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Minimum wage: should it get a raise?

EconomicsMinimum wage: should it get a raise?

Before I begin the article, I would like to just tell you that this is the first article of the Economics section of GoldPundit Media. We hope that you enjoy our articles on the interesting subject of economics.

I began my investigation of this topic by taking EPI.org’s minimum wage quiz. I got 5 out of the 10 questions right, although I must admit that I had read a couple of articles on the subject before taking the quiz. A lot of the questions were very specific and I didn’t know the answers. I’d also imagine that the statistics that it asked questions about are constantly changing so memorizing them wouldn’t be too helpful. However, the quiz website did tell me that getting more than four right made my knowledge “impressive”. That was a slightly unexpected result but a good start to my research nevertheless.

Is the current minimum wage working?

The current federal minimum wage, or even the Massachusetts minimum wage (Massachusetts is one of the most liberal states), definitely does not set a reasonable lower bound for wages. This can easily be seen through observation of the MIT living wage calculator. First, I observed the minimum wage and the different living wages for different-sized families in Amherst County, Virginia. At the time that the calculator was last updated, in 2019, the state minimum wage in Virginia just happened to be $7.25, equal to the federal minimum wage. For almost all of the family sizes (two adults, one adult, two children, etc.), the families are below the poverty line unless there are two adults working full time. Even then, it sometimes just doesn’t cut it.
In Massachusetts, most families are kept slightly above the poverty line by the minimum wage ($12.75 when this calculator was last updated and $13.50 currently). However, being just above the poverty line is not something to aspire to, nor does it mean that the family is fine. The living wage, depending on the family, is around three times the minimum wage in Massachusetts. In Virginia and other states, this is even worse.

When the minimum wage fails to keep people above the poverty line, as the federal minimum does, it is failing to do its job. And even when it does keep many people slightly above poverty (but far below livable), as the Massachusetts state minimum does, a raise still is needed.
Since not everyone in society will pursue college or a skilled trade, should there be a livable federal minimum wage such that individuals could work full-time and make ends meet? How does this link to our discussion of inequality earlier in the course?

The whole point of a minimum wage should be that although it may not be an entirely comfortable wage, it should be enough to live off of. Unlike what people commonly believe, mothers and fathers, the breadwinners for an entire family, often have to work at minimum wage. Part-time teenagers are not the only ones working at this base-pay rate. That is why the minimum wage should be enough to support a family without having to live in poverty. For example, a minimum wage should give enough to pay the bills, buy nutritious food, and pay for kids’ school supplies but it doesn’t necessarily need to be enough to be able to easily travel to Europe. One idea could be to set a federal minimum wage of $15 dollars per hour or greater and then set higher state minimums that vary slightly based on the livable wage in the general area. The minimum wage will not likely reach the livable wage of even a medium-sized family, but maybe it could come closer than it does now. The minimum wage was created by Franklin Delano Roosevelt in 1938 to be a wage that full-time adults would be able to support their families with (Pepperdine). It’s time we return to that vision.

It is very true that many people chose not to go to college. College isn’t right for everyone. Sometimes vocational school is the better choice, but other times stopping at high school is necessitated by someone’s circumstances. In addition, college is very expensive, and families from Hispanic or African-American backgrounds tend to be more unable to afford it. This means that different students disproportionately miss out on a large opportunity for economic and vocational success. This propagates racial inequality in America.

Whatever the reason for someone not attending college, it should be possible to live without college. Unless we make college free, like public high schools, we can’t allow our country to require the knowledge and skills that it gives. Either we make sure that everyone can attend college, or we make sure that the minimum wage is high enough for people to work without college. It’s that simple.

Would raising minimum wage benefit society?

Raising the minimum wage would definitely be beneficial to society. Increasing the minimum wage could lift over a million people out of poverty and would help fix many of our country’s problems. Further, I would recommend that the government raise the minimum wage to $16.50 an hour.

First, I will explain how I arrived at my figure of $16.50 per hour. According to the article by the Atlantic, economists have arrived at slightly different estimates of the percentage of median wage that minimum wage must reach in order to start causing adverse effects. A study co-authored by Arindrajit Dube, a professor at UMass, found the percentage to be 59%. A different study by some researchers at the University of California Berkeley, this figure decided that this is closer to 66%. The average of these two numbers is 62.5%. According to tradingeconomics.com, the median minimum wage in the USA in November 2021 was $26.4/hour. 62.5% of $26.4 is $16.5 dollars/hour. Therefore, I think that this wage is the highest we can make it without any adverse effects. It is possible that after some complex cost-benefit analysis, it might turn out that it is even more beneficial to raise the wage even higher. But who knows. For now, $16.50 is my recommendation.

According to these studies, if the minimum wage was 59% or 66% of median income, there would be no effect on employment. People would of course want to work because of the substitution effect (work becomes more and more desirable as the opportunity cost of not working increases). And, although employers would have to pay a larger payroll and their total costs would increase, most would be able to cope if the increase was only to a similar percentage as the ones recommended by the surveys.

Of course, employees who work in jobs that require little to no skill would be most helped by the change. And, employers would have to pay the most price, which could be considered harmful. However, many of the companies that exploit cheap labor are large companies like Walmart that can afford the increase in labor costs. According to corporate.walmart.com, Walmart made profits of $141 billion dollars in Q2FY22 (May, June, July of 2021. Walmart has its own calendar which is a little confusing to figure out at first. But, it does make a lot of sense). Anyway, they can afford to pay their workers more without significantly increasing prices with those margins. And so can many other big companies. The point is, businesses won’t be too impacted. And although prices will rise a little, studies have shown that the increase will not be too dramatic and the consumer won’t be hurt much. Walmart will probably still have to keep prices low to compete with Target and other retailers even though their profits may be smaller. And, I don’t believe that the inflation rate will change much. As I said before, prices will likely not increase that much at most stores since most stores are part of giant chains. In addition, worker productivity might go up (Investopedia) because they will be happier to work which could allow employers not to raise costs. They might hire fewer people though. Finally, the threat from foreign exports to the US will prevent companies from raising prices (Investopedia), even though workers have more money. This could also keep a lid on inflation.

I think that with so many of our citizens in poverty we have not realized the true buying potential of this country. Having a low minimum wage is decreasing the number of products that are bought in this country, keeping a lid on GDP. In addition, there are astronomical healthcare costs caused by the fact that people in poverty are forced to eat cheap and unhealthy food or no food at all. Around $160 billion dollars are spent on the healthcare costs of hunger each year in the US (poorpeoplescampaign.org). Finally, it is estimated that $1 trillion dollars per year of potential economic productivity are lost because of the effects of child poverty on the children themselves and the economy (poorpeoplescampaign.org). This is a large hidden cost of a low minimum wage and proves that a drastic increase in the federal minimum wage is both imperative and extremely beneficial.

Finally, I will leave you with two questions, two questions to ponder during your day today. Do you think that it will hurt small restaurants that are struggling due to the pandemic if they have to start paying a base wage of $15? Do you think that the closure of a few already struggling businesses would be an acceptable cost of lifting 1.3 million people out of poverty?

Every article in the economics section will end with a similar question, a question that provokes thoughts and discussion.

Feel free to leave a comment below with your thoughts. What do you think? Please let us know.

Disclaimer: The opinions expressed in this don’t necessarily represent the opinions of GoldPundit Media.


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