Raising the minimum wage is a highly contested issue with many perspectives worth examining. Liberals claim that raising the minimum wage will result in major economic benefits, including increased economic activity, job growth and decreased poverty and welfare costs. On the other hand, Conservatives argue that raising the minimum wage will lead to a decrease in economic growth and increase in unemployment.
Romanian economist Silvia Marginean co-authored an article entitled, “Effects of Raising Minimum Wage: Theory, Evidence and Future Challenges”. She claims that increasing the minimum wage has no effect on employment rates and reduces poverty and welfare costs. Her main claim is backed up by several studies, while her other claims are briefly mentioned in the concluding paragraph. She makes these claims through a narrow-minded perspective and when Conservative arguments are considered, her arguments are substantially weakened.
First, Marginean’s main claim that modest increases in the minimum wage has no effect on employment rates is very narrow-minded. By “cherry-picking” her studies, she leads the reader to believe that there is no controversy over this claim. For example, in her introduction, she says that, “After many years of empirical research, studies seem to point fairly uniformly to the existence of small negative effects of higher minimum wages on employment and unemployment.” 1* This simply is not true and research reveals many studies claiming that while increasing the minimum wage may not result in a decrease in employment, it does increase the risk of job loss. 7*
Marginean also failed to consider that increasing the minimum wage will disproportionately affect different economies. For instance, she cited many different countries in her studies, but then made generalized statements about “European countries” and compared their situation to the United States. There are simply too many variables that change depending on the country in question. Marginean’s claims about specific countries may be correct, but an increase in the minimum wage affects countries differently.
Marginena’s minor claims are under-emphasized and only briefly mentioned in her concluding paragraph. She states increasing the minimum wage will decrease poverty and welfare costs. This claim is left undeveloped and unsubstantiated. Furthermore, several sources suggest that her claims are incorrect. According to a study from the Federal Reserve Bank of Cleveland, a raise in the minimum wage results in a decrease of hours, employment, and income. The study found that increasing the minimum wage, “…increase(d) the proportion of families that are poor or near-poor.” 2*
Margineana also fails to address the Conservative arguments, which further weakens her claims. First, a substantial minority of economic research and studies have concluded that increasing the minimum wage results in an increase of unemployment. This conclusion comes from basic economics: higher prices usually reduce demand. When the cost of production (including labor costs) increases, the price of goods is usually increased. Therefore, as prices rise, and the demand for goods and services decrease, the number of workers employed to produce them will also decrease. 2* This also encourages businesses to move to other lower labor-cost countries. If a business does not raise prices in the face of increased production costs, profitability, and sometimes viability, is threatened.
Making minimum wage jobs more expensive also makes them more dispensable, likely leading to an increase in unemployment. The restaurant industry, which employs almost half of the United States’ minimum wage workers, has an average profit margin of only 2.4%. 3* Increasing the minimum wage causes employers’ costs to increase, usually forcing them to either raise their prices or fire some of their workers. The nonpartisan Congressional Budget Office estimates that 500,000 jobs will be lost if the minimum wage is increased to $10.10 an hour. 3* Therefore, raising the minimum wage ends up hurting the very people it was intended to help by increasing production costs, making goods more expensive, and increasing unemployment rates.
Second, raising the minimum wage makes it more difficult for teenagers and unskilled workers to gain experience and training that would increase their efficiency and future pay. Accepting a lower wage is part of “paying your dues”. It is the price inexperienced workers must pay in order to gain the valuable work experience they are seeking. Thus, when the minimum wage is increased, employers are less likely to hire unskilled workers (such as teenagers) and more likely to hire older, more experienced workers.
