Should Minimum Wage Be Increased?

By Brandon kingsley

Should Minimum wage be increased?

Introduction

For many decades now, there has been heated debates concerning minimum wages and increases in those wages. Most people have a tendency to assume that when the minimum wage is increased people will benefit. They do not stop to think of the consequences that come from minimum wage increases. The general population merely assumes that people should make an adequate amount of income and never stop to consider the consequences, nor do they stop to consider alternatives. A rise in minimum wages is not necessarily the best approach to helping the poverty stricken individuals in this country. The following paper presents an overview of various problems concerning raising minimum wage, finding that it is not the best way to deal with the problem of poverty.

Where Does the Increase Come From?

As stated, many people do not stop to consider the costs of minimum wage increases. For example, where does the increase in wages come from? It certainly doesn't come from taxes or government funding. It comes from the employers, whether they are large or small. In a recent California wage hike, one employer illustrates how the wage was paid:

"'I took the hit completely the first [two] times, but this last time I raised prices,' says Mickle, who employs eleven people at minimum wage in one store and sixteen in the other. 'That's how things work. If your costs go up, you're going to have to pass some of that along to the customer. You don't pass all of it along. But you have to pass some of it along - that's basically how I try to offset it'" (Laabs, 1998; p. 54).

Employers somehow must come up with the money to pay the wage increase. They must raise their prices, therefore charging all consumers more, and they may even have to let go some of their employees in order to have the ability to pay the rate hike.

Percentages: Minimum Wage and Inflation

Cox (NA) states that "The called for increase would move the minimum wage rate from the current $4.25 to $5.15 over two years," which is essentially a twentyone percent increase (cox02.html). Inflation, however, is only perhaps around 1.6 percent. Many may claim that such a hike in the minimum wage is more than enough, but this does not make up for years of inflation. The two are somewhat related. The more things cost, the more money an individual needs to make, but the rate of inflation may also maintain the costs of new automobiles, technology such as home computers, and other items that may not be necessary.

The Poor

The primary reason most people give for wanting to increase the minimum wage is that of helping poor people. There are many studies that indicate the benefits are just as numerous as the damage done. According to James Kaz, the majority of those who are paid minimum wage are not poor but rather one of at least one other income providers in a household. "Most people working for minimum wage are teenagers...and those used to simply go work for almost nothing for some company or individual in the field they wanted their career". (Kaz02.html)

It appears that the poor are done much more damage than good through minimum wage increases. Neumark et al. (1999) provide the following background in that regard:

The lower employment occurs mainly because the increase in the cost of low-skilled labor, relative to the cost of using other productive inputs (such as machinery or more skilled workers), leads employers away from using low-skilled labor and toward these other inputs. This substitution effect is reinforced by the higher overall cost of production associated with the legislated increase in the wage for low-skilled workers, which in turn raises the price of the product and results in less output sold. (NA)

In addition, there are numerous workers who are adversely affected by a minimum wage change in the fact that they do not receive the full amount of the legislated increase. This is what happens to, say, an individual who is making fifty cents above the minimum wage. He therefore ends up making the same as those on minimum wage in the same business, when he should be making more then the minimum wage workers. These are also the employees least likely to be given a raise due to the cost of paying the minimum wage employees.

Does a Rise in Minimum Wage Create More Unemployment?

A great deal of information suggests that minimum wage increases reduce the number of jobs available. Considering that the jobs needed by the poor are often non-skilled jobs and these are the ones most reduced in times of wage increases, the poor suffer here as well. Cox states that according to his research, "for every 10 percent increase in the minimum wage, a minimum of 100,000 jobs are lost. A jump from the current $4.25 to the intended $5.15 is a 21 percent increase, amounting to over 200,000 newly unemployed," with other sources indicating "a greater than 400,000 job loss" (Cox, NA; cox02.html).

Has this Policy Worked in the Past?

From 1974 through 1981, the minimum wage was actively increased every year, and thus provides some interesting information. After a series of minimum wage increases which began in 1974, "when the basic rate rose from $1.60 to $2, and ending in 1981 with a rate of $3.35, the poverty rate climbed from 11.1 percent of the population to 14.0 percent. After an increase in the minimum wage to $3.80 in 1990 and $4.25 in 1992, the poverty rate climbed from