basis, I can understand this point of view.  Logically speaking, why would business owners offer more jobs to prospective employees if they must allocate more money for wages?  Economics is based on the belief that all decisions are made rationally, and rationally speaking, I would not provide job opportunities for people if it were more expensive for my business.

As an attempt to improve our nation’s current economic situation, President Obama has signed an executive order that will raise the wages of all new federal contracts to $10.10 per hour.  Notice, this executive order only affects all new contracts, so, unless restructured, all old contracts will remain at $7.25 an hour.  While this only makes a dent in the overall conversation of minimum wages, it is expected to affect more than 2 million employees.  Furthermore, it will hopefully spark an initiative by our legislative branch to pass the Fair Minimum Wage Act, which will effectively raise the minimum wage to $10.10 for all laborers across the country by July 1, 2015.

In an attempt to understand minimum wage from all sides of the argument, I would like to outline three popular theories about the benefits minimum wage:

Stimulating the Economy

The argument can be made that raising the minim wage to $10.10 would stimulate the economy due to more money spent on goods and services.  President Obama and additional researchers argue that lower-income workers, or those who depend on minimum wage, spend their earnings more quickly and locally than do higher-income workers.  In fact, the Federal Reserve Bank of Chicago noted that every $1.00 increase in the minimum wage would increase the spending of a low-wage worker’s household by $2,800 yearly.  This provides the local, small businesses with the customers and demand they need to maintain and expand their own labor forces.  As a result, we would see a reduction in the nation’s unemployment rate.  More specifically, our nation could be looking at 85,000 new jobs, which is 9,000 more than the job creation between November and December that yielded a .3% reduction in the unemployment rate.  These small, yet impactful resultants of an appreciation in minimum wage would also affect the U.S. GDP by $22 billion.  This stimulation is three fold.  As the minimum wage increases, our blue-collar labor force is injecting our economy with discretionary income expenditures, which then fuels our local shops, and by reaction, our shop owners can begin to hire more laborers.

Reducing Poverty

At the current wage rate, there are nearly 8 million workers who work full-time, yet they continue to live below poverty levels.  These hard-working Americans, who rely on government subsidies, are struggling to provide basic necessities for their families.  Not only would raising the minimum wage help these workers and their families, but it would also alleviate some of the pressures on the government to support such people.  According to a study by the University of Massachusetts’s Arindrajit Dube, an Amherst Economist, the poverty rate would reduce by 1.7%, which would also erase more than half of the increase in poverty caused by the recession.  This translates to almost 5 million people being lifted out of poverty.  An increase in minimum wage would directly affect the wellbeing of millions of Americans who, at the current wage-floor, struggle day-in-and-day-out to supply the goods, which many of us take for granted.

Ripple Effect

Lastly, the council of Economic Advisers estimates that, when fully phased in, 28 million workers would see a raise in wages.  According to the Fair Minimum Wage Act, the entire wage scale would appreciate due to inflation rates.  This suggests that even those who are currently earning more than $7.25 an hour, such as $8.25 or $9.00, would also see their pay rise past the $10.10 mark.  Although the nation’s inflation rate has been relatively steady (between 1.5% and 1.7% from 2012 through 2014) it is important that our laborers are able to keep up with the rising costs of goods and services.



Young Economics Solution Session: Minimum Wage
Young Economics Solution Session: Minimum Wage




chris rock






Leave a Reply


You are commenting using your account. Log Out /  Change )

Google+ photo


Twitter picture


Facebook photo


Connecting to %s