Mar
16
Blog Post #8: Competition vs. Increasing Minimum Wage
March 16, 2015 | Leave a Comment
The fight to raise the minimum wage has been a ongoing effort not just in New York but also throughout the United States. Obama had addressed this issue in his attempt to raise the national minimum wage to $10.10 an hour and de Blasio had signed an executive order to increase the living wage in New York to $13.13 an hour. Proponents of increasing the minimum wage believe that doing so will alleviate issues including poverty. Those against the increasing of the minimum wage argue that doing so will not particularly alleviate any of our current poverty problems. The arguments for both sides sound logical. However, while the idea of a higher hourly wage is quite appealing for workers including myself, I also agree with the critiques who claim that increasing minimum wage will not make much of a difference where poverty is concerned.
Christina D. Romer’s article for the New York Times definitely goes into why critiques, including the “emotionless” economists, do not see any economical benefits from increasing the minimum wage. Many proponents of raising the minimum wage feel strongly about this cause because, as wealthy a country as we seem to be, there are still many who work double jobs and overtime but still do not have enough to comfortably put food on the table everyday. However, as Romer indicates, we need to carefully analyze which group of people actually benefits from an income raise.
According to the Economic Policy Institute blog report, approximately half the workers who will be impacted by the increase in minimum wage belong in families earning under $40,000. Now, it’s great that this income group will benefit but what about the other half? Romer also touches upon the fact that corporations can raise the price of goods in balance the rise in the minimum wage. This ultimately defeats the purpose of the wage increase as the people who are “benefiting” will have to pay more for their goods.
What I found really intriguing is the fact that increasing the minimum wage can displace low-wage workers and run them out of a job. Based on Arindrajit Dube, T. William Lester, and Michael Reich’s study, higher minimum wages lower labor turnover, which increases labor demand and productivity. As a result, employment rates will not falter. However, Romer points out that a higher minimum wage may attract more efficient workers to compete for a position. In the case where these incoming workers are more affluent (which may be the case as they are competing for higher paying jobs), some occupations held by low-wage workers will be transferred over. As a result, we are left with more unemployment workers who need wages and more employed workers who are not in as desperate a need for wages.
Ultimately, the chain reactions from increasing the minimum wage cancels the major benefit of doing so. When we talk about competition, it is important to note that higher wages can, will, and does bring more workers to the labor market. However, if the number of jobs do not change, only workers from the “cream of the crop” will be selected. These efficient workers typically have more experience, background, credentials, and may not need the higher income, or any income, as much in comparison to workers in the lowest-income bracket. Yes, we are advertising that a higher pay will make lives easier for those in the lower income brackets. However, if we take into account the increase in competition and the reactions businesses will have, the pros do not substantially outweigh the cons.
-Amy (SiJia) You
