Analysis of the Reasons Why Minimum Wage Should Be Raised
Increasing the minimum wage for the United States has been an area that recently has had many questions sprouting into existence such as showing reasons why minimum wage should be raised. The essay reveals this debate as it is going on for several years. In raising the minimum wage, there are many pros such as a reduction in poverty which could lead to improved morals of the people as well as add more money into the economy which could cause an economic spurt since workers will have more money to spend, improved lifestyle of living for the poor families working these minimum wage jobs, job growth in the United States allowing lower employment levels, increased workers’ health, and workers becoming more motivated to work due to an increase in payment. However there are also many cons to our economy from the effects of increasing minimum wages such as raising unemployment levels due to companies having to fire employees in order to compensate from an increase in resource cost to meet their profit margins, increases in the prices of consumer goods in order to compensate for the price increases of items sold which could lead to more consumers entering the black market, companies will want to outsource more often in order to lower their labor costs, as well as some people believing that increasing minimum wages will only benefit younger people instead of the older generation of people with families that need an increase pay to support a livable lifestyle in the United States making the poor community poorer. However, with the evidence gathered from researches and studies from others, it is shown that an increase in the minimum wage would only benefit the economy if done correctly and slowly to prevent dramatic changes that would affect the economy.
Possible Benefits of Increasing Minimum Wage
One of the many cons of an increase in the minimum wage is said to be higher unemployment rates due to increased costs of production and resources in order to compensate for the company’s losses from higher salaries. However, in an article by Simon Sturn, titled “Do Minimum Wages Lead to Job Losses? Evidence from OECD Countries on Low-Skilled and Youth Employment” they state that recent case studies in places such as Hungary, Czech and Slovak Republics “found only very small disemployment effects'. The author gathers data from both low and high-skilled employment from people that are aged 25 to 64 years old from the OECD which provided information for three different skill groups. In the data gathered for low-skilled and female low-skilled employment, the author found that there was an insignificant negative or positive employment elasticities using the canonical fixed-effects estimator with the most negative elasticity being -0.12 and +0.11 at the most positive. The also author looked at the long-run effects of increased minimum wage only to find there was no evidence for significant negative long-run effects with long-run elasticities ranging from -0.06 to +0.01.
In the results of Cross-Country/Time Series Minimum Wage Studies, total unemployment was “insignificant and close to zero” in three different case studies. Young people’s employment rates have the same results when compared to low-skilled workers. From the author's results, he found that young workers’ employment rates ranged from -0.06 to +0.22 with an average of +0.04.2 This article, it makes it very clear that changes in the minimum wage have very little effect on the unemployment rate and would only be beneficial to the United States’ economy. In another article by Saul D. Hoffman titled “Are the Effects of Minimum Wage Increases Always Small? A Reanalysis of Sabia, Burkhauser, and Hansen,” the author of the article states information that was found through the author’s own personal studies showing that an increase in minimum wage can cause a large unemployment rate. In the article, the author uses evidence from data they gathered where there was an increase in the minimum wage from $5.15 to $6.75 in the state of New York. “They found that employment for less-educated workers under age 30 fell by 20%, which yields an employment elasticity of -0.7, far larger than estimates found in most of the more recent empirical minimum wage literature.” Although the author of this article opposes the increase in minimum wage, they do state that “…the idea that modest minimum wage increase in the 15 to 20% range phased in over a two-year period may not be problematic in terms of employment.”
Increasing minimum wage is possible to do, however, it has been shown that doing so will have to be a gradual increase over time and not so sudden to have smaller effects that society and other businesses can adapt to without increasing unemployment too aggressively from higher resource cost. Even with the second article against an increase of minimum wage, it only benefits the United States economy by allowing it to grow with only small sacrifices made to the employment rate.
The Role of Minimum Wage in Firm Profitability
Firms can also be affected by increasing minimum wages. In an article written by Nguyen Viet Hong, the author states that a firm’s profitability can be affected in two different ways. The first way being profit margins of the firms which will not be greatly affected if the firms can pass on the higher production cost to the consumers or by employing fewer workers. However, the second way firms can be affected is by the profit margins of the firm will decrease if the higher wage costs are not passed or the firms do not reduce their employment. A very common example of this is the fluctuation in the prices in the gas and oil industry. When the price of gas increases, many gas stations will increase their prices in order to compensate so that the seller does not suffer a decrease in profit margins. As for oil, when the price of it increases, many oil companies will lay off employees in order to compensate for the extra cost of the resources to prevent a decrease in their profit margin. However, in the author’s study, he finds that the effects of an increase in the minimum wage to be very small. Their studies also found that the chances of small businesses quitting were also small with the increase of minimum wage.
These small impacts from increasing minimum wage are insignificant due to how small the changes are therefore increasing the minimum wage would again only benefit the economy with a minuscule cost.
