The case against raising the federal minimum wage

Minimum Wage

Even though minimum wage has been around for many years, and was established to make sure that working people could survive and pay their bills, there are still many problems with it. This paper address both the pros and cons to raising the minimum wage, discussing not only how people can be helped by the increase in pay, but also how they are ultimately hurt by it to a larger degree. Organized labor usually fights to raise the minimum wage, but every time it goes up, prices follow, until those that make minimum wage end up worse off than they were before their wage increase.

Some states also have minimum wage laws, and often the state minimum wage is higher than federal minimum wage. When the federal minimum wage is raised, states are at a loss with whether to raise theirs or not, and sometimes employers go out of business because they cannot afford to pay their employees any more. The increase in minimum wage is good only for a short period, until prices and payroll catch up. In the long run, it hurts more than it helps, and many people are affected. The main argument of this paper is that minimum wage should never be raised, and there should be ways to solve the financial problems that come with the lower-income jobs in this country other than causing financial harm to countless other individuals and businesses.

Raising the Minimum Wage

Introduction

The federal minimum wage has been around for many years, and there have always been arguments over it. Much of the upset that has come about over the federal minimum wage has been dealing with whether or not it should be raised. There have been many fights about this issue and the minimum wage has been raised several times in the past. Now lawmakers are discussing raising it again. However, it would seem that every time the minimum wage is raised prices rise and therefore the raising of the minimum wage does not actually benefit those that most need it.

In order for there to be any real benefit to raising minimum wage, prices would have to remain the same. Otherwise the individuals who are now making more money would also be paying out more money for the groceries that they buy and other items that they need to live their lives.

The purpose of this paper is to show that there are both pros and cons to raising minimum wage but ultimately raising the minimum wage in this country only makes it more difficult for those that still struggle to get buy. The paper will begin with historical information about minimum wage and then move on to the pros and cons of raising it. The summary and conclusion will explain the reasons that minimum wage should not be raised and indicate that there must be some other way to help out individuals in this country who are struggling to pay their bills and put food on the table.

Historical Information

Historically, minimum wage has been through a great many changes. It is designed to be the lowest wage that an industry can legally pay in the United States (Minimum, 2004). Minimum wage was originally established to ensure that all individuals could have a standard of living that would provide them with a reasonable amount of health and decency. There have been many ways in the past that minimum wage has been changed. These include collective bargaining from labor unions, by board action, by arbitration, and by legislation (Minimum, 2004). Almost all countries have a minimum wage and originally in the United States minimum wage laws were believed to be unconstitutional.

Organized labor fought very strongly and when the labor standards act was passed in 1938 minimum wage was set at 25 cents per hour with a few exceptions. Recommended rates for various industries were established and the minimum wage was raised in 1950 to 75 cents per hour (Minimum, 2004). It was raised several more times and in 1974 a bill was passed by Congress which allowed gradual increases from the $1.60 per hour to $2.30 per hour by 1976. Some of the minimum wage rules also became available to 8 million workers that had not previously been covered by them (Minimum, 2004). These included the employees of both state and local governments, some employees of various chain stores, and most domestic workers. Minimum wage has continued to rise and finally reached its current rate of $5.15 per hour in 1997. Congress attempted to raise the minimum wage to $6.15 an hour over a two-year to three-year period in 1999. Not all businesses are required to pay their employees minimum wage, however. Any business that earns less than $500,000 per year has not been required to follow minimum wage rule since 1989. There also a number of states that have chosen to set their minimum wage standards higher than what the federal minimum wage actually requires (Minimum, 2004).

Cons to Raising Minimum Wage

Just as there are good reasons to raise minimum wage there are also reasons that it should remain the same. The largest one of these is the fact that every time minimum wage goes up it is not long before prices also rise (Brown, 1988). This means that all of the extra money that these individuals are earning is for naught because they are not able to do anything else with it. It all goes to goods and services that they already buy and they are not actually able to get ahead any further than they would have been able to had minimum wage remained the same. It also makes no difference to raise minimum wage in states that already have a minimum wage which is higher than the federal level (Brown, 1988).

These states cannot benefit anything by the raise in the federal minimum wage because they already have higher rates. It is then up to them whether they choose to pay extra money or allow the federal minimum wage level to gradually increase until it corresponds with the level that they have already set (Brown, 1988).

Another reason that minimum wage should not be raised has to do with those that have to pay the employees their wages (Brown, 1988). Many of these individuals are struggling to get by in the current economy and requiring them to pay more money to their employees can put them out of business or cause them to lay off employees so that they will be able to afford to make their payroll. It can also cause them to raise prices, which corresponds to the aforementioned issue about prices going up every time minimum wage rises.

Many of these business owners are struggling to pay what they already owe to their employees and if they are forced to pay more they will not be able to do so. Those that will find ways to pay their employees a higher minimum wage will often compensate by losing things in other areas such as health insurance or other benefits that the employees previously enjoyed. These employees may have slightly more money in their paychecks but many of the other benefits that they already have will be lost to this (Brown, 1988).

The tables below, reprinted from Regulation: the Cato Review of Business and Government, would appear to indicate that the raising of the minimum wage actually increases the unemployment rate because it becomes harder for teenagers and young people that traditionally take lower-paying jobs to find them. Most individuals that work in these lower paying jobs do so for a period of time in order to work their way through college or other training that allows them to get a higher paying job. In the meantime, they need this money so that they can get through their schooling and be able to survive and buy the supplies and things that they need.

