Minimum Wage

The federal minimum wage has been at a constant $7.25 since 2009. Everyone wants their wages to be increased, however, there are negatives and positives in doing so. “. For most low-wage workers, earnings and family income would increase, which would lift some families out of poverty. But other low-wage workers would become jobless, and their family income would fall— in some cases, below the poverty threshold” (2021). Higher wages could increase the cost that employers have to produce goods and services. The employers then have to pass some of those costs on to consumers in the form of higher prices or even removing the item completely from inventory. Those higher prices will cause consumers to purchase fewer goods and services than they could afford before. The employers will be forced to produce fewer goods and services ultimately reducing their employment of both low-wage workers and higher-wage workers.

When the cost of employing lower waged workers goes up, the relative cost of employing higher-wage workers or investing in machines and technology goes down. Some employers, therefore, respond to a higher minimum wage by reducing their low-wage staff and shifting toward those substitutes. Although this will reduce employment among low-wage workers, it might increase it among higher-wage workers.

There is also a possibility that increasing the minimum wage can boost employment. “Those circumstances arise when employers have what is known as monopsony power — that is, bargaining power that allows them to set wages below the rates that would prevail in a more competitive market. (For example, employers have monopsony power when workers require substantial time and resources to search for and switch to a new job.)” (2021) Firms that have monopsony power can pay their current workers less than the wage needed to attract new hires. This is because a new hire usually costs more to hire in benefits and startup costs than it would to give a current employee a raise. In a booming employment market such as now, businesses, have to offer more in order to attract potential employees, pre-covid, they could pay an employee less because there wasn’t a movement of people looking for remote work or even work that better fitted their family’s schedules. Covid helped a lot of people realize that they have to put their families first and do what is best for them.

States that currently have a minimum wage higher than $7.25, will not notice much of a difference if the federal wage was to increase. Supply and demand have caused basic necessities to increase in price but there has been no increase in the wages that employees should receive to match these costs. “We can assess the changes in employment from the difference between the number of excess jobs at and slightly above the minimum wage and the number of missing jobs below the minimum” (Cengiz et al, 2019). Ultimately companies would rather hire one person slightly above minimum wage than hire two people below it as it will always cost more. For these reasons, I believe the minimum wage should be increased but I think it should be done strategically and over time. If jobs decide to let go of the people that make the smallest amount of money, it will put more strain on communities that already suffer from poverty. If increases can be done strategically such as a few dollars a year until the cap is reached, it will not pose as big of a concern to companies as it would if they were required to increase everyone’s pay by 5$ at the same time.

Reference

Cengiz, D., Dube, A., Lindner, A., & Zipperer, B. (2019). The Effect of Minimum Wages on Low-Wage Jobs. Quarterly Journal of Economics, 134(3), 1405–1454. https://doi-org.proxy- library.ashford.edu/https://academic.oup.com/qje/issue

Effects of Increasing the Minimum Wage: A raise would increase incomes but could mean job losses. (2021). Supreme Court Debates, 24(4), 7–11.

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Prior to beginning work on this discussion,

Read Chapters 3 and 4 of Macroeconomics: Private and Public Choice. For this discussion, you will debate with your peers the concept of increasing the minimum wage.

In order to participate in a knowledgeable debate, you must have a firm understanding of each side of the issue. Your textbook discusses minimum wage in detail and like many traditional economists, for the most part, does not support increases in the minimum wage citing the negative impacts that such increases may create. Research at least two scholarly and/or credible resources (other than the Macroeconomics: Private and Public Choice text). Use factual information; do not simply document or restate opinion.

Write an initial post of at least 200 words that either supports or does not support an increase in minimum wage. Be sure to use economist lingo and include facts and support your response with at least two scholarly and/or credible resources.

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