Raising the Federal Minimum Wage, Research Paper Example

David Shipler broaches public policy pertaining to poverty in an inductive manner, inquiring what the working poor in America need rather than what the private sector or government can do to solve this problem at the macro level. Shipler’s sociological approach to abating poverty in the United States ignores the economic realities of complying with a federally mandated raise in the minimum wage. The negative ramifications of raising the minimum wage include higher unemployment rates because hiking the wages paid to workers would result in the discharge of several productive, good employees (Cahn and Cahn). As a result, there would be less economic incentive to hire new workers so that organizations can still yield profits. In addition, there would be an increase in high school dropouts and/or less individuals, especially from socioeconomically disadvantaged communities, who attend college because mandated higher wages that will enable them to subsist would entice them to choose work over school. Ironically, poverty would increase because there would be less jobs, and employee benefits would be slashed, thereby resulting in virtually no competition within the marketplace. Nonetheless, Shipler, like other experts seeking to reduce poverty rates, believes that anti-poverty policies must cover all bases to be effective. Because living wage jobs currently do not enable the impoverished to subsist, he calls for a federal-mandated boost of minimum wages that would vary on an idiosyncratic basis according to locale. Shipler broaches the topic of poverty within the United States with a very limited vision, as he ignores the role of race in the perpetuation of poverty and how racial disparities would be exacerbated rather than eradicated by hiking up the minimum wage. Rather than argue over the merits and disadvantages of a higher minimum wage at the federal level, it is clear that government at both the state and federal levels need to consider passing economic policies that will generate greater economic growth, thereby increasing overall wages and providing all workers more job opportunities to climb out of poverty. The unintended consequences of raising the federal minimum wage hinders rather than helps alleviate diffuse poverty that is evident in the United States today, which has resulted in an increasingly bifurcated society.

The minimum wage remains an emotionally charged and politically divisive issue in an ongoing dialogue regarding poverty in America. President Barack Obama as well as Democrats in Congress have publically articulated their support for increasing the minimum wage at the federal level from seven dollars and twenty five cents to ten dollars and ten cents in order to boost the stagnating economy and abate widespread income inequality. Debate continues to rage on amongst the Democrats and Republicans regarding the Fair Minimum Wage Act and how it would impact an American economy that is in recession. It is characterized by escalating unemployment rate, paradoxically high productivity, and real wages that are stagnating, meaning they are adjusted for any and all costs of so-called goods and services (McConnell et al. 507). Currently, the efficiency rate is set at fourteen dollars an hour, which is a rate, according to Democrats, that would not attract low-skilled workers who are eager to work harder so that their pay is increased, although if the minimum wage is raised higher per hour the profits yielded by companies would be reduced. If the Republican arguments are correct, however, an increased federal minimum wage would cause unemployment to rise as a result of escalating job losses, less students going to college because the minimum wage would be sustainable, and an increase in the supply of unskilled laborers which would exacerbate rather than reduce poverty rates across America.

71% of Americans think that the federal government should mandate a higher minimum wage to at least $10.10 from all areas on the political continuum (87% Democrats, 68% independents, and 50% of Republicans) according the Pew Research and the recent polls conducted. The primary argument left-leaning economists—the primary actors who contend for raising the federal minimum wage–use in this debate is that increasing the minimum wage will also boost pay and employment. They steadfastly believe that wage floors would increase both overall pay of workers in addition to less unemployment, especially if employers are “monopsonists,” meaning that there are very few purchasers of labor, and that wage rates will fall well under the market-clearing floor (McConnell et al. 1). In more laymen’s terms, passing minimum wage legislation would result in the wages of the lesser-skilled workers would increase and thus reduce poverty levels. One study conducted by David Card and Alan Krueger during the 1990s concluded that when employees working for fast-food restaurants in New Jersey had their minimum wage increased, the levels of employment did as well (Hall and Krueger). Minimum wage laws thus got rid of workforce segregation in which unskilled and skilled workers were segmented (and thus the unemployed and the employed and the haves and have-nots). There was also another economic experiment in England with regards to the federal minimum wage which was set at a much higher rate than the current rate in the United States. This experiment exhibited that boosting the wage floor also enhances employment levels and income both unskilled/low-skilled laborers and all workers on the income continuum. As a result, minimum wage legislation cut the wage parities between white men and their female counterparts (both white and minority). It is discernible that minimum wage laws abated the impact of labor segmentation into unskilled and skilled as well as employed and unemployed camps. In addition, some economists opine that firms may react positively towards an mandated minimum wage increase. Measuring the impact of the wage floor on the pay of low-skilled laborers and the wages they spend in addition to corporate investments and profits  are used by some economists to ascertain the benefits at the macroeconomic level and prove how raising the minimum wage would benefit the economy as a whole (Currie 45). Firm profits percolate down to low-wage laborers who spend the money they earn more than corporations do, thereby enhancing the goods and services necessary to order to speed up economic recovery amidst a recession.

