We recently covered the minimum wage in class, and I am providing more detail about the minimum wage and its impact by for students who are interested. In your text, Dr. Mankiw quoted a survey of economists conducted by Alson, Kearl and Vaughn and published in the American Economic Review in 1992 that noted that 79% of economists agree with the statement, "A minimum wage increases unemployment among young and unskilled workers."
Increases in unemployment are not the only problem. A mechanism other than the wage rate determines which low skilled workers will be employed and which will not, leading to discrimination as Dr. Sowell points out in a non-technical article.
David Neumark, perhaps the leading researcher on the minimum wage, speaks at the American Enterprise Institute on the impact of the minimum wage using his most recent research. Dr. Mankiw blogs on Neumark's findings at his blog. Dr. Neumark's research supports traditional findings, and concludes that an earned income tax credit would be a more efficient method of increasing income of poor, low-skilled workers.
Despite the drawbacks, a great many economists support regular increases in the minimum wage. A few years back, over 500 economists, including five Nobel Prize winners in Economics signed an petitoin adding their support for legislation to increase the minimum wage.
Klein and Dompe, in their Econ Journal Watch paper survey economists who signed the petition. They also do a great job of reviewing other surveys of economists on their beliefs about the minimum wage. Although I am doing disservice to the depth of the paper, the economists who signed the petition generally believe that the benefits of raising the minimum wage outweigh the costs. The benefits largely come in dealing with market imperfections that tend to benefit employers relative to employees.
In the Becker-Posner Blog, Dr. Becker expresses regret that so many economists including very good economists, signed the petition. He writes, "A recent petition by over 600 economists, including 5 Nobel Laureates in Economics, advocated a phased-in rise in the federal minimum wage to a much higher $7.25 per hour from the present $5.15 per hour. This petition received much attention, and the number of economists signing is impressive (and depressing). Still, the American Economic Association has over 20,000 members, and I suspect that a clear majority of these members would have refused to sign that petition if they had been asked. They believe, as I do, that the negative effects of a higher minimum wage would outweigh any positive effects. That is one reason I would surmise why only a fraction of the 35 living economists who received the Nobel Prize signed on to the petition--I believe all were asked to sign."
In 2005, Robert Whamples surveys members of the American Economics Association, and finds that 46.8% would favor eliminating the minimum wage, 1.3% would decrease it, 14.3% would leave it at the same level, 38% would increase it by $.50 to more than $1 per hour.
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Suggest you read Economics in One Lesson by Henry Hazlitt. This classic illustrates how a minimum wage helps no one except the one receiving the minimum wage and even he suffers as costs go up to pay for it.
ReplyDeleteThe minimum wage is not necessarily a good thing, however, I know that there are many people who approve and actually like it. People who are minimum wage workers want to earn as much money for as little time spent doing the job. Therefore, they like the minimum wage because it allows them to know that they will make no less per hour than what the minimum wage equilibrium is.
ReplyDeleteRaising the minimum wage is bad for our economy. Not only will it drive up the prices of all the goods and services. Some small business owners will not be able to pay the higher minimum wage which will cause them to either shut down or be shortstaffed.
ReplyDeleteJessie Villalpando
I hadn't thought about it like that. You have a good point Jessie.
ReplyDeleteWhen I started working in 1973 minnum wage was $2.15. my frist purchas was apair of clogs for $8.00 which was about 3 hours of work today a pair of shoes still cost about 3 hours of work at minumen wage. When minium wage gose up so dose the cost of living
ReplyDeleteI had always thought that minimum wage was a great thing. It allowed workers to know that they would atleast make that amount of money. but, when minimum wage increases, business are more likely to hire less workers or to fire some of the workers they have in order to make the same amount of profit they were making before minimum wage went up. I don't believe that an increase in minimum wage is a good or bad thing. I believe that it is a necessity of life because if the cost of living increases so must minimum wage. Instead of people trying to figure out how to lower minimum wage, they should be trying to figure out how to lower the cost of living.
ReplyDeleteThe minimum wage is necessary to and extint. Because employers would try to pay workers very little for the work they do. But by saying that i don't think they should raise the wage. I think by doing that it will only make our economy worse and also drive up the cost of goods and services.
ReplyDeleteI agree...minimum wage is a great thing because it gives business owners a minimum that they must pay their employees for their services. I do think that raising minimum wage at this point would really hurt our economy as prices have already skyrocketed on things like groceries and gas.
ReplyDeleteMany of you whom have responded have hit upon an important subject. If I have to pay my employees more, I either raise prices or hirer less employees.
ReplyDeleteUnfortuneatly I find myself as a manager doing both because of the recent wage increase. Personally I feel that the minimum wage is a false hood, as we have learned to an extent in class.
