Minimum Wage

MINIMUM WAGE

 
Brief Overview of the Nature and Causes of the Problem with the Minimum Wage

The Fair Minimum Wage Act (H.R. 1010) is a critically important issue that has been debated on both the national and state-level.  The price of food, housing, transportation, clothes, and other basic needs have risen but yet the minimum wage has not, which has resulted in an increase in the gap between the poor and middle class.  The stagnation of the minimum wage has also increased the dependence on government services such as Supplemental Nutrition Assistance Programs (SNAP) and Medicaid.  Millions of families are trapped in a cycle of poverty.   Several states have raised their minimum wage above the federal minimum wage.

 

 

 

Brief History of the Problem with the Minimum Wage

The minimum wage was established by Congress in the Fair Labor Standards Act, which was passed in1938.  At this time, the minimum wage was $0.25 per hour.  When the minimum wage was established, policymakers did not expect the minimum wage to be the only source of household income or wage support for adequate living for an entire family.  The intended purpose of the minimum wage was to provide a wage for inexperienced workers who could not access higher pay in the labor market, more specifically young people.  Since its introduction, Congress has increased the value of minimum wage and coverage of minimum wage several times since. 

 

 

 

 Policy Responses to the Problem with the Minimum Wage

President Barack Obama
 
“Today, after four years of economic growth, corporate profits and stock prices have rarely been higher, and those at the top have never done better.  But average wages have barely budged.  Inequality has deepened.  Upward mobility has stalled.  The cold, hard fact is that even in the midst of recovery, too many Americans are working more than ever just to get by – let alone get ahead.  And too many still aren’t working at all…. Opportunity is who we are.  And the defining project of our generation is to restore that promise.”

 

 

In President Obama’s State of the Union Address in 2014, he discussed the fact that a parent who makes minimum-wage, works full time and year round, still does not earn enough to be over the federal poverty line.  President Barack Obama suggested that Congress raise the federal minimum wage for working Americans in stages to $9 by the end of 2015 and index it to inflation in the years that follow.  The implementation of President Obama’s suggested minimum wage increase could:

1.        Reward work and ensure a decent living for working families

2.        Help create a stronger middle class

3.        Help parents raise their families and provide basic needs for their families

 

Senator Tom Harkin (D-IA) and Rep. George Miller (D-Calif.)

They offered a policy response for increasing the minimum wage.  The proposed the Fair Minimum Wage Act of 2013 (FMWA).  This proposal would raise minimum wage from $7.25 to $10.10 in 3 annual increments and then index to inflation.  In 2014, the minimum wage would increase to $8.20.  In 2015, the minimum wage would increase to $9.15 and in 2016 the minimum wage would increase to $10.10.  For the years after 2016, the FMWA would index the minimum wage to inflation to maintain purchasing power.  The FMWA proposal would also raise subminimum wage paid for workers who receive tips.  These workers are for example, waitresses or airport workers who assists travelers with bags. 

 

Effects and Implications of Policy Responses to Minimum Wages

Intended Consequences: Economic Policy Institute (EPI)

One study conducted by the Economic Policy Institute (EPI) concluded four main areas that would be impacted by and benefit from an increase in the minimum wage.  Many of these areas relate to the intended consequences of the policy changes:

1.         Workers who are viewed as both the intended and intended targets of the policy changes would be affected

2.        Raising the minimum wage is an effective tool for economic growth

 

Intended Consequences: National Employment Law Project (NELP)

A second study conducted by the NELP conclude that an increase in the minimum wage will have a positive impact on working families, local businesses, and state economies. First, they argued that impact on working families would be significant because working families today are relying more on low-wage jobs to make ends meet.  Second, the NELP concluded that an increase in minimum wage will help restore the consumer spending that strengthens our economy and businesses.  They believe that increasing the minimum wage may play a crucial role in stabilizing our economy and allowing local businesses to expand and create jobs

 

Unintended Consequences: Areas of Possible Employer Adjustments

1.        Reduction of workers hours

2.        Reductions in non-wage benefits

3.        Changes in employment composition

4.        Creation of efforts to improve efficiency

5.        Wage compression

6.        Increase in demand

7.        Reduction in turnover rate

 

Taking into consideration both sides of the subject, a strong wage policy could result in less income inequality, a stronger middle class, a prosperous economy, increase self-sufficiency and personal autonomy.