Because of this, the raising of minimum wage takes away many of these jobs that these people would previously have applied for and worked in, and therefore the amount of employed individuals in the 15 to 19 and 22 to 24 age groups actually fall when minimum wage rises. The same is also true for women because they traditionally earn lower wages and many of them work part-time jobs outside of the home to bring in extra income while their children are in school. These individuals are also hurt by this because many of them can no longer find the minimum wage and low-paying jobs that they normally worked in.

Table 1

Percentage Employed by Age Groups

before and after 1990-91 Minimum Wage Hikes

Men Employed

Age Group

Percentage

low wage1

Percentage

before hikes2

Percentage

after hikes3

Percentage

point change

Total

percentage reduction4

15-19

44.5

43.0

36.3

-6.7

-15.6

20-24

14.2

77.7

73.3

-4.4

-5.7

25-64

3.3

85.9

83.8

-2.1

-2.4

65-69

14.0

26.2

25.1

-1.1

-4.2

Women Employed

Age Group

Percentage

low wage1

Percentage

before hikes2

Percentage

after hikes3

Percentage

point change

Total

percentage reduction4

15-19

51.8

41.4

36.0

-5.4

-13.0

20-24

19.0

66.9

64.1

-2.8

-4.2

25-64

8.8

66.5

66.3

-0.2

-0.3

65-69

21.0

15.9

16.4

+0.5

+3.1

1. Percentage paid low wages, i.e., less than or equal to $4.25/hour, between April 1, 1989 and March 31, 1990, prior to minimum wage hike.

2. Percentage of total age group population employed between April 1, 1989 and March 31, 1990, prior to minimum wage hike.

3. Percentage of total age group population employed between April 1, 1991 and March 31, 1992, when full minimum wage hike took effect.

4. Percentage reduction off the base of all individuals employed prior to minimum wage hike.

Table 2

Percentage Select Low-Wage Populations Employed

before and after 1990-91 Minimum Wage Hikes

Men Employed

Demographic

Group

Percentage

low wage1

Percentage

before hikes2

Percentage

after hikes3

Percentage

point change

Total

percentage reduction4

High School Dropout

20.7

46.6

43.5

-3.1

-6.6

Black

11.0

60.0

57.1

-2.9

-4.8

Mexican Descent

15.6

74.4

70.8

-3.6

-4.8

Single

15.1

64.0

61.2

-2.8

-4.4

25-64 Years of Age

3.3

85.9

83.8

-2.1

-2.4

Women Employed

Demographic

Group

Percentage

low wage1

Percentage

before hikes2

Percentage

after hikes3

Percentage

point change

Total

percentage reduction4

High School Dropout

35.4

28.9

26.8

-2.1

-7.3

Black

16.9

50.9

49.2

-1.7

-3.3

Mexican Descent

21.9

48.2

45.6

-2.6

-5.4

Single

18.4

51.1

49.4

-1.7

-3.3

25-64 Years of Age

8.8

66.5

66.3

-0.2

-0.3

1. Percentage paid low wages, i.e., less than or equal to $4.25/hour, between April 1, 1989 and March 31, 1990, prior to minimum wage hike.

2. Percentage of total demographic group population employed between April 1, 1989 and March 31, 1990, prior to minimum wage hike.

3. Percentage of total demographic group population employed between April 1, 1991 and March 31, 1992, when full minimum wage hike took effect.

4. Percentage reduction off the base of all individuals employed prior to minimum wage hike.

Table 3

Men

Women

Blacks

Teenagers, 15-19

Effect of Increasing Minimum from $3.35 to $3.80

-4.8

-6.6

-7.5

Effect of Increasing Minimum from $3.35 to $4.25

-7.3

-11.4

-10.0

High School Dropouts, Adults 20-54

Effect of Increasing Minimum from $3.35 to $3.80

-1.5

-2.5

-4.4

Effect of Increasing Minimum from $3.35 to $4.25

-3.1

-5.2

-6.7

Note: Change for selected low wage groups adjusted for changes in aggregate employment. Men and women refer to all races. Blacks refers to both men and women.

Summary and Conclusion

As can be seen from the discussion of the pros and cons to raising the minimum wage there are good points to doing this but they are overshadowed by many of the difficulties that these individuals would face. The main issue is the fact that these individuals will be spending all of the extra money that they are making to buy the goods and services that they already enjoy. It will be as though the increase never happened because the prices will rise to compensate for the amount that minimum wage has gone up.

This is obviously a concern for others as well because even those that make over the minimum wage do not want to see prices rise. While there are people in this country that are very rich many work for minimum wage or just slightly above this. If minimum wage would go to $6.15 per hour those that are currently making 7 dollars per hour would be hurt by the price increases that would come from the rise in minimum wage.

The only way to offset this is to raise the income of these other individuals that already make over minimum wage as a cost of living increase. This will help them to compensate but can also cause prices to rise yet again. This being the case, those that had worked for minimum wage and seen their paychecks rise would notice that the cost of living had gone up to an extent that they actually appear to be making less than they were before minimum wage was raised. This is a disservice to the people of the United States and would not help benefit anyone in any way. It is for these reasons that minimum wage should be left alone. It is understandable that many of these people struggle and need to make more money but raising the minimum wage is not the answer because it hurts all people involved.