Possible Worries Due to the Increase of Minimum Wage
Another popular topic that tends to be debated is that increasing the minimum wage could reduce the number of people that live below the poverty line in the United States. In an article titled “The Minimum Wage Increase: Will This Social Innovation Backfire?” the author states that increasing the minimum wage from $7.25 to $10.10 can bring almost 900,000 people to surpass the federal poverty line. In the United States, the poverty level for a family of four is $24,750. Increasing the minimum wage would increase the number of poor families who can make a living without any serious struggle which could even allow more consumers into the market, bringing more money to buy from the market. Although increasing the minimum wage like so will benefit many people in our economy, many other people believe that those who would benefit from the increase in the minimum wage would not be the people in need, more of the younger generation of people that work these low-paying jobs. However, this has been proven wrong in a study done by John Lopresti and Kevin Mumford in which they gathered data by doing their own studies to show who benefited the most from wages being increased. They gathered data by using the public-use Current Population Survey between August 2005 and June 2008. Their sample included people age 16 and older who were currently employed. After gathering all of their data and spreading it into their data table, the data gathered showed that people between the ages of 35 to 54 benefit the most when minimum wages are increased in their state. In order to avoid some biases, the authors also used the Robustness Tests where low-wage individuals who had small minimum wage increases still remained negative and the level of significance only declined slightly. Another extra step the authors did to go even further was by comparing if there was a difference in the increase of minimum wage affecting any demographic groups in which their results showed that there was a small, yet negligible, wage effect amongst all groups. There is no real evidence that younger people benefit the most from the increase in the minimum wage. It is only said because many people tend to believe minimum wage jobs are mostly held by the younger generation of people when many poor families are the ones that work these jobs being that it requires almost no experience to get a minimum wage paying job.
People also tend to worry about an increase in prices from an increase in the minimum wage for the companies to compensate for the increasing cost of production. In a recent study by Sylvia Allegretto and Michael Reich, the conducted some research, where the minimum wage was increased from $8 to $10, as well as evaluations of other cases on the elasticity of the prices from an increase in the minimum wage at different restaurants in the United States. Their evaluation of other cases showed an example of a price increase in San Francisco due to a 28% increase in the minimum wage to have a positive elasticity of only 0.062 for limited-service restaurants and 0.018 for full-service restaurants. These changes in the prices are so small, that it was insignificant to their studies. In their personal studies, they first gathered data by gathering menus that were up-to-date from many different restaurants online. After doing so, they then gathered menus six months after the minimum wage was increased and compared the data from before and after. In doing so, the concluded that price would only increase by 1.47% which would only reduce sales and employment by less than 1%. Their studies also found that although the changes in price due to an increasing minimum wage do cause some unemployment and price increase, it is so small that it is insignificant and the effects will be very little to none.
Increasing the minimum wage has also been found to increase the number of workers who report their health. In another study where data was gathered between both men and women by Brady Horn, Johanna Maclean, and Michael Strain, they were able to find an increase in the number of people who reported their health. For their data they gathered, they used cross-sections of lower-skilled adults from the BRFSSF which is a large telephone survey. In order to find those who would most likely be affected, they also used the Outgoing Rotation Group of the Current Population Survey between 1994 and 2014. For men, they found that a 10% increase in minimum wage led to a 0.28 percentage point increase (2.67%) that reported their health as fair or poor, whereas for women, they found that a 10% increase in minimum wage led to a 0.11 percentage point increase (1.03%) of those who reported their health as fair or poor. More people tend to report their condition of health with the increase in the minimum wage since they are more able to afford the costs associated with it. With an increase in the number of people reporting their health as fair or poor, it could also lead to a longer lifespan since more people are reaching out to get the necessary health checkups.
An increase in the minimum wage affecting inequality has also been one of the several other questions that people tend to debate on. In a study done by Diego Angel-Urdinola, he gathers data from two Latin American economies and compared them to the United States. With his research and data gathered, he concluded that the study done by the United States showed that the impact on earnings inequality was little to none and made it negligible.
Conclusion
An increase in minimum wage can be beneficial to our economy if it is done slowly over time. With all the researches and data shown, it is clear that increasing the minimum wage would have an insignificant change to several different things such as unemployment rates, inflation, and much more. Increasing the minimum wage would help thousands of families live a better life with better morals due to less stress of bills owed as well as allow our economy to grow since more money will be in circulation. Life expectancy would increase due to people having extra funds to afford medicine. Of course, there will be small price inflation due to an increase in the cost of resources but when done slowly, these effects will be minuscule.
Bibliography
Sturn, Simon. 2018. 'Do Minimum Wages Lead to Job Losses? Evidence from OECD Countries on Low-Skilled and Youth Employment.' 647-675.
Hoffman, Saul. 2016. “Are the Effects of Minimum Wage Increases Always Small? A Reanalysis of Sabia, Burkhauser, and Hansen.” 295-311.
Nguyen, Loc. “The Minimum Wage Increase: Will This Social Innovation Backfire?” October 1, 2018
Lopresti, John. Mumford, Kevin. “Who Benefits from a Minimum Wage Increase?” October 1, 2016
Cuong, Nguyen. “Do Minimum Wage Increases Matter to Firm Profitability? The Case of Vietnam.” August 1, 2017
Allegretto, Sylvia. Reich, Michael. “Are Local Minimum Wages Absorbed by Price Increases? Estimates from Internet-Based Restaurant Menus” January 1, 2018
Horn, Brady. Maclean, Johanna. Strain, Michael. “Do minimum wage increases influence worker health?” 2017
Angel-Urdinola. “Can a minimum wage increase have an adverse impact on inequality? Evidence from two Latin American economies” February 8, 2018
