Good New? Minimum Wage Went Up!
“By a vote of 87-10, the Senate ended Republican delaying tactics and cleared the way for passage this week of a bill that both raises the minimum wage to $7.25 an hour and provides small companies with $8.3 billion in tax reductions during the next decade.” Reported by Jack Torry in his article, “Senate advances wage legislation, adds tax relief,” published in THE COLUMBUS DISPATCH Wednesday, on January 31, 2007.
This big jump of minimum wage, from $5.15 to $7.25, is good to everyone?
Possibly, to most students who work on campus, it is awesome because this increase in minimum wage means that they can earn 40.8% more than before for each hour they work. According to what we learnt in class, however, whether the total hours of labor supply in campus will increase, stay the same, or decrease is uncertain. While some students who have larger substitution effect will work longer (from H1 to H2), some oth
ers whose income effects are larger will decrease their work hours (from H1 to H3). If we think from the view of employers, Marietta College, increasing minimum wage means that their cost to hire the cheapest labor force, students, rise 40.8%. To this extra cost, what the college will respond depends on its purpose to provide jobs to students. If the college does need these students to work for it, the total hours of labor demand will not change much. But if the college provides these jobs in order to give students some financial help, the college will cut some unnecessary positions and total hours of labor demand will shrink. Will some students lose their jobs? Maybe.
Jump out from the campus, to all people who are working around minimum wage before may also face the same situation. Because of substitution effect, more people who used to be depressed will be ignited for working, but job seekers will probably feel finding a job become more difficult. Although the government gives $8.3 billion in tax reductions to small business, can all small businesses get enough remedy? What about big businesses? Do big businesses pay all their employees more than minimum wage? I am afraid not. To those people who still keep the jobs, they are the winners. But to those who lost jobs because of the shrinking labor demand, they are losers. To those who cannot find a job at new minimum wage and would like to work lower than that, they are losers.
As a result, higher minimum wage will only benefit some part of low-income people and push the rest into unemployment. Take a further look, higher minimum wage will also bring up the labor cost. To those entrepreneurs, the low labor cost in developing countries will be more attractive. They will invest more overseas and will ultimately cause a decrease in the labor demand in the United States and increase in unemployment rate. Besides, having been in trade deficit for many years, America will suffer even more because foreign goods will become cheaper and more dominant in market. Words like “Made in China” will fill more places around people’s lives.
Who will be happier?
2 comments:
When it comes to making money, most people tend to exploit opportunities to make themselves better off. When Ohio voters were given the opportunity to make $1.70 more per hour, they did not consider that there would be lay-offs at the workplaces, that jobs would be shipped overseas, or that the cost of everything they purchase as consumers would increase over a short period of time.
Likewise, if the federal minimum wage hikes $2.10 per hour, what do you think is going to happen? That everything will be affordable to the average minimum-wage worker? Absolutely the opposite. The only thing that will become of this rise in the minimum wage is inflation.
Maybe the voters who made the individual choice to raise the minimum wage because of instant satisfaction should have been thinking about the entire economy, not just about benefiting themselves.
In response to the question of college students losing their jobs I do not believe they will be affected. The government is paying the students not the college. I work for the college and every year I can earn up to $2000 of work study money. I can work until I have reached my $2000 dollars and then once I have I am no longer able to work for the rest of the year. This just means that I have to work less hours to make my $2000 dollars. This increase in wages should not affect the college at all because they do not pay the students, the government does. Now about the small businesses, I believe that they will suffer. Prices of products will rise because of this wage increase so you will still be paying the same percentage for the same products. This will hurt the small businesses because it will be harder for them to pay their employee since there amount of store income will most likely remain the same.
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