According to a Forbes article, “a very weak economy and a policy that substantially raised the cost of inexperienced labor decreased teenage employment by about one-third in just four years.” 4* Economists have suggested a sub-minimum wage for young and inexperienced workers as an alternative to raising the minimum wage, stating that this would support workers who seek work experience and on-the-job training. Conservatives believe that, “the minimum wage removes the bottom rung of the economic ladder by prohibiting the employment of workers with low levels of marketable skills.” 4*
Finally, Ronald Reagan supported Conservatives’ claims when he stated that, “The minimum wage (has caused) more misery and unemployment than anything since the Great Depression.” 6* They also claim that raising the minimum wage forces low-skilled workers to migrate to other states. If the increased minimum wage causes businesses to stop hiring, and those who cannot find employment move elsewhere, employment rates are likely to remain low. 6* This may explain why some studies conclude that employment rates remain low despite increases in the minimum wage.
Despite these convincing Conservative arguments, it is difficult to reach a definite opinion about this issue. Both the Liberal and Conservative arguments have merit. For example, how much the minimum wage is increased determines the economic effects. Modest increases in the minimum wage may not lead to drastic increases in unemployment rates. However, increasing the minimum wage will increase the risk of job loss. 7* Many economists believe that this issue simply has too many variables (including mobility and housing markets) to study it effectively. In order to make a final decision on this issue, empirical data is desperately needed. Experts hope to gather such data from cities such as Los Angeles, Seattle, and San Francisco, where the minimum wage is in the process of being raised to $15 an hour. Economists claim that these cities are acting as “policy laboratories for the rest of the country.” 5*
There is currently not enough information to make a final decision on this issue. However, experts claim future evidence will make this decision easier. For now, let Noah Smith’s opinion suffice: “In the end, as in medicine, a randomly controlled trial is the best way to know whether a treatment works. The early evidence said that minimum wages are a medicine without too many harmful side effects, so now we’re proceeding with a new round of trials.” 5* May the results of these trials speak for themselves.
1* Marginean, Silvia, and Alina Stefania Chenic. “Effects of Raising Minimum Wage: Theory, Evidence and Future Challenges.” Science Direct. Elsevier B. V., n.d. Web. 11 Feb. 2017. http://ac.els-cdn.com/S2212567113001196/1-s2.0-S2212567113001196-main.pdf?_tid OR http://www.sciencedirect.com/science/article/pii/S2212567113001196
2* ProCon.org. “Should the Federal Minimum Wage Be Increased?” ProCon.org. N.p., 31 Mar. 2016. Web. 16 Feb. 2017. <http://minimum-wage.procon.org/>.
3* Editorial Staff. “How A Minimum Wage Hike Affects You.” Information Station. Job Creators Network, 2 Oct. 2014. Web. 16 Feb. 2017. <https://informationstation.org/kitchen_table_econ/how-a-minimum-wage-hike-affects-you/+>.
4* Ozimek, Adam. “Why Conservatives Should Oppose the Minimum Wage.” Forbes. N.p., 1 Aug. 2012. Web. 16 Feb. 2017. <http://www.forbes.com/sites/modeledbehavior/2012/08/01/why-conservatives-should-oppose-the-minimum-wage/#5cb5ee777311+>.
5* Smith, Noah. “Finally, An Answer to the Minimum Wage Question.” Bloomberg. N.p., 27 May 2015. Web. 16 Feb. 2017. <https://www.bloomberg.com/view/articles/2015-05-27/finally-an-answer-to-the-old-minimum-wage-question+>.
6* Hosie, Duncan. “Conservative Myths on Minimum Wage Have Dangerous Implications. “Huffington Post. N.p., 14 Jan. 2017. Web. 16 Feb. 2017. <http://www.huffingtonpost.com/duncan-hosie/conservative-myths-on-minimum-wage-have-dangerous-implications_b_8972302.html+>.
7* Ozimek, Adam. “Learning From the Research on Minimum Wages.” Moody’s Analytics. Moody’s Analytics Inc., 21 May 2015. Web. 16 Feb. 2017. <https://www.economy.com/dismal/analysis/datapoints/254585/Learning-From-the-Research-on-Minimum-Wages/+>.