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The Minimum Wage Debate

If you pay attention to any major media outlet, you can tell that minimum wage has been a hot topic in Washington over the past few months, sue to the mass strikes at fast food restaurants in November 2012.
The strikers demanded a “living” wage, 15 dollars an hour, more than double the federal minimum wage of just seven dollars and 25 cents. Republicans generally view the minimum wage as an intervention in the free market, and the invisible hand of the market will naturally set the price according to demand. Also if the wages are lower, goods will be cheaper meaning more people can afford to buy them, thus stimulating the economy.

If the minimum wage were raised, people would be laid off in order to compensate. Democrats, on the other hand, view that without a minimum wage, corporations would pay as little as possible in order to make larger profits. They also believe that because people are paid more, they can afford to buy more goods, thus stimulating the economy. Both ideas seem to work on paper, but what about in real life?

    On April 1, 1992, New Jersey’s minimum wage rose from $4.25 to $5.05 per hour. To evaluate the impact of the law David Card and Alan Krueger surveyed 410 fast-food restaurants in New Jersey and eastern Pennsylvania before and after the rise. Comparisons in employment growth at stores in New Jersey and Pennsylvania (where the minimum wage was constant) provide simple estimates of the effect of the higher minimum wage. They also compared employment changes at stores in New Jersey that were initially paying high wages (above $5) to the changes at lower-wage stores. According to their data, there was no indication that the rise in the minimum wage reduced employment. In contrary to popular belief, the raise in minimum wage actually increased employment. Along with this, the minimum wage increase had no effect on prices.

According to a recent Huffington Post article, McDonalds could double every works salary, including the CEO who makes 9,200 dollars an hour, and make the same amount of money by increasing their prices by a meager 68 cents. Even if they didn’t raise their prices, they would still be making about five and a half billion dollars a year, down from eight and a half billion dollars a year.

Some fiscal conservatives argue that while a minimum wage increase would help works in the short term, but overall hurt them in the long term, as lay offs would result from the hike in pay. Others argue in abolishing the minimum wage all together, Senator Lamar Alexander from Tennessee says, “The question I want to ask, if we are interested in social justice, and we want to honor work instead of getting a welfare check, then wouldn’t a more efficient way to help people in poverty be to increase the earned-income tax credit rather than do what we always do here, which is come up with a big idea and send the bill to somebody else? What we’re doing is coming up with the big idea and sending the bill to the employer.”

Others still argue that raising the minimum wage is perfectly fine but not to the extent that many workers want. They say while major corporations like McDonalds and Burger King can afford the increase in pay, many small business cannot handle the increase in pay, and therefore many of them will close there doors. According to one economic study, raising the minimum wage to $10.10 could reduce total employment by 500,000 workers by the second half of 2016. But it would also lift 900,000 families out of poverty and increase the incomes of 16.5 million low-wage workers in an average week.

The major question here is this, do the needs 900,000 outweigh the needs of the 500,000 workers. This essentially boils down to a philosophical question, do the needs of the many outweigh the needs of the few, or is it wrong to cause anyone harm by taking direct action against them.

2 Comments on this Post

  1. Mrs. Cook

    Your post is very thought-provoking, Nick. I noticed that the speculations did not actually come true when the numbers were crunched with the big companies. I am wondering how accurate the speculations are for smaller companies. Sometimes our “worries” stop us from doing something that could in the end be good for everyone.

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  2. Tussock,Hurt some so that others may benfeit? Even if you’re right about the benfeit (and I assert that you are wrong), your position is scarcely moral.You’re still ignoring the fact that (especially in the highly competitive low-margin areas like, say The Warehouse and such), if someone is worth $5 / hour, and the Government makes you pay them $6 / hour, you either have to put prices up (hurting the minimum-wage earners the most, as they’re the ones who buy from such places), or not hire the person. You can’t have your cake, and eat it too.BTW, with respect to ‘perfect competition’ – have a read of , again from the :The “pure and perfect competition” doctrine seeks to replace the competition among producers in the creation of wealth, with a competition among consumers in the form of a mad scramble for a fixed stock of existing wealth. It seeks a state of affairs in which no additional buyer can obtain a product without depriving some other buyer of the goods he wants for that is what competition at full capacity would mean. It seeks to make men competitors in consumption rather than in production. It seeks to transform the competition of human beings into a competition of animals fighting over a static quantity of prey. In other words, when it denounces capitalism, it is denouncing the fact that capitalism is not ruled by the law of the jungle.

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