Minimum Wage Impact

This isn’t my first blog post about minimum wage, however with the debate continuing on in Washington I think it is important to come back to the topic and look at it from new angles.

Personally, I think minimum wage should be raised from its current level of $7.25. I don’t have an opinion on how high it should go I just believe it is to low currently. I also am very aware of the economic impact that raising the national minimum wage could have and in previous blogs have claimed that test markets could help fully understand the impact of increasing minimum wage.

In the Wall Street Journal I recently found an article on the impacts of increasing minimum wages in individual counties. Its clear that theres not one change resulting from the increase in minimum wage. Consequences vary from county to county, and differ from business to business. Some of the changes were to the product side of the business, while other changes impacted the human capital aspect. Some businesses surveyed said they had to cut back on hours they assigned employees while others said they closed marginal stores to compensate the raise. Other impacts included using less shortening in the fryer at White Castle, and cleaning the drive through lanes less often to make up for increased wages.

The US hasn’t risen the national minimum wage since July of 2009, when it was raised to its current rate of $7.25. Today law makers are arguing weather or not to raise it 40% up to $10.10. The raise will most likely reduce US employment by 500,000 jobs, however it will take an estimated 900,000 people out of poverty.

In my opinion the law makers should agree on the raise of minimum wage. Convincing anyone that a law resulting in 500,000 people losing their jobs can never be a good thing. And normally I am not one to argue a case of the ends justifying the means, however I think this is a unique situation. Since the beginning of 2014, the US has reported about 500,000 new jobs, or a number equal to that of what we expect to lose with a wage raise. A 3 month set back in the employment sector will likely set back the overall economy, however with its current state I don’t think the set back will outweigh the potential growth. My other reason for being in favor of the raise is peoples ability to adapt. Businesses already found ways to compensate for the wage raises by increasing menu prices and altering ingredients. After an overall wage increase they will adapt and move on. You may find lower quality products, or longer lines for service, however if you are willing to pay a premium you will be able to find products that are still at a higher grade.

7 thoughts on “Minimum Wage Impact

  1. wyna

    Federal minimum wage for government worker and contractors are already at $10.10 level since the executive order one and a half month ago. And many people are actually paid around $10.10 despite the federal minimum wage at $7.25. So, I think it is more a symbolic move to raise the minimum wage.

  2. sekoch

    The 900,000 number of people who will be elevated out of poverty is a strong number in favor of the change. However, a 40% increase would be one of the biggest increases in U.S. history (the only bigger change was when the min. wage went from 40 cents to 75 cents). That, to me, is taking a big risk – especially considering that many of the recent wage increases were prior to or during recessions. While costing some people their jobs for the benefit of a larger number may be justifiable, risking another recession, to me, makes the argument for the increase very questionable.

  3. fanglue

    Interesting posts. The minimum wage policy would have strong effects over high school students or say fast food restaurant workers. Even though the population influenced is not that large, the total amount of money spent on this project cannot be ignored.

  4. tyuan@umich.edu'tyuan

    I insist that increasing the minimum wage will hurt lots of small firms because it’s harder to them to hire employees in this way if they need to pay much more. Perhaps Federal government should not increase that much but gradually to avoid a big effect.

  5. xcharles

    I like the way you view things. In my opinion, I think the increase in minimum wage is very well-intentioned. However, I just wonder whether or not this is the right time to do it. After still seeing somewhat sluggish job creation, it seems that the right time to raise minimum wage would be at a point when the US can safely say that it’s out of recession.

  6. josimon

    You make some great points. We really cannot ignore the the total amount of money spent on this project. But I also wonder if this is the right time to make this type of move. Jobs have not really picked up and the economy has seem to come to a stand-still.

  7. ajsanna

    The key issue at hand here, in my opinion is that wage growth has been stagnant as the gains to productivity have primarily accrued to capital and American workers feel disenfranchised. In our democracy, a large disenfranchised group will likely command some strong voting power and can influence change like a minimum wage increase. I am torn on whether it is good or bad for the economy but I do believe that it is relatively inevitable.

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