Minimum Wage Part II: Pro vs. Con

By David Pilley on May 23, 2012

(Continued from Part I) From 2009 information, about 3.6 million workers earned at or below minimum wage. (2009 was the first year of $7.25 as the federal minimum wage.) This makes up about 5 percent of all hourly-paid workers.  About 6 in 10 of these workers were employed in food preparation and serving jobs. When minimum wage data was first collected in 1979, the high of about 13 percent of hourly-paid workers earned at or below minimum wage. (The federal minimum wage in 1979 was $2.90 per hour, which translates to $8.59 in 2009 dollars and $9.19 in 2012 dollars.) Some people believe having a minimum wage reduces poverty by increasing the standard of living for workers. Others believe a minimum wage is not effective in fighting poverty and is bad for business. Here is a list of arguments for and against, as well as an explanation of minimum wage’s potential consequences.

• Increases standard of living for poorest and most vulnerable class in society
• Motivates and encourages employees to work harder
• Stimulates consumption by putting more money in hands of low-income people
• Removes low paying jobs, forcing workers to train for, and move to, higher paying jobs

• May cause price inflation as businesses try to compensate by raising prices of goods being sold
• Can result in exclusion of certain groups from labor force
• Is less effective than other methods at reducing poverty
• Discourages further education among poor by enticing people to enter job market

Proponents of the minimum wage believe it increases the standard of living for the poorest members of society. Of course, this is only applicable to those who are employed, as the poorest members of society are unemployed and/or homeless. Nevertheless, setting a minimum amount of pay does increase how much a person can buy. It sets a standard of living because, if employers didn’t have a minimum they had to pay laborers, much of the American workforce could end up as sweatshop victims, earning just pennies or dimes. By having a minimum wage, the economy can be further stimulated by putting more money in the hands of more people, many of which end up spending everything they earn in order to maintain a decent lifestyle in a safe housing settlement. It also motivates employees to work harder. The better the work performance, the better the relationship between employee and employer, and employer may offer a pay raise to employee. (This depends completely on the individual employer. Some employers can be stingy and may offer only position changes rather than pay changes; therefore, a minimum wage job may simply motivate a worker to get a better job with a different employee rather than working harder on the current job.) The removing low paying jobs argument is clearly debatable, as there are more low-paying jobs than six-figure jobs. The pros are also affected by the consumer price index, or the amount of inflation on certain goods every year. If minimum wage does not go up in response to inflation, standard of living will decrease, and consumption will go down. As a result, ten American states raise their minimum wage every year in accordance to the CPI. These states, including Arizona, Colorado, Vermont, and Washington, have healthier economies (and happier residents) than most states that do not adjust their minimum wages.

Opponents of the minimum wage believe it is bad for business. Employers are in a constant struggle to find equilibrium and make gains. They have to set the prices of their goods at a certain level, and consumers will not buy them if the price is too high. Employers also need to maintain a certain number of employees, and if the employer pays his employees too much, the company may go out of business. Not everyone can earn six figures, and some people simply have to be paid the minimum wage. A steadily increasing minimum wage may result in price inflation, or at least an inflation that is higher than what already occurs. On one hand, opponents believe some groups may be excluded from the labor force. One group of people may be more willing to work a minimum wage job than another group of people. On the other hand, opponents believe the minimum wage discourages some people from furthering their education, resulting in them being stuck with a minimum wage job. There may be a better method to reduce poverty, such as the Earned Tax Income Credit (EIC). With the EIC families with qualifying children may get back around $5,000 in refunds after filing taxes. (In 2011, a married couple that earned up to $16,449 with three or more children could get a maximum of $5,751. A similar married couple that earned less than $43,350 could earn a tax credit, although qualifying families making over $40,000 would get back significantly less than families making under $20,000.) Instead of raising minimum wage, opponents suggest raising the EIC in order to stimulate the economy.

Whether you believe the minimum wage is good or bad, it’s not going anywhere any time soon. A state government could abolish its own minimum, but the state would still have to abide by the federal minimum, which can be changed only by an act of Congress. Workers’ rights is a bipartisan issue, and people on both political sides believe having a minimum wage is better than not having one. It is a balancing act; if minimum wage is too low, everyone could be working for Ebenezer Scrooge. If minimum wage is too high, hyperinflation could result, and people could end up buying milk with a wheelbarrow of dollars. Raising the EIC every year could result in mounds of unnecessary and indecipherable tax jargon. The minimum wage plays a vital role in determining how our economy works and setting a standard of living. People work these minimum wage jobs, and people are what make the economy go. If politicians really want to talk about jobs in the upcoming election, they should be talking about the minimum wage!