The federal minimum wage was introduced in 1938 during the Great Depression under President Franklin Delano Roosevelt. It was initially set at $0.25 per hour and has been increased by Congress 22 times, most recently in 2009 when it went from $6.55 to $7.25 an hour. 29 states plus the District of Columbia (DC) have a minimum wage higher than the federal minimum wage. 1.8 million workers (or 2.3% of the hourly paid working population) earn the federal minimum wage or below.

Proponents of a higher minimum wage state that the current federal minimum wage of $7.25 per hour is too low for anyone to live on; that a higher minimum wage will help create jobs and grow the economy; that the declining value of the minimum wage is one of the primary causes of wage inequality between low- and middle-income workers; and that a majority of Americans, including a slim majority of self-described conservatives, support increasing the minimum wage.

Opponents say that many businesses cannot afford to pay their workers more, and will be forced to close, lay off workers, or reduce hiring; that increases have been shown to make it more difficult for low-skilled workers with little or no work experience to find jobs or become upwardly mobile; and that raising the minimum wage at the federal level does not take into account regional cost-of-living variations where raising the minimum wage could hurt low-income communities in particular.

Thinking about both lists (benefits and costs) in their entirety, why would you be or should you in favor of a minimum wage? Briefly explain your reasoning.

Cost and Benefit Arguments:

Benefit 1

Raising the minimum wage could increase economic activity and spur job growth.

The Economic Policy Institute stated that a minimum wage increase from the current rate of $7.25 an hour to $10.10 would inject $22.1 billion net into the economy and create about 85,000 new jobs over a three-year phase-in period. [1] Economists from the Federal Reserve Bank of Chicago predicted that a $1.75 rise in the federal minimum wage would increase aggregate household spending by $48 billion the following year, [2] thus boosting GDP and leading to job growth. A 1994 study by economists Alan Krueger, PhD, and David Card, PhD, compared employment in the fast food industry after New Jersey raised its minimum wage by 80 cents, while Pennsylvania did not. Krueger and Card observed that job growth in the fast food industry was similar in both states, and found "no indication that the rise in the minimum wage reduced employment." [3] Their findings were corroborated by economists Hristos Doucouliagos, PhD, and T.D. Stanley, PhD, in a review of 64 minimum wage studies. The authors found "little or no evidence of a negative association between minimum wages and employment." [4]

Benefit 2

Increasing the minimum wage could reduce poverty.

A person working full time at the federal minimum wage of $7.25 per hour earns $15,080 in a year, which is 20% higher than the 2015 federal poverty level of $12,331 for a one-person household under 65 years of age but 8% below the 2015 federal poverty level of $16,337 for a single-parent family with a child under 18 years of age. According to a 2014 Congressional Budget Office report, increasing the minimum wage to $9 would lift 300,000 people out of poverty, and an increase to $10.10 would lift 900,000 people out of poverty. [5] A 2013 study by University of Massachusetts at Amherst economist Arindrajit Dube, PhD, estimated that increasing the

minimum wage to $10.10 is "projected to reduce the number of non-elderly living in poverty by around 4.6 million, or by 6.8 million when longer term effects are accounted for." [6]

Benefit 3

A higher minimum wage could reduce government welfare spending.

If low-income workers earned more money, their dependence on, and eligibility for, government benefits would decrease. The Center for American Progress reported in 2014 that raising the federal minimum wage by 6% to $10.10 would reduce spending on the Supplemental Nutrition Assistance Program (SNAP, formerly known as food stamps) by 6% or $4.6 billion. [9] The Economic Policy Institute determined that by increasing the minimum wage to $10.10, more than 1.7 million. Americans would no longer be dependent on government assistance programs. They report the increase would shave $7.6 billion off annual government spending on income-support programs.

Benefit 4

Increasing the minimum wage could reduce income inequality.

Among the 34 Organisation for Economic Cooperation and Development (OECD) member countries, the United States has one of the highest levels of income inequality, with only Chile, Mexico, and Turkey having higher levels of income inequality. [19] In 2012 the richest 1% of the US population earned 22.83% of the nation's total pre-tax income resulting in the widest gap between the rich and the poor since the 1920s. [20] A 2015 study found that the decrease in the inflation-adjusted value of the minimum wage since the 1980s has been a contributor to America's high levels of inequality. [21] Isabel Sawhill, PhD, Senior Fellow in Economic Studies at the Brookings Institution, stated in 2014 that raising the minimum wage would reduce income inequality, and Jason Furman, PhD, Chairman of President Obama's Council of

Economic Advisers, stated in 2014 that the weakening value of the minimum wage "is one of the important [reasons]... for inequality at the bottom." [22]

Benefit 5

Increasing the minimum wage could increase worker productivity and reduce employee turnover.

Increases in wages are associated with increased productivity, according to many economists, including Janet Yellen, PhD, Chair of the Federal Reserve. 30] Alan Manning, DPhil,

Professor of Economics at the London School of Economics, stated in 2014:

"As the minimum wage rises and work becomes more attractive, labor turnover rates and absenteeism tend to decline." [31] A 2014 University of California at Berkeley study found

"striking evidence that... turnover rates for teens and restaurant workers fall substantially following a minimum wage increase," declining by about 2% for a 10% increase in the minimum wage. 32] A 2014 survey found that 53% of small business owners believed that with a higher minimum wage, businesses would benefit from lower employee turnover and increased productivity and customer satisfaction." [33]

Cost 1

Increasing the minimum wage could force businesses to lay off employees and raise unemployment levels.

