WHAT COULD RESULT FROM A MINIMUM WAGE INCREASE?

By Jaden Jimenez

June 18, 2014 (San Diego)--Raising the national minimum wage would affect millions of workers all over the country. But would it hurt or help the economy? During the recent years, minimum wage workers, labor and support groups have come out in favor of the idea of raising the minimum wage to help the poorer individuals who live off what they say is an inadequate salary. However some business interests and fiscal conservatives have voiced opposition.

Everything from protests to walkouts has been done to convince corporations and the government to raise the minimum wage to a ‘living wage.’ As stated on www.Raisetheminimumwage.org, “With the worst recession in a generation is still being felt across the nation, state and federal leaders are focused on getting their economies moving again while helping working families make ends meet.”

In direct response to these protests as well as economic difficulties, many states and cities have opted to increase their minimum wage to an amount higher than that required by the federal government. Many who oppose a federally imposed minimum wage increase are in favor of states and cities adopting their own minimum wages. They believe that states should decide their own minimum wages based on their specific economies and markets. They have voiced that there is not a single minimum wage that could fit the plethora of cities in the US. What works in Los Angeles may not work in Birmingham, for example.

Moreover, the nonpartisan Congressional Budget Office estimated that President Obama’s proposed $10.10 wage, once fully implemented, would result in layoffs and “reduce total employment by about 500,000 workers.” The estimate states that the higher the pay the less likely businesses will be able or wanting to hire new employees or even keep current workers.

But on the flip side, 16 million workers are predicted to keep their jobs with the pay increase. "By increasing workers' take-home pay, families gain both financial security and an increased ability to purchase goods and services, thus creating jobs for other Americans," concluded the left-leaning Washington, D.C.- based think tank, Economic Policy Institute. So presumably this in the end would help stimulate the economy in later years.

Now even with this predicted job growth the opposition is scared of what lasting effect this will leave on kids coming into the job market. If the pay for entry-level jobs is high and can support a decent living standard, what is the point of going to school to be trained for higher skilled work?

In an interview done by the Los Angeles Times with Nick Hanauer, a multimillionaire who helped raise the minimum wage in Seattle to $15 an hour says, he doesn't want this increase to be incentive for teens to drop out and get a job, but he also doesn't want companies to play around with training wages. However this teenage fear seems to be a ploy. There is a large majority of minimum wage workers who are out of their teens and still working for the same pay. In 2011, 3.8 million American workers earned the federal minimum wage of $7.25 per hour or less, according to estimates by the U.S. Bureau of Labor Statistics.

An employee working a 40-hour week at the federal minimum wage would earn $15,080 per year. This income would leave a two-person household just under the federal poverty threshold of $15,130. But About 70 percent of minimum wage employees, however, work fewer than 35 hours per week and thus earning less, according to federal labor statistics.

Hanauer also states the reasoning behind the specific amount of $15. “To be clear, just because you believe raising the minimum wage will help the economy, it does not also mean the higher it goes the better it will be,” he said. “Fifteen dollars is more or less between the $10.54 it would have been if it had tracked inflation nationally and the $21.70 it would be if it had tracked productivity gains nationally. Fifteen dollars is a very conservative number that we know for certain the economy can support. And additionally, Seattle, Wash., is a very prosperous and very expensive city to live in. So $15 is a good solid number for a place like this, but probably is too much for a small town in Arkansas where living costs are much, much, much lower,” he concluded.

Some might say that the biggest reason for this federal increase is to help people by providing living wages and hopefully lift people out of poverty, but in a post by David Henderson cited by the chairman of the Harvard Economics Department, Greg Mankiw, points out that a lot of minimum wage earners are second or third-job holders in households with other income. That could include a teenage summer employee whose parents both have jobs. Other minimum wage workers may include retirees with income from savings and Social Security who own their homes mortgage-free. This would skew the idea that raising the wage would lift people barely hanging on out of poverty.

Even with studies showing the downsides of a minimum wage increase there is evidence of how a city handles with an increase. San Francisco, According to new data from payroll-processor Paychex and research firm IHS, San Francisco's small businesses are growing faster than those of any other large U.S. city and even the nation as a whole. This is happening in spite of the argument that raising the minimum wage would put ‘mom and pop’ operations out of business.

Many small businesses actually pay above the minimum so with the increase it had little effect in terms of unemployment amongst the stores. The workers who would be mainly affected by the increase would be the ones working for large corporations such as Wal-Mart, fast food chains and the hotel industry.

Following the success of San Francisco, California as a whole had decided in September of 2013 to raise the state minimum wage to $10 by 2016, which then would be the highest of any state in the nation.

But San Diego recently has had debate of whether to raise the city minimum wage, following the idea that different wages should be appropriate for the specific economy, to help residents of the expensive city support a decent standard of living. Then on Monday, Councilman Todd Gloria amended his proposal to raise the minimum wage to $11.50 instead of the $13.09 originally proposed. It would be phased in until 2017, then in 2019 it would be indexed to keep pace with inflation.  The plan would also provide five paid sick days for workers.

In a letter released by 75 economists, they voice support for the federal minimum wage hike and say it will be good for the economy. The economists wrote in the letter that “the weight of evidence” now shows that “increases in the minimum wage have had little or no negative effect on the employment of minimum-wage workers.” The group also wrote that this would stimulate the economy. If lawmakers were to raise the minimum wage from $7.25 an hour to $10.10 an hour nationally, the economy would grow by $22 billion in the initial phase-in period, according to a recent study from the Economic Policy Institute, a liberal think tank.

When low-income households earn more money, they are likely to spend it, pouring more dollars into the economy, the argument goes. To support this, a recent study by the Federal Reserve Bank of Chicago concluded that, following an increase in the minimum wage, spending by households with at least one minimum-wage worker increased by $700 per quarter.