Democrats to Add Minimum Wage Increase to Iraq Bill
In a recent bill proposed to the house for funding in the Iraq war will also include the initiative to increase minimum wages in the U.S. The Speaker of the House, Nancy Pelosi, added to the bill to "to try to pick up liberal support and also put pressure on the Senate to end the logjam over the long promised wage increase."
In January the House overwhelmingly voted to increase the federal minimum wage to $7.25 over the next 2 years. According to the article, "the Senate followed suit but only after adding tax breaks to benefit small employers and the restaurant industry, most impacted by the increase." Since then the house has approved a smaller small tax package to those that will be most impacted. A decision on this still hasn't been made and is currently in a stand still between the House and Senate.
Is raising the minimum wage a good idea? We have recently covered the Competitive Model in Labor Economics. According to this model in a free market where there is no minimum wage, there is also no unemployment. However, when the government imposes a minimum wage, unemployment occurs causing deadweight loss. Employers offset the impact of an increase in minimum wage by reducing hours of work, reducing fringe benefits, raising prices, or even reducing the quality of products/services offered. Also in any uncovered sector, wages will be depressed. I think imposing a minimum wage is a good thing to an extent. I wonder if it is too high. It should be increased to a level where it won't discourage high school graduates from going to college. Technology is improved through an investment in human capital, and if a large number of potential college students are discouraged to attend college that is bad for society. However it is unfortunate that some industries aren't covered by the minimum wage and their employees suffer.
2 comments:
Minimum wage definitely has its pros and cons and each must be weighed appropriately. When wages increase, prices of goods also increase, so therefore the wage change will have a change in the prices of goods. I think that this will have th greatest effect on people who made a little over the new minimum wage rate. Their wages will not increase and suddenly they will find themselves at a lower standard of living because they will be paying more money for the goods they purchase but will not be making any more money.
I do not believe that the federal government should raise their minimum wage as drastically as $2.10. Some state wide minimum wages are as low as $5.15, the current federal minimum wage. If the federal wage increases to $7.25 those states will severely suffer. Jobs will be cut, benefits such as life insurance will be taken away and the economy within the state will suffer because so many people without jobs will not be able to contribute to the economy as much. Some businesses will be forced out of business because they will not be able to pay their employees and turn a profit. As individual market prices begin to raise it is important that wages rise as well. However the wages should rise by a small increment at a time. The inflation of the market also needs to be considered. As wage goes up it will cause prices to go up and not only will more people be unemployed but they will not be able to afford all goods and contribute to the economy. If people can not afford to contribute to the economy as much than demand for certain goods will decrease, more workers will be cut and around and around we go.
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