If we raise the supply of cash the prices will go up to compensate for that supply. It's imaginary. I have five dollars, two months ago I could have gotten more for my five dollars than I can now. So even though I make more money, I still take home the same amount of groceries and other items that I would have before. Hmmm...Interesting.
As to the ones whom thought that "minimum wage is a great thing" yes I do believe it stops SOME unfair wages, but we still have illegal immigrants working for pennies on the dollar. If someone is so shady as to underpay a worker, than they would do so with or without minimum wage.
So now with that taken care of, here is this. I am a low level manager of a retail store, all of my employees got raises. I did not, I don't make too much more than they do. But even though I still have the same amount of money and they have more, costs went up, so they make the same and I make less. So no raises for anyone this year, not even myself.
Minimum wage only helps politicians get more votes.
Minimum wage is exactly what it says, the least amount that someone can be paid. I believe it is necessary because some businesses would probably try to pay their employees less than what is required for the work that has been done. I know this because I have seen it tried to be done. Mostly teenagers are paid minimum wage, however, they are some adults that did not get the chance or give themselves the chance to have a well-paid job. It is almost impossible to support a family, let alone yourself, on a minimum wage. As the cost of living rises, ever so frequently, the minimum wage must do so also in order that many may survive.
ReplyDelete-Tyler Masaichy
I have never believed in minimum wage - even as I was earning it in high school. I believe in pay for performance and I'm proud to say that I haven't had a minimum wage job since those high school days.
ReplyDeleteI recognize the importance of a job well done and as a member of management in my previous job, I frequently awarded raises to clerks who excelled. I'm sure there are many who disagree; however, I think minimum wage supports mediocracy.
I never looked at the other side of the minimum wage effects. I was just like thats good that minimum wage is going up. After reading this I am starting to think different about minimum wage going up.
ReplyDeleteI personally like the minimum wage. I started out making minimum wage. Minimum wage is a starting point, but you cant raise a family on it. I know small businesses hurt when they have to pay minimum wage. I think it makes businesses pay equally. Two businesses may pay minimum wage but which one will allow you to move up in position? It gives the worker a choice. A business can be more selective when offering more than minimum wage.
ReplyDeleteYour student Traci McClary
ReplyDeleteRaising the minium wage in our nation would really harm our economy and it wouldn't solve any problems that the lower paid workers have. Raising the wages would just cause an increase on already high enough prices, and in turn the workers would not notice any difference on their pay and still end up with the same amount of extra money or the same amount of debt after they pay their bills. So their private savings ot income that they have after paying their taxes and consumption would see no significant changes. Also raising minium wages too high might cause the unemployment to rise-- higher skilled workers might see this as an opportunity to get an easier less hour a day job for the same amount of pay. If a CNA or certified nursing assistant makes ten dollars an hour at her job working everyday 12 hours a day sees that a person working at a much easier job makes the same amount of money for less hours then she will go to that job. And being that she is more qualified for that job than the person in the position they will lose their job to a higher skilled worker causing the umemployment to rise. At least that is my out look on the situation you should get the pay according to how difficult the job is.
Traci McClary Bruceville-Eddy ISD
The minimum wage being a price ceiling invariably leads to a rise in inflation and therein to unemployment. When the minimum wage is increased, so are prices across the board. This also presents a normative problem, the "standard of living" increases, but nothing is accomplished beside the raised prices.
ReplyDeleteChelsea Schermerhorn
Bruceville-Eddy
I am for a raise in minimum wage and agree with the line of thinking you quote in your article. As it stands right now, if you work a full-time job with no overtime at minimum wage, one can hardly support himself, let alone a family. This leads to an increase in food stamps, cash assistance and other government help.
ReplyDeletejennie Bryant
Minimum wage is good for the workers who are receiving this wage. However, when the minimum wage starts to fluctuate, whether being lowered or raised, the economy is negatively affected. When lowered, the minimum wage worker suffers because, obviously, they are paid less. This is good for business owners because they are required to pay workers less. On the other side, raising the minimum wage is a positive in the eyes of the minimum wage worker because they are paid more, while still remaining on the same unskilled level they are on without any extra effort on their part. Higher minimum wage is hard on the business that is required to pay the wage, by causing some workers to be layed off and increasing the rate of structural unemployment. I feel that the economy would benefit more if the minimum wage was not continually increasing.
ReplyDeleteI think that abolishing minimum wage laws may not be such a bad thing. Things would be more even keel between the public, and 'private' sector, if you will. Owners of private businesses are able to circumvent the wage laws that owners of franchised and corporate owned business must adhere to. Wage 're-allocation', could also ease the sting of the sudden cost of living increases spurred by across the board wage adjustments.
ReplyDelete