A Case Against The Minimum Wage Term paper
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It sounds like very good news for the low-income workers and their families whenever the government increases the minimum wages. On the surface minimum wage laws seem like the best prescription to treat poverty and improve living standards of the working poor. Promoters of minimum wage laws are taking positions that such laws alleviate poverty and improve the conditions of life of the working poor. However, upon closer analytical examination, it can be seen that such laws have perverse effects. Opponents are concerned about costs of statutory wage minimums in terms of the hardships they impose on other workers, employers, and regions as well.
The United States Congress adopted the Fair Labor Standards Act in 1938. Congress created the minimum wage toward the end of the Depression era to ensure a "minimum standard of living necessary for health, efficiency and general well-being for workers." (Fair Labor Standard Act, 1938) In 1993 some 4.8 million people worked for minimum wage or less. (Mishel, Bernstein & Rasell Table 7) According to the Department of Labor, nearly 6.45 percent of the labor force is earning minimum wages. (Tannenbaum and Gupta B1) By having minimum wage laws the government is trying to ensure that everyone has a better standard of living and a more equal chance of competing with the higher income families and a fairer chance to improve their economic condition.
In talking about low-income families the topic of equal rights arises and what an individual can do to get fair treatment regardless of their income. In 1962, President John F. Kennedy enacted the Kennedy rights, and among them is the right to be a minority consumer without a disadvantage. The word minority not only refers minorities but also to low-income consumers. What this law means is that a consumer regardless of their income has the right to safety, which is knowing if a product is hazardous to their health. The right to be protected against false advertising, the right to have products and services at competitive prices, and the right to be heard.
These rights have often been bent when it comes to low-income minority consumers. Often times minorities are exposed to unsafe products, have less access to information, have fewer choices of brand alternatives, and have less access to means of redress. There are many reasons for these problems. One reason is that low-income individuals do not have the time or money to find more information and pick from different brand alternatives. Having less choice of brand alternatives minority-group consumers tend to be more brand loyal because there is more of a financial risk in choosing a different brand. Many times brand loyal consumers will also be store loyal.
There are a couple reasons why low-income consumers also tend to be store loyal. One reason is to reduce the risk of shopping in an unfamiliar store. Studies have found that store loyal customers tend to have a lower income and be less educated. Often times these consumers do not have the chance to shop much because of lack of time or lack of transportation. A question now arises as to if and how the government should help these consumers. Should the government play a role in increase price and brand awareness and possibly even transportation for low-income consumers or should the government raise the minimum wage?
The reason that raising the minimum wage does not ensure that low-income consumers will not be at a disadvantage is shown by the graph.
As you can see that at the equilibrium point of $4.25 all participants in the market are doing as well as they can, given the condition in the labor market. (Goodman & Dolan 171) If minimum wage is raised to $5.50 unemployment will grow. The reason for this is that the supply exceeds the demand. The equilibrium point does not change because of the legal requirements and the net effect is unemployment and/or less work for the workers. Just as a worker will only offer his labor time for a wage he finds beneficial, so an employer will only be willing to pay workers a wage that permits him to earn a profit. The higher the wage, the fewer workers the employer will employ. This is what economists mean when they invoke the law of supply and demand. Low-wage workers are most affected by these laws. Some workers will gain from the wage increase through higher income, however these gains come at the expense of other workers. Groups with the lowest levels of productivity suffer the greatest loss. Low-wage workers will be forced into second-best employment or into unemployment which often include the teens, minorities, elderly, handicapped, and those without skills.
In the early 1940's, the teenage unemployment rate was not much higher than the unemployment rate for adults. However, as the teenage population grew, the unemployment rate grew with it. "By 1960, when the minimum wage was $1.00, the teenage unemployment rate was two and a half times the rate for all workers. By 1977, when the minimum wage had reached $2.30, the teenage rate climbed to over three times the rate for all workers." (Goodman & Dolan 170)
The preponderance of evidence indicates that the problem for black teenagers has become even worse. In the early 1940's, black teenagers seemed to have few problems finding work. The jobless rate for the black youths was less than that of white teenagers but by 1949 things had altered. The jobless rate for the black youths was 2.8 times the national rate. By 1971, that rate was 3.2 percent and by 1977 the rate for blacks youths had reached 40 percent. (Goodman & Dolan 171) President Lyndon Johnson stated, "The question is not whether the minimum wage should be increased but when and by how much." (Cullen 32) In a survey that was conducted of 19 and 20 year olds at Ohio University, 60% of the students said the minimum wage should not be raised. The reasons that were given against raising the minimum wage is that it increases inflation and more money is paid for taxes. The 40% that said minimum wage should be increased gave the reason that it helps the low-income families that are on welfare get off of welfare. (Survey)
The loss of teenage jobs has been estimated at 11 percent. ( Renolds A14) In a study of dozens of federal and state minimum wage hikes since the 1970's, David Neumark of Michigan State University found that total employment consistently dropped by one to two percent for every 10 percent rise in the minimum wage. (McNamee 36) Consider an analysis done of data from 1979 to 1992 by David Neumark of Michigan State and William Wascher of the Federal Reserve Board found that President Clintons's proposed minimum wage hike will put 120,000...
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