Indeed, it is unequivocal that the demographic that benefits from an increased minimum wage is closely aligned with the most impoverished members of American society, especially for individuals who seek to gain more economic and social mobility. More specifically, there have been several studies that demonstrate that over half of the females working in America would benefit, while in excess of eighty percent of current workers over the age of twenty years would derive some benefit from minimum wage legislation, while an estimated forty percent of workers have attained some higher education. If a mandated federal wage is increased, economists opine that firms can react in unexpected ways that eschew arguments against raising the minimum wage. Rather than hire less workers or lay workers off, left-leaning economists argue that corporations would maintain employment levels as a result of a low demand for labor in an elastic economic market (McConnel et al. 148). A market demand that has a low elasticity transpires when labor costs constitute a relatively small percentage of production and operating costs. An example of this economic dimension is in large fast-food chains in which many low-skilled laborers are employed and earn the minimum wage (McConnell et al. 150). Raising the minimum wage would help corporations absorb production costs via labor, thereby altering working hours in a downward manner rather than hiring new workers or cutting the number of jobs. Employers can enhance the productivity of workers as a way of making up the boosted costs of labor. McConnell et al. argue that an increased minimum wage would thus function as an efficiency wage, thereby resulting in enhanced productivity and a mitigating need for worker supervision (McConnell et al. 515). Due to the fact that the American economy has been in recession for a protracted period of time, and structural unemployment continues to plague the stagnating economy, college-educated workers would seek certain jobs if the minimum wage was increased, thereby removing the stigma of jobs that are commonly linked to low-skilled or unskilled labor (McConnell et al. 551). This facet has worked in companies such as McDonalds as well as other popular fast-food chains.

Advocates of increasing the minimum wage believe that the federal government needs to assume a larger role in the alleviation of poverty, and raising the minimum wage is a critical step in this process. Scholars such as Currie argue that the social safety net in modern America is currently under attack, stressing both the fragility and significance of this very social safety net (Currie 3). It is the efficacy of these social programs that is critical for dealing with diffuse poverty in America today. Therese J. McGuire and David F. Merriman also demonstrate that government aid retains the most currency in terms of supporting the impoverished during epochs of economic stagnation. Rather than cut spending to aid the poor, the federal government must resist any and all political pressure to do so. Public policy shifts play an integral role in improving the plight of impoverished workers (McGuire and Merriman 3). Over the past three decades there have been macro economic developments such as the decline in labor unionization, technological developments, and evolving skill requirements that workers have had to bear the brunt of. These workers at the bottom echelon of the totem pole often do not have access to resources or any marketable skills that they can use to support themselves especially during time blocks of economic transition. Thus, McGuire and Merriman provide an important economic analysis regarding how economic and policy shifts over the past three decades have impacted the well-being of low-wage laborers as well as their families.

