Economics of the Minimum Wage
Several of you have already commented in previous posts that you are in favor of raising the federal minimum wage (currently set at $5.15 per hour). I'd be interested in knowing if, after you work through Chapter 4, any of you will change your mind on this issue. The standard economic analysis of the minimum wage argues that an artificially high wage will create unemployment among low-skilled workers. That is, employers will react to the mandated higher wage by reducing the number of workers that they are willing and able to hire (or, equivalently, by reducing the number of hours of work they offer their workers). On the supply side, the higher mandated wage will entice some people to look for jobs that otherwise wouldn't want to work at the lower market wage. The combination of these responses results in a surplus of labor, i.e., unemployment.
The interesting empirical question, though, is the magnitude of the drop in employment coming from the higher mandated wage. Suppose that for every 10% increase in the minimum wage, the employment level among low-skilled workers falls by 3%. Is this a tradeoff that you're willing to make?
What if employers react to the higher minimum wage by changing the employment relationship in some other way. For example, suppose employers reduce the fringe benefits that they were previously offering (e.g., on-the-job training, laundry services for worker uniforms, or health benefits). Is this a tradeoff that you're willing to make?
See the title link above for additional perspective on the economics of the minimum wage.
1 comment:
I think that this is a two way street. I can see where everyone is coming from here. On one hand, yes there are potentially negative benefits of increasing the minimum wage such as with an increase in minimum wage, the employment rate will decrease. However, I don't mena to look at the glass as half empty here, but I dont think that the employment rate is really going to decrease that much even if we keep minimum wage where it is. Personally, I think we should reward those who can go out and get a job. Plus, employers may not be able to hire as many workers but the workers they do hire I am sure will be looking for more quality because more of their money will have to go toward paying employees. I have to say that inreasing the minimum wage, I think, would have more more significant benefits than negative outcomes. As the cost of living icnreases with each day, I think the increase in minimum wage will help not only citizens beginning to work (high school students), but the existing citezens as well. After reading chapter four I still feel that the increase overall would be beneficial in the long run.
Post a Comment