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Topics Homepage> Minimum wage does more harm than good

Minimum wage does more harm than good

PRO (4 assertions)

1. The Economic Policy Institute states that when Obama passed the Fair Minimum Wage Act of 2007 in 2009, $60 billion in additional consumer spending was injected into the economy.

1. Assertion: The minimum wage is linked to youth crime.

Reasoning/Evidence: From an economic, utilitarian perspective, unemployment creates a motive to participate in crime because crime is an alternative way of satisfying one's economic needs. Second, unemployed individuals must endure the psychological strain of not being able to achieve their financial aspirations. For reasons that need not be economically rational, such strains can also lead to criminal delinquency. Hashimoto (1987) analyzes national-level time-series teen arrest data derived from the FBI's Uniform Crime Reports from 1947 to 1982. Using a complex model specification, he finds that changes in the minimum wage over the 1947-2023 period are positively associated with teen arrests, for property crime as a fraction of total arrests. Chressanthis and Grimes (1990) also use national-level Uniform Crime Reports data. Their regressions cover the 1960-1987 period and include unique controls such as school enrollment rates and capital punishment rulings by the Supreme Court. They conclude that the minimum wage positively affects the incidence of murder, rape, and motor vehicle theft among teenagers.

2. Assertion: Minimum wage reduces job benefits.

Reasoning/Evidence: Even when minimum-wage don't put low-wage workers out of work, they don't necessarily help them either. The reason: Employers respond to forced higher wages by adjusting other components of employee compensation, such as health insurance or other benefits. Although few minimum wage workers have employer-provided health insurance, employers have found other ways to adjust, such as cutting on-the-job training. In their study of changes in the minimum wage laws between 1981 and 1991, Neumark and Federal Reserve Board member and economist William Wascher concluded that "[M]inimum wages reduce training aimed at improving skills on the current job, especially formal training."

3. Assertion: Minimum wage encourages teenagers to drop out.

Reasoning/Evidence: Some minimum wage advocates argue that teenagers should be in high school or college anyway - not working - and therefore the loss of jobs for young workers is somehow not very harmful. Ironically, though, economic studies have shown that a higher minimum wage entices some teenage students to drop out. With fewer jobs to go around and a greater number of dropouts, some newer dropouts take jobs from the less-educated and lower-productivity teens who had already left school. Even worse, the failure to find work early in their lives harms young people later in their work lives. For example, economist David Neumark of the Public Policy Institute of California found that even people in their late 20s worked less and earned less the longer they were exposed to a high minimum wage, presumably because the minimum wage destroyed job opportunities early in their work life. Individuals between the ages of 16 and 24 accounted for 53 percent of all minimum wage-earners in 2005. When the minimum wage rises, it increases the incomes of teenagers with minimum-wage jobs, making entering the workforce more attractive. This, in turn, can be expected to cause some students to spend less time in school and more time working. While the overall number of minimum-wage jobs might decrease, if employers prefer to hire teenagers to low-skilled adults, the number of teenagers enrolled in school would drop. Recent research has confirmed exactly this effect. David Neumark, professor of economics at Michigan State University, and William Wascher, a researcher with the Federal Reserve, found that minimum wage hikes decrease the proportion of teenagers enrolled in school.In states which allow students to drop out of school before they are 18, a 10 percent increase in the minimum wage caused teenage school enrollment to drop by two percent. In states which require students to stay in school until they are 18, raising the minimum wage had no effect. In sum, when students have the option, higher minimum wages motivate some to leave school and start working. Another recent paper confirms this conclusion. Duncan Chaplin of the Urban Institute, Mark Turner of John Hopkins University, and Andreas Pape of Michigan State University examined teenagers' continuation ratios-the proportion of a school's students in any year who either graduate or progress to the next grade level.They found that higher minimum wages decreased continuation ratios and led teenagers to drop out of school. Again, this result was present only in states where teenagers could drop out of school at younger ages. Workers need skills and education to get ahead in the economy, and workers without a high school diploma face difficult career prospects. Raising the minimum wage actually motivates teenagers to make choices that may push them into poverty later in life.

4. Assertion: Minimum wage creates unemployment.

ReasoningIn a free labor market, wage rates reflect the willingness of workers to work (supply) and the willingness of employers to hire them (demand). Worker productivity is the main determinant of what employers are willing to pay. Most working people are not directly affected by the minimum wage because their productivity and, hence, their pay, is already well above it. The law of demand says that at a higher price, less is demanded, and this applies to labor. Because a legislated increase in the price of labor does not increase workers' productivity, some workers will lose their jobs. Which ones? Those who are the least productive.

EvidenceMinimum wage laws mostly harm teenagers and young adults because they typically have little work experience and take jobs that require fewer skills. That's why economists looking for the effect of the minimum wage on employment don't look at data on educated 45-year-old men; rather, they focus on teenagers and young adults, especially black youth. Paul Samuelson, the first American winner of the Nobel Prize, put it succinctly back in 1970. Analyzing a proposal to raise the minimum wage to $2 an hour in his famous textbook, Economics, he wrote, "What good does it do a black youth to know that an employer must pay him $2 an hour if the fact that he must be paid that amount is what keeps him from getting a job?" A comprehensive survey of minimum wage studies found that a 10 percent increase in the minimum wage would reduce employment of young workers by 1 percent to 2 percent. To put that into perspective: Gov. Schwarzenegger proposed 15 percent increase in the state minimum wage would destroy about 35,000 to 70,000 unskilled jobs - putting 1.5 to 3 percent of young people out of work. Overall, the increase in California would eliminate about 70,000 to 140,000 jobs. A 15 percent increase in the minimum wage nationwide would destroy about 290,000 to 590,000 young people's jobs, and about 400,000 to 800,000 jobs overall. Therefore, having a minimum wage decreases employment and in general puts young Californians out of work.