While left-leaning economists support raising the minimum wage in the fight against rampant poverty in the United States, conservative economists typically argue against raising the minimum wage predicated on the premise that doing so would spawn adverse rather than beneficial ramifications on poverty abatement. Analyzing the issue of a raised minimum wage from a macroeconomic perspective will demonstrate that a mandated minimum wage increase would result in job loss (particularly in the service sector where non-white workers are predominately employed), high unemployment rates, and thus higher levels of poverty. Rather than helping the poor, this policy would hurt them and immensely hurt the job sector (Currie 3). Moreover, conservative economists contend that there will be enhanced harm and crime within small businesses. Although they recognize the inelastic labor demand for large corporations, this trend is not commensurate in smaller businesses (Cahn and Jack 2). Rather than keep the same number of laborers and absorb the costs of higher wages with minimally reduced profits, small businesses will be forced to lay off workers, discontinue hiring new laborers, and possibly go out of business as a result. Doing so would unequivocally enhance unemployment rates rather than abate them. The labor demand elasticity discerned in small businesses, meaning how responsive firms are to changes in labor costs, is quite high due to the fact that the cost of labor makes up a large portion of production and/or operating costs (McConnel et al. 150). Cahn and Jack discuss one economic study that concluded that a minimum wage set at ten dollars would result in employers reducing their hiring of new laborers by fifty four percent, thereby resulting in swift layoffs and contributing to higher unemployment rates (Cahn and Jack 2). More unemployment results in higher rates of poverty. Competition within the free market in firms that employ low-skilled laborers will reduce immensely with new minimum wage legislation. Large businesses would be able to thrive with rates of minimum wage, but small businesses would unequivocally contract and be less active in the American economy.

Critics of raising the minimum wage further argue that hiring workers and the retention of workers will be profoundly impacted with an increased wage. As mentioned previously, there is a chance that mid-sized and large firms will not be affected by new minimum wage legislation due to the fact that the reservation wage—which refers to the minimum wage that workers accept within temporary labor circles—is higher than ten dollars and ten cents per hour. Higher skilled labor is far more intensive than employment in unskilled jobs such as working for McDonalds, working for a minimum wage of fourteen dollars an hour supersedes working for a minimum wage job (McConnell et al. 542). In addition, if workers prefer to not go to college because lower-intensity jobs earn them sufficient wages, it might force firms to hire workers directly rather than via a temporary work agency in order to cut costs, as temp agencies have in place fees for utilization. In addition, firms will be forced to employ workers past the conventional three month period as well as pay an enhanced wage rate that has in place various bonuses if laborers meet the productivity objectives in place due to the fact that nominal wages would be increased if the federal minimum wage was to be raised significantly (McConnell et al. 515). As a result, the retention of employees would be more important if a corporation wants to remain successful in the long term due to the fact that employees may opt to pursue less intense work since the wage would be livable.

Various institutions and efforts are, according to Easterly, contaminated with utopian social engineering, as the so-called Planners proffer solutions from a top-down approach rather than devising solutions that adapt to the culture and realistic conditions of foreign places from the bottom up (Easterly 45). His examination of poverty at the global level is quite valuable because it is meticulously detailed in its critique of various global institutions purportedly set up to abate poverty rates in developing countries. When aid agencies hand out mosquito nets in impoverished, Third World countries, Easterly notes, “nets are often diverted to the black market . . . or wind up being used as fishing nets or wedding veil” (Easterly 5-6). Free nets thus hardly get to the people who actually need them to protect their health, thereby harming rather than helping those in poverty. Structural poverty thus must be addressed via alternative means. As Cahn and Jack assert: “It’s no wonder then that economists David Newmark, Mark Schweitzer, and William Wascher  found that a higher minimum wage results in a net increase in the proportion of poor families, with the “losers” outnumbering the “winners” (Cahn and Jack). Structural poverty, from this theoretical vantage point, cannot be ameliorated via raising the minimum wage.

The Great Recession adversely impacted the American labor market the most when the federal unemployment rate hovered around 10.1%. The young and vulnerable workers bore the brunt of the pain caused by this statistic, although not all of them suffered the same. Even and MacPherson take into consideration the racial disparities in employment that have existed since the 1950s when the government began taking note of this statistic. While a large corpus of literature examines the various reasons for this chasm, very few studies have specifically analyzed how the wage of the labor market impacts minority groups due to the dearth of comprehensive data available for such a study.

