Minimum Wage

Since the elections in November and the news of the Democrats taking the majority I have been particularly aware of more news about the raise in the minimum wage. I hear a lot from people that the minimum wage should be increased and that people are getting taken advantage of. On the other side I hear how bad it would hurt business if the minimum wage is increased. I can see valid arguments to both sides.

However in my opinion I believe that the federal government should leave the minimum wage where it is and let the market decide. In fact I belief that is already happening. In a recent article I read it stated that business are moving more towards a bonus oriented form of wage increases. This does a couple things, first it allows business to be more flexible. Instead of increasing the wage a business can simply give monthly bonuses according to how company profits are. The second thing it accomplishes is an alignment of goals between businesses and it's employees. With aligned goals it will motivate employees to work harder so that their company is successful.

I personally fear for a mandated wage increase because our economy is somewhat delicate right now. I don't know if companies would be able to compete as well on the global market if the minimum wage is increased.


Dr. Tufte said...

During a normal semester, I take off for spelling and grammar, but I'll let you slide this time around.

I read recently that no Gallup poll has ever shown that the public did not favor raising the minimum wage.

This is really frightening. Businesses pass the costs of their labor on to consumers, so a raise in the minimum wage is a tax on the people who buy things