CON (4 assertions)

1) "A minimum wage is not beneficial to our country or to the people of it. It should be abolished as soon as possible." -Secretary of State, Hillary Clinton
2) "A minimum wage harms our economy. It threatens the livelihood of our citizens and thrusts our nation into danger!" - Rosie Rios, the Treasurer of these United States of America

Minimum Wage: the lowest wage paid or permitted to be paid which in this case the federal minimum wage is $7.25 per hour.
Harm than good: harm than good in terms of our economy

1. Assertion: Minimum wage does not negatively affect jobs.

Reasoning/Evidence: A 1998 Economic Policy Institute study failed to find any systematic, significant job loss associated with the 1996-97 minimum wage increase (Bernstein and Schmitt 1998). In fact, following the most recent increase in the minimum wage in 1996-97, the low-wage labor market performed better than it had in decades (e.g., lower unemployment rates, increased average hourly wages, increased family income, decreased poverty rates). Studies of the 1990-91 federal minimum wage increase, as well as studies by David Card and Alan Krueger of several state minimum wage increases, also found no measurable negative impact on employment. New economic models that look specifically at low-wage labor markets help explain why there is little evidence of job loss associated with minimum wage increases. These models recognize that employers may be able to absorb some of the costs of a wage increase through higher productivity, lower recruiting and training costs, decreased absenteeism, and increased worker morale. A recent Fiscal Policy Institute (FPI) study of state minimum wages found no evidence of negative employment effects on small businesses.

2. Assertion: It is a sign of progress.

Reasoning/Evidence: All countries started with very low paying jobs. They modernize until they become fully industrialized. For example, China has many low paid jobs because it is industrializing. Eventually, every country will become industrialized. America already is. Minimum wage is a sign of progress because it ensures safe work conditions and a fair amount of money. Every country will start out like China by paying workers very low, but eventually everyone will industrialize and adapt a minimum wage. The minimum wage is a sign of progress that all industrialized countries have. Every country in the European Union has a minimum wage. These countries are all modern and industrialized. Also Korea, passed a minimum wage law in 1988. This new law was created in the time when Korea was at their peak of industrialization. This law was beneficial, also, because the next year poverty levels in Korea dropped by almost 6%.

3. Assertion: The earnings of minimum wage workers are crucial to their families' well-being.

Reasoning/Evidence: Families depend on the money that comes into their pockets. Minimum wage insures that a family won't starve or be out on the street. It provides a safety net so that no one can make less than what they need for survival. It is completely necessary for our country because it helps keep our families out of poverty. An analysis of the 1996-97 minimum wage increase shows that the average minimum wage worker brings home more than half (54%) of his or her family's weekly earnings. An estimated 430,000 single parents with children under 18 benefit from a minimum wage. In addition, approximately 2.2 million children are benefitted.

4. Assertion: Minimum wage is good for economic recovery.

Reasoning/Evidence: To get the economy back on track, spending power has to be in the hands of those who actually spend in the real economy. That means regular people, not the super-wealthy who tend to hoard wealth or invest in financial products. The minimum wage story is not just a story about income inequality, but rather it's about an elite that has hijacked the economic system and made it work less productively than before while redistributing more of what is working to themselves.

The problem with our economy today is that the growing gap between the real wages and productivity has violated the traditional relationship between real wages and consumption. So if the productivity of each worker is rising strongly, yet that worker's capacity to purchase (the real wage) is lagging badly behind - how does economic recovery which relies on growth in spending sustain itself? Which is why policy should be more directed toward programs that increase the minimum wage and less of discredited neoliberal trickle-down” economics. Trickle-down economics is largely counterproductive because it shifts more resources into the hands of those who have less propensity to spend and keep the economy moving. Minimum wage increases put money in the pockets of low-wage workers who have little choice but to spend that money immediately in their local communities. Research has shown that raising the minimum wage boosts consumer spending, increasing the demand that drives economic growth. A 2011 study by the Chicago Federal Reserve Bank finds that minimum wage increases raise incomes and increase consumer spending. The authors examine 23 years of household spending data and find that for every dollar increase for a minimum wage worker results in $2,800 in new consumer spending by his or her household over the following year.

When the federal minimum wage was first enacted in 1938 at the height of the Great Depression, its twin goals were maintaining a wage floor to keep workers out of poverty, and stimulating the consumer spending necessary for economic recovery. President Franklin Roosevelt called for its enactment as an essential part of economic recovery, explaining that by increasing the purchasing power of those workers who have the least of it today, the purchasing power of the Nation as a whole can be still further increased, (and) other happy results will flow from such an increase.” The Economic Policy Institute found that the recent increases in minimum wage have reduced the effects of the recession.