Thanks in part to the 100-hour agenda plans of the Democrat Congress, the idea of increasing the minimum wage is now high on the national agenda.
There are, of course, myriad misconceptions related to the situation. And, as with most political issues, there seem to be voices both in favor and against the concept. Opinions are often based on different studies or interpretations of economic indicators related to such a move.
Those in support point to reports which show such a hike in minimum wage has no significant impact on overall employment. Those who oppose quote from studies that obviously tend to show the opposite scenario. Moreover, some voices being raised are speaking primarily from a partisan perspective or from a standpoint of perceived enlightenment. In addition, there are those who are addressing the matter from a purely emotional standpoint. In the midst of all of the seemingly contradictory information, it can be difficult to sort through to what’s really best for the economy (and for those attempting to find employment within it).
So, what is the situation with raising the minimum wage level? Let’s take a look.
Currently, federal regulations dictate that all “non-exempt” employees (a designation which covers most hourly folks) will be paid at least $5.15 per hour. Five states have no minimum wage laws, and 29 states have laws that call for minimum wages higher than the federal stipulation. In cases where both state and federal regulations exist, an employee is entitled to receive the higher of the two. Texas is among 15 states in which the federal and state requirements are the same.
The United States, of course, is not the only nation that has minimum wage rules. In fact, our statutory minimum wage law was authorized in 1938, some four decades after New Zealand and Australia. Currently in the European Union, approximately 70% of the countries have government policies regarding the lower wage level. The others rely on employer groups and trade unions to establish minimum earnings.
The minimum wage does not increase automatically with inflation or some other index. In fact, it’s been almost a decade since this subject has been on the front burner. There have been only four hikes since 1990; the first two bumps of $0.45 each occurred in 1990 and 1991 and placed the bottom salary at $4.25. In 1996 and 1997, modifications to the Fair Labor Standards Act lifted the minimum salary to the current level. According to some economists, when adjusted for inflation, the federal minimum wage is at its lowest level in a half century.
So, exactly what is the effect of increasing what employers must pay, and how much do the poor really benefit? This is where the studies tend to disagree. For many years, economists believed that increasing the minimum wage would create unintended hardship on families on the bottom rung by reducing the numbers of jobs available.
Here’s the logic. A profit-maximizing employer will hire additional workers as long as the value they generate is greater than their cost. So if the cost of an employee goes up without a comparable rise in their value to the firm and they become more costly than they’re worth, the job will be eliminated. If an increase in the minimum wage forces employers to pay more per hour, this argument posits, they will tend to hire fewer people at the lowest levels and will work to eliminate those positions.
There is also the argument that the increments to minimum wage are far less than the salary boost which would be required to pull most people out of poverty. The bottom line is that this train of thought would tell us there is a risk that some of those with the lowest skill levels and least potential productivity will find themselves minimum-waged right out of a job. And better for these people to have any job than no job at all, say the most hard-core believers of the ”minimum wage is bad” argument.
There is, of course, evidence on the other side of the argument such as published research from Princeton University economists that shows no depreciable change in unemployment trends between two neighboring states in the east with different minimum wage rates. And employment statistics following the 1997 raise also revealed no unemployment ripple effect was created by that legislation (though it’s impossible to isolate that one specific condition).
Clearly, there are certain social goals which are contrary to economic goals. The Washington-based Economic Policy Institute indicates that about 15 million Americans would be directly affected by an increase in the minimum wage, and almost half of these are the sole source of earnings for their entire family unit. Improving the lot of these people is a goal with merit. However, that’s really not the issue. The essential question is not whether we want to reduce poverty (certainly YES), but rather whether an increase in the minimum wage is the best way to do so.