Running Head: MINIMUM WAGE IN AMERICA 1

Minimum Wage in America

Askia Buggs

University of Texas at El Paso

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There have been numerous discussions about laws on minimum wage in America. This

has been the trend since the Democrats took control as the majority leader in both the Senate and

the House of Representatives thereby allowing them total control of the Congress. Questions

have been asked on what benefits can come to the lowest income earners in America due to an

increase in the minimum wage. Similarly, the discussions have also touched on the adverse

effects of this piece of legislation on workers. One of those who think that it is possible to live on

a minimum wage bill is David and William in Minimum Wages and Employment. There are

those who feel it is not possible to survive on a minimum wage bill like Mincer in his journal

Unemployment Effects of Minimum Wages. This paper will objectively analyze both

arguments for and against an increased minimum national wage.

The statutory minimum wage is the lowest wage that is legally accepted for employers to

pay their employees. In 1938, the Fair Labor Standards Act was passed. This law focused on

minimum wage while at the same time highlighting on overtime in particular jobs as well as

criminalizing oppressive child labor. There have been several amendments to this legislation

which touched on increasing the minimum wage. According to the Fair Minimum Wage Act of

2007, the federal minimum wage was raised from $5.15 to $7.25 in three parts. As a result,

several states passed their minimum wage laws amidst strong opposition from stakeholders like

multinational companies. By 2007, a majority of the states had existent wage laws apart from a

few states such as Alabama, Mississippi, and Tennessee.

The emotive issue of whether or not to raise the minimum wage or to set one has caused

rifts across the political and economic divide. Those who are vouching for the increased wage

base their argument on three foundations (David et al., 2007). One of them is the social welfare

of the least paid workers. Besides, they fault the corporate structure and the lack of legislation
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which should force even wealth distribution in the society. Also, they concentrate on how

beneficial increase in the minimum wage will help stimulate the economy of the United States.

According to Preston Miller who was the financial advisor to the Federal Bank of Minneapolis,

economic analysis alone cannot purely form the basis on which minimum wage is increased. The

input of elected officials should also be considered. This is because people are different and

value specific things differently than others. Those advocating for an increased minimum wage

argue that the benefits of increasing minimum wage are far greater than the economic costs

(David et al., 2007). Likewise, they feel that the current earning levels for minimum wage

employees should not be considered a living wage, therefore, necessitating the increase. As a

result, an increase in the minimum wage would be a step in the right direction.

A majority of the big companies possess a substantial net income complete with over-

generous compensation packages for their chief executive officers. This is in line with their

fiduciary duty in making high-profit margins for their shareholders. In many cases, they would

consequently not remunerate their employees more than what they feel is economically efficient

(David et al., 2007). If these companies decide to stand by their fiduciary duty, they will never

pay more than the required amount so as to maximize their profits on behalf of their

shareholders. If the government raises the minimum wage to be paid by these companies, the

standards of living of the lowest income American workers can be improved at the expense of

lower shareholder returns. This would go a long way in reducing poverty.

Those opposed to an increased minimum wage suggest that doing so would only do more

harm than good. According to economic principles, an increase in the price of a commodity leads

to a decrease in the demand for that commodity if all factors are held constant, and the need for

the product is not entirely inelastic. Likewise, labor behaves in the same way. This is because a
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sudden increase in employment costs will result in decreased demand for workers thus lower the

expenses incurred by the companies (Mincer 1976). Consequently, this can lead to a reduced

overall output or a possible replacement of human workforce with machines when deemed

necessary. Therefore, the increased minimum wage will lead to increased wages for those who

will be retained and result in unemployment to those who will be laid off. The question that

arises herein is, Does an increased minimum wage make it better for the low wage American

worker? Those who will have an increased wage bill will certainly be better off than the newly

unemployed individuals.

On the same note, the people who will have lost their jobs will also lose their incomes

and earn nothing. Considering that the new higher waged workers significantly gain enough to

overshadow their unemployed counterparts, this will hurt the low-income employees. Those

companies that are located in industries that require large amounts of unskilled labor will not be

able to hire them. Alternatively, they could choose to lay off workers to remedy the increased

costs. This will result in higher industry prices on the goods and services they offer to counter the

higher cost of labor (Mincer 1976). Although those who remain employed will mostly make

more money, they will need to spend large amounts to buy the needed commodities due to

inflation of costs.

There are those who feel that an increased minimum wage can not only hurt a business

and its employees but an entire industry. There are particular companies and industries which are

more dependent on labor and will be more affected than other firms. If the managers in this type

of business or industry have the option of increasing the prices of commodities in a bid to

compensate for labor costs, they can end up saving their workforce (Mincer 1976). This price

increase can eventually translate to reduced sales for those who will opt for this route. In doing
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so, the level of competition with other companies will be reduced significantly. The effects of

reduced competitiveness will be felt as far as in the global market, therefore, justifying the

opinion of the adverse effects of an increased minimum wage on business.

Nevertheless, one of the commonly overlooked disadvantages of increased minimum

wages is that in the long run, it can lead to lower wages for the affected. Improved minimum

wages will encourage a cut on employee training expenses by employers. This will deprive the

affected workers the much-needed means of long-term career advancement. In other words, what

these workers are doing is sacrificing the opportunity for advancement and increased wages for a

small income increment.

Conclusion

In ones perspective, an increased minimum wage will lead to greater unemployment

among the poor, adverse effects on low-income employees and widespread economic suffering.

Those who advocate for an improved minimum wage concentrate their argument on social

welfare. For them, it is necessary to overlook the negative economic effects of this increment as

it is morally not right to segregate a portion of citizens living in poverty who work full-time.

They feel that what low-income families are earning as a minimum is not even worthy to be

considered a living wage. The required action will be to raise the minimum amount as a step in

solving the current economic problems. This is because according to the fundamentals of

economic theory, increased cost of labor will lead to reduced demand if all factors are held

constant. This will result in higher levels of unemployment for the minimum wage workers.

However, the depressed market for the unskilled workers will lock them out of employment

thereby overshadowing the benefits gained by the working group. In as much as it would excite
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those who will be retained to gain an extra three dollars an hour if they were to be part of the

unemployed class, then they would change their stance immediately.

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References

David Neumark and William L. Wascher (2007), "Minimum Wages and Employment,

Foundations and Trends in Microeconomics: Vol. 3: No. 12, pp 1-182.

Mincer, J. (1976). Unemployment effects of minimum wages. Journal of Political Economy,

84(4, Part 2), S87-S104.