The Effects of Minimum Wage Increases

In 2004, President Obama called for the raising of the minimum wage from $7.25 to $10.10. The minimum wage is increasingly being used by many governments across the globe as tool address income disparities and to increase economic opportunities for unskilled workers. Proponents of minimum wage increases argue that these increases help lift the working poor from poverty; they also claim that these increases can be implemented without hurting employment. These claims are, however, contrary to most of the available evidence. As a matter of fact, past increases in minimum wage have often been followed by a lot of unpleasant side-effects. There is plenty of evidence that most of past minimum wage increases have ended up harming the same people they intended to assist. Research on the impacts that minimum wage increases have on wages, skills, long-term labor outcomes, income, and so forth indicates minimum wage is not effective as a policy tool, that is, minimum wage increases do not produce the outcomes that proponents of it claim (Neumark and Wascher 107). Although minimum wage increases have their benefits; they are largely short-term. For the most part, increasing of the minimum wage leads to fewer employment opportunities for low-skilled workers, reduce their incomes; it is also ineffective at addressing poverty; and seems to have detrimental effects on training, earnings, employee benefits, and so forth in the long-term.

Increasing the minimum wage increases unemployment in the following ways; firstly, higher wages increase production costs for employers; and in order to recoup their investments, employers pass some of these additional costs on to their customers. Consequently, goods and services become more expensive; costly goods and services are bought less by consumers. Reduced sales, in turn, lead to employers producing fewer and fewer goods; as such, employers higher fewer employees. Clearly, an increase in minimum wage hurts not only the employment opportunities of low-skilled workers but for all workers across the board. Secondly, increasing the minimum wage increases for employers the cost of hiring low wage employees compared to their substitutes or alternatives, for example, machines, robots, outsourcing, and so forth. Often times, employers react to increases in the minimum wage by reducing the hiring of low-wage workers and opting for alternative ways of production (Neumark and Wascher 86).

Besides adverse effects on employment; research shows that employers also respond to increases in the minimum wage by reducing or eliminating altogether other employment benefits like bonuses, leaves, and job training. As a matter of fact, every 10% increase in the minimum wage leads to a 2% decrease in formal training (Hara 150). Similarly, studies were done by Turner and Demiralp also indicate that increases in the minimum wage lead to lower school enrollment among young people (Turner and Demiralp).

Advocates of minimum wage increases claim that they lead to better incomes for an adult worker who work full-time. They also claim that higher minimum wages benefit adults who support children in poor families. However, these claims are not supported by available data. A majority of low-pay or rather minimum wage workers are; firstly, young workers who work part-time; secondly, a majority of them do not even come from poor families. In fact, 49% of all minimum wage earning workers in America are people who are younger than 24 years. In addition to that, 62% of them come from families that have incomes that are 3 times the federal poverty level (Bureau of Labor Statistics). The much-accepted narrative that low-pay workers are poor adults who work full-time is, therefore, completely misleading. As a matter of fact, only 4.7% of all low-pay employees fit this description (Bureau of Labor Statistics).

Additionally, minimum wage increases are normally popular because politicians package them as a tool for helping the poor. However, much of the available data indicates that higher minimum wages do not necessarily lead to lower poverty levels. For one, many poor people in the United States, that is, 63% are not employed; as such, they do not earn wages; and even in cases where they are employed, the link between low-pay and poverty is not strong; and has grown weaker over the years (Bureau of Labor Statistics). This is explained by the fact that most workers who earn a minimum wage do not come from poor families. Secondly, although an increase in minimum wage can lift some poor people from poverty; those gains are in the long-run eroded by those who lose their jobs; and those who do not find jobs in the process. Thirdly, if producers of goods and services pass on the additional costs to consumers; good cost more and this affects the poor disproportionately. In any case, inflation affects the poor more (Burkhauser and Sabia 263).

That being said, a majority of America’s households depend on the income that women earn; and according to Alan Manning, David Autor, and Christopher Smith, because women in the US are by and large paid relatively less than their male counterparts; they more likely to be among the people who earn the minimum wage; an increase in the minimum wage, therefore, has a greater impact on women pay inequality. For pay inequality among women, Autor, Manning, and Smith argue that an increase in the minimum has a great effect. In fact, a reducing minimum wage was to blame for about 48% of all female pay inequality between 1979-2012 (David and Smith 98).

Even though unemployment has declined over the years in the United States; wages have relatively stagnated or worsened over the same period; it is little more and more people are taking up additional jobs to supplement their income. Companies and the government need to raise the minimum wage if they want to attract employees and if they wish to remain competitive.

The United States government has enforced a minimum wage for many years. The minimum wage law requires every employer to pay their employees above a certain mandated level.  Nevertheless, although increasing the minimum wage is often intended to help low-pay workers and the poor; many years of research indicates that minimum wage increases end up achieving the opposite results and harming the economy in general. Minimum wage increases have some benefits; nevertheless, they cause job losses, higher consumer goods prices, just to name a few. Minimum wage should not, therefore, be increased.

Work Cited

Bureau of Labor Statistics. Characteristics of Minimum Wage Workers: 2010. 2010. 15 November 2018 .

Burkhauser, Richard V and Joseph, J Sabia. “The effectiveness of minimum‐wage increases in reducing poverty: Past, present, and future .” Contemporary Economic Policy 25.2 (2007): 262-281.

David, H., Manning, Alan and Christopher, L Smith. ”The contribution of the minimum wage to US wage inequality over three decades: a reassessment.” American Economic Journal: Applied Economics 8.1 (2016): 58-99.

Hara, Hiromi. ”Minimum wage effects on firm-provided and worker-initiated training.” Labour Economics 47 (2017): 149-162.

Neumark, David and William, L Wascher. Minimum wages. Cambridge, Mass: The MIT, 2008.

Turner, Mark and Berna Demiralp. ”Do higher minimum wages harm minority and inner-city teens?” The Review of Black Political Economy, 28. 4 (2001).