Is It Time to Raise the Minimum Wage?
Seattle has raised their minimum wage to $15 an hour, CEO's wages continue to increase, and Chicago Mayor Rahm Emanuel is recommending that the city minimum wage be increased to $13 an hour. On the Federal level, President Obama hopes to increase the federal minimum wage to $10.10 an hour.
While some people are on Emanuel and Obama's side and believe that increasing the minimum wage will help people out of poverty, critics feel the minimum wage should be eliminated altogether.
Brian O’ Roark, a professor of economics at Robert Morris University weighs the pros and cons of the minimum wage decision.
Created in 1938 as part of the Fair Labor Standards Act, the minimum wage essentially sets a wage floor for workers. In the act there was also a provision that set the maximum amount of hours an employee could work at 44 hours. This provision was added to force employers to hire more workers during the Great Depression.
"Now of course, as you might imagine, a lot of people were up in arms about this saying, it was unfair to the people who already had jobs and were working overtime. It was unfair to businesses because that would raise their costs and perhaps they would have to lay off workers. Its the same kind of arguments we're hearing now, almost 80 years later," said O'Roark.
But is the current push to increase minimum wage likely to cause any change in the economy?
"Think about when you go to the store, if milk is more expensive or clothing is more expensive, you see that price tag and you go 'I better buy a little bit less of it. I can't afford quite as much.' Well the same thinking applies to the labor market. If the price of your input goes up, whether it is copper, whether it is silicon, whether it is people, you naturally want to use less of that more expensive input," O'Roark explained.
By using less minimum wage employees O'Roark says there's concern that businesses will seek alternative labor, including automation or outsourcing. On the flip side, O'Roark says more people will want to work for that increased wage. Which could decrease the number of people staying on unemployment for an extended period.
"If the minimum wage is $7.25 well staying home isn't as expensive to you. You're not giving up as much as if the minimum wage was $10 or even $15 an hour."
However, with these incentives for workers, comes risk for businesses.
"We have the potential to lose jobs, the potential to work fewer hours, we also have, and this is the part of the whole analysis that is the most difficult to put your finger on, maybe businesses don't lay anybody off but they also don't hire any new people. Because hiring those new people, people who have no experience, say teenagers looking for their first job, they're simply not worth it. And we don't like to say that somebody's not worth an entry level job but to flip hamburgers for $10 an hour, you might not be worth it."
With all of these costs, where is the benefit? Well the person who gets the job at the higher wage, or keeps the job and gets that boost in income, will definitely feel the benefit says O'Roark.
But will there be enough winners to outweigh the problems that can be seen with the minimum wage? The answer to this question may determine if raising wages will be a success or a failure.