75 Economist Back Minimum Wage Hike (Article)
On Tuesday 75 economist backed the democratic proposal to raise the minimum wage to $10.10 over a three year time span. The bill known as the 'Fair Minimum Wage Act' would raise a full time minimum wage workers pay from $15,000 to $21,000 per year, which could bring a family of three above the poverty line. There would also be a raise in the base wage of workers who earn tips from $2.13 to $3.00 in one year and then gradually would be adjusted to match 70% of the federal minimum wage, which would be expected to reach that mark in six years. Critics say the raise in pay will cause a drop in the number of jobs and lead to a raise in the price of goods and services. Some studies have shown negative effects on jobs, while others have shown little or no effect on the amount of jobs. The bill is not expected to pass this year because some feel it will not make it through the house. We should hear more about this as midterm elections are coming up here in 2014.
6 comments:
This is an interesting idea and had seemed to be in the news for a long time (about raising minimum wage). It'll be interesting to see how small businesses do if this were to be approved and how they'd handle paying their workers.
Raising minimum wages from $7.25 to $10.10 in three years is an almost 40% hike. If I was an employer (small business owner), I would be unease with a 40% increase in my expenses, or a 40% decline in net income (Ceteris Paribus). Depending on the price elasticity of my good/service, I would probably lay off workers to cut costs.
Ideally, these minimum wage raises would turn into more money spent in the economy, but the key word is IDEALLY. But let's inject a dosage of realism. Business owners would do exactly what you said they would do. There's little chance that they would be able to tough it out through these wage raises and not lay-off any workers. Good idea and will probably happen over time, but patience is key.
Raising the minimum wage could pay off in the long run. If people are lifted out of poverty and don't have to rely on welfare or other government supported institutions, then the government will not have to increase grants for non-profits. When salaries increase there are less crimes, hospital bills and poverty.
But does this decrease incentives for people? Does it make people want to continue working hard to get a higher pay raise or to just keep their job and do mediocre at it? Or will this allow the mediocre employees to get fired (which would be more efficient) and keep only the hard working ones?
It's kinda funny, never have worked minimum wage. My first job was for my township, $11 an hour; next paying job was like $3+tips (but I never got a good amount). One argument I have heard against minimum wage is that those jobs are expected to be staffed by people who have yet to graduate. For those who are trying to make a living, they should get a job that does not pay minimum wage.
Raising the minimum wage is quite idealistic. It sounds like a good plan, but that is because people fail to take into account how the business owners will react: either raising prices (which will lead to calls for raising minimum wage again) or firing some workers. Regardless, the workers still will be negatively affected, while business owners who wish to stay successful will adapt. If they don't adapt, then they lose the game, and their workers will be out of a job.
There's also the idea of if prices are raised it's not going to simply affect the minimum wage workers who got the increase, it's going to raise the cost of living for everyone. But there's not necessarily going to be a resulting increase in "nominal" income for the rest of the economy, which would ultimately decrease the overall consumption as necessities would eat up more net income and people would have lower disposable incomes to spend. This could end up having the effect of lowering the GDP not helping to boost the economy.
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