Pros and Cons of Raising a Minimum Wage
A minimum wage is the lowest hourly wage that employers have to compensate the workers for their service - Pros and Cons of Raising a Minimum Wage introduction. Currently the federal minimum wage is $7. 25 per hour. However, many states also have their own minimum wage laws. In those instances, the employee is entitled to the higher of the two minimum wages. In this paper we will discuss the brief history of the minimum wage law and its current legislation. We will also analyze the pros and cons of raising the minimum wage, and the merits of each argument.
The minimum wage was first introduced in New Zealand in 1894. It wasn’t until 1938, that President Franklin D. Roosevelt signed the first US minimum wage law called the Fair Labor Standards Act (FLSA). The FLSA sets standards for the basic minimum wage, which required employers to pay “the federal minimum wage of 25 cents an hour in order to maintain a minimum standard of living necessary for health, efficiency, and general well-being, without substantially curtailing employment” (Fitzpatrick, 2009).
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Up until then, the United States had no legislation to protect workers from exploitation and therefore, “tens of thousands of workers were routinely exploited in sweatshops and factories, forced to work in horrible conditions and for pennies a week” (Fitzpatrick, 2009). Currently FLSA requires employers to pay employees a minimum wage of $7. 25 and one-and-one-half-times their wage for overtime. In 2007, President George W. Bush signed into law the Fair Minimum Wage Act of 2007. The act stated minimum wage would rise from $5. 15 to $7. 5 within two years following a three-step schedule. The steps were: from $5. 15 an hour to $5. 85 an hour on July 24th, 2007; from $5. 85 an hour to $6. 55 an hour on July 24th, 2008; and from $6. 55 an hour to $7. 25 an hour on July 24th, 2009. The federal minimum wage has since remained at $7. 25. PROS AND CONS Supporters of the Fair Minimum Wage Act have insisted that raising the minimum wage will benefit a vast number of Americans, especially those with families to support. These supporters are generally Democrats and employees who work at a minimum wage.
They believe that a minimum wage increase is needed to continually maintain its value. The federal minimum wage is not adjusted for inflation therefore every time inflation goes up and the minimum wage remains the same, its value decreases. “The value of the minimum wage in real dollar terms has risen and fallen on political tides, peaking in 1968 when an hour’s wage pay bought nearly 5 gallons of gas. By 2006, it paid for less than 2 gallons” (Fitzpatrick, 2009). Those who oppose the Fair Minimum Wage Act argue that higher wages will cause higher unemployment.
These supporters are generally Republicans and employers of small businesses. They believe businesses will not be able to afford to pay higher wages and therefore must lay off employees. They also believe that increasing the minimum wage can jeopardize small businesses because smaller businesses operate at a smaller profit margin than large companies. Therefore, some smaller businesses would need to lay off employees to reduce their overhead costs and some may be forced out of business completely. Furthermore, they believe increasing the minimum wage will make inflation go up.
They believe businesses have no choice but to pass the increase in cost to the customers by increasing prices of their products and services. ANALYSIS OF ARGUMENTS Those in favor of the Fair Minimum Wage Act, claim this act will restore the minimum wage value and provide for the wellbeing of the minimum wage workers and their families. However, the validity of this argument may not be true. There are more teenagers working at minimum wage than adults with families to support. A statistical profile completed by J. D. Roth states that “most minimum wage earners are young.
While 2. 2% of all hourly workers earn minimum wage or less, just 1. 4% of workers over the age of 25 are paid at or below the Federal minimum wage. More than half (51. 2%) of minimum wage workers are between 16 and 24 years old“ (Roth, 2007). Increasing the minimum wage may add value to the working dollar. However, this value will not last because employers are forced to pass the increase to their customers. Furthermore, the employers may be forced to cut back and eliminate some positions entirely to keep themselves from going under.
A study done by Ball State University’s Center for Business and Economic Research suggested that increasing the minimum wage may have led to the elimination of 550,000 jobs. It stated that “the Bureau of Labor Statistics from 1999 to 2009 found that raising the minimum wage to its current level of $7. 25 during the recent recession caused some businesses to scale back on filling vacant positions or eliminate jobs altogether” (Hicks, 2010). Those against the Fair Minimum Wage Act claim that higher wages will cause higher unemployment and force small businesses to go out of business.
The Minimum Wage Study Commission (MWSC) considers the validity of this argument to be false. MWSC is a committee made up of congressionally sponsored economists that looked at the economic impact of the minimum wage at the late 1970s. According to the MWSC, they found no evidence that the minimum wage increase had any effect on adult employment. Most economists also believe that a “majority of minimum-wage earners work in a outsourcing-resistant service jobs, businesses will have a hard time handing out pink slips en masse” (Fitzpatrick, 2009).
Supporters of the Fair Minimum Wage Act do not believe that higher wages will force small businesses to go out of business. For example, they argue, “even if all employees in a firm were working at minimum wage for a retail business, the minimum wage hike of approximately 10% would result in an annual 2-2. 5% increase in total costs. What will most likely be an extremely small increase in labor costs is countered by increased productivity and decreased costs for training and recruitment of new employees” (Burbank, 2001). CONCLUSION
The current federal minimum wage at $7. 25 may be sufficient for those who live in a certain area. For instance, if you live in Lincoln Nebraska the cost of living is not as high as the cost of living in Los Angeles. Therefore, an income of $15,000 in Lincoln Nebraska can be sufficient. Since different states have different cost of living, the federal government should keep the federal minimum wage low while letting individual states determine whether to lower or raise their minimum wage as needed depending on their cost of living.