The Congressional Budget Office projected that a minimum wage increase from $7.25 to $10.10 would result in a loss of 500,000 jobs. [5] In a survey of 1,213 businesses and human resources professionals, 38% of employers who currently pay minimum wage said they would lay off some employees if the minimum wage was raised to $10.10. 54% said they would decrease hiring

levels. [44] San Francisco's Office of Economic Analysis said that an increase to $15 would reduce the city's employment by about "15,270 private sector jobs." [45] In 2014, Steve H. Hanke, PhD, Professor of Applied Economics at Johns Hopkins University, surveyed the 21 European Union (EU) countries that have a minimum wage and found they had an average unemployment rate of 11.8%, about a third higher than the 7.9% average unemployment rate in the seven EU countries that have no minimum wage.

Cost 2

Raising the minimum wage could increase poverty.

A study from the Federal Reserve Bank of Cleveland found that although low-income workers see wage increases when the minimum wage is raised, "their hours and employment decline, and the combined effect of these changes is a decline in earned income... minimum wages increase the proportion of families that are poor or near-poor." [47] As explained by George Reisman, PhD, Professor Emeritus of Economics at Pepperdine University, "The higher wages are, the higher costs of production are. The higher costs of production are, the higher prices are. The higher prices are, the smaller the quantities of goods and services demanded and the number of workers employed in producing them." [48] Thomas Grennes, MA, Professor Emeritus at North Carolina State University, and Andris Strazds, MSc, Lecturer at the Stockholm School of Economics in Riga (Latvia), stated: "the net effect of higher minimum wages would be unfavorable for impoverished households, even if there are no job losses. To the extent that some poor households also lose jobs, their net losses would be greater."

Cost 3

Raising the minimum wage would increase the price of consumer goods.

A 2013 article by the Federal Reserve Bank of Chicago stated that if the minimum wage is increased, fast-food restaurants would pass on almost 100% of their increased labor costs on to consumers and that other firms may do the same. 2 A 2015 Purdue University study found that raising the wage of fast food restaurant employees to $15 or $22 per hour would result in a price increase of 4.3% and 25% respectively, or a reduction in product size between 12% and 70%: "a hamburger would be much smaller," the researchers stated. [53] NBC News found that the price of a cup of coffee went up by 10 to 20% in Oakland, California, after a 36% minimum wage hike in the city to $12.25. The report also found a 6.7% rise in coffee prices in Chicago after the minimum wage rose to $10. [54] The Alberta Hotel and Lodging Association (Canada) found that a "sudden and significant increase to the minimum wage" would result in "[increased prices for food & beverage, guest rooms and meeting facilities." [55]

Cost 4

Raising the minimum wage could disadvantage low-skilled workers.

From an employer's perspective, people with the lowest skill levels cannot justify higher wages. [61] A study by Jeffrey Clemens, PhD, and Michael J. Wither, PhD, found that minimum wage increases result in reduced average monthly incomes for low-skilled workers ($100 less during the first year following a minimum wage increase and $50 over the next two years due to a reduction in employment. 62 James Dorn, PhD, Senior Fellow at the Cato Institute, stated that a 10% increase in the minimum wage "leads to a 1 to 3 percent decrease in employment of low-skilled workers" in the short term, and "to a larger decrease in the long run." [63] George Reisman, PhD, Professor Emeritus of Economics at Pepperdine University, stated that if the minimum wage is increased to $10.10, "and the jobs that presently pay $7.25 had to pay $10.10, then workers who previously would not have considered those jobs because of their ability to earn $8, $9, or $10 per hour will now consider them... The effect is to expose the workers whose skills do not exceed a level corresponding to $7.25 per hour to the competition of better educated, more-skilled workers presently able to earn wage rates ranging from just above $7.25 to just below $10.10." [48]

Cost 5

If the minimum wage is increased, companies may use more robots and automated processes to replace service employees.

If companies cannot afford to pay a higher minimum wage for low-skilled service employees, they will use automation to avoid hiring people in those positions altogether. Oxford University researchers Carl Benedikt Frey, PhD, and Michael A. Osborne, DPhil, stated in a 2013 study that "robots are already performing many simple service tasks such as vacuuming, mopping, lawn mowing, and gutter cleaning" and that "commercial service robots are now able to perform more complex tasks in food preparation, health care, commercial cleaning, and elderly care." 67] As attorney Andrew Woodman, JD, predicted in his blog for the Huffington Post, a minimum wage increase "could ultimately be the undoing of low-income service-industry jobs in the United States." [68]The Washington Post observed that as minimum wage campaigns gain traction around the country, "Many [restaurant] chains are already at work looking for ingenious ways to take humans out of the picture, threatening workers in an industry that employs 2.4 million wait staffers, nearly 3 million cooks and food preparers and many of the nation's 3.3 million cashiers."