In our talking head society, this, along with the President’s suggestion that the federal minimum wage be raised to $10.10 per hour, has predictably caused fodder for the pundits.
Coming from the right, the common criticisms of this initiative include the following:
· A raise in labor costs results in job reduction
· Employers shift some positions from full-time to part time to avoid paying benefits to offset increase labor costs
· Most minimum wage jobs are held by teenagers and an increase won’t have an effect on poverty
The hardcore libertarians of course believe that there should be no minimum wage because markets are efficient and workers will ultimately be paid what their true value to their employer is.
I’m in full support of a raised minimum wage. I don’t buy any of the arguments above. A quick Google search led me to find multiple studies showing that increasing the minimum wage does not reduce jobs[1][2]. Also the amount of teenagers that hold minimum wage jobs is exaggerated and more importantly, an increase to Obama’s suggestion of $10.10/hour would impact many more people working just above the minimum wage. As for benefit shifting, with the Affordable Care Act, health care is available through exchanges.
As for the libertarian opposition, I don’t believe markets are efficient at all. At least not in reality. Workers of that skillset do not possess the ability to organize and effectively negotiate their wages.
Employers hold substantially more power than the employees and thus have an asymmetrical effect on wages.
The primary reasoning for my support of raising the minimum wage is the macro effect. If someone works 40 hours a week, he or she should not be living below the poverty line. And if that is the case, he or she is most likely relying on subsidies or benefits from the government. So in effect, employers are shifting the burden of keeping their workers out of poverty to the government, which means to the tax payers.
Finally, I don’t fully subscribe to the belief that wage increases will result in price increases that will hurt the consumer. Wages represent a small percentage of costs for most minimum wage employers and thus the price increases will be nominal. But if we ignore that, and presume the price increases will occur, I believe the impact will be offset by putting more income in a community’s lower classes. At that income level, workers don’t accumulate wealth, they spend virtually all of the income they earn. Taking into account the velocity of money, the multiplier effect of every dollar spent should have a long term positive effect on a community.
I’d love to hear your thoughts.
[1] http://www.washingtonpost.com/blogs/wonkblog/wp/2014/01/04/economists-agree-raising-the-minimum-wage-reduces-poverty/
[2] http://www.cepr.net/documents/publications/min-wage-2013-02.pdf