In his Working Poor, Shipley largely eschews the role that race plays in the perpetuation of poverty in America, it is necessary to examine whether or not a raise in the minimum raise will exacerbate rather than mitigate racial disparities within socioeconomically disadvantaged communities. Another contention made against raising the minimum wage is that the hike would adversely impact the employment status of younger laborers, especially amongst subaltern communities. African-American and Hispanic workers between the ages of 16 and 24 would be the first workers who would suffer from sustained unemployment as well as immediate layoffs (Evan and MacPherson 12). If this transpires, then young adults who have no means of contributing to the family wage often turn to crime as a proxy economy so that they can subsist. Conservatives continue to argue that the grassroots campaigns that have been launched to raise the federal minimum wage is geared towards galvanizing both minorities and young Americans in order to procure votes for the Democrats in the upcoming political elections. As such, they blame political opportunism for the push to raise the minimum wage as Democrats exploit vulnerable segments of American society as a way to get rid of Republican incumbents. Ironically, if minorities and the youth join these grassroots movements and the federal minimum wage is passed, they would be supporting an initiative that is indeed contrary to their vested economic interests.

This paper discussed the merits and drawbacks of raising the minimum wage from an economic perspective, especially at the macro level. This issue remains a divisive one in economic and political circles in an ongoing dialogue about abating rampant poverty that continues to burden the working poor. Within this debate, it is clear that raising the federal minimum wage during a time in which the American economy is stagnant and recovering very slowly would spawn adverse consequences that would exacerbate poverty levels rather than provide a corrective for it. As such, it is necessary for economists and politicians to devise alternative ways to alleviate poverty levels that remain widespread despite unemployment rates going down. Raising the minimum wage would render it more difficult and not easier for hard-working Americans to find stable employment.

Works Cited

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Blank, Rebecca M., Danziger, Sheldon H., and Robert F. Schoeni, eds. Working and Poor: How Economic and Policy Changes Are Affecting Low-Wage Workers. New York: Russell Sage Foundation, 2006. Print.

Cahn, David and Jack Cahn. “Popular Does not Mean Practical: The Case Against the Federal Minimum Wage.” Huffington Post. 10 Jun. 2014. Web. 27 Oct. 2015. www.huffingtonpost.com/david-cahn/popular-does-not-mean-  pra_b_5128311.html

Currie, Janet M. The Invisible Safety Net: Protecting the Nation’s Poor Children and Families. Princeton, NJ: Princeton University Press, 2006. Print.

Easterly, William. The White Man’s Burden: Why the West’s Efforts to Aid the Rest Have Done So Much Ill and So Little Good. New York: Penguin, 2006. Print.

 Even, W. E., and D.A. Macpherson. “Unequal Harm: Racial Disparities in the Employment Consequences of Minimum Wage Increases.” Employment Policies Institute. 2011. Web. 27 Oct. 2015.  www.Epionline.org/studies/even_5-2011.pdf

Hall, D. and D. Cooper. “How Raising the Federal Minimum Wage Would Help Working Families and Give the Economy a Boost.” Economic Policy Institute. 2012. Web. 27 Oct. 2015. www.epi.org/publication/ib341-raising-federal-minimum-wage

Lipton, Eric. “Fight Over Minimum Wage Illustrates Web of Industry Ties.” The New York Times. 09 Feb. 2014. Web. 27 Oct. 2015.

Lowrey, Anna. “Raising Minimum Wage Would Ease Income Gap but Carries Political Risks.” The New York Times. 13 Feb. 2013. Web. 27 Oct. 2015.

McConnell, C. R., Brue, S. L., and D.A. Macpherson. Contemporary Labor Economics, 10th ed. New York: McGraw-Hill Irwin, 2013. Print.

Shipler, David. The Working Poor: Invisible in America. New York: Alfred A, Knopf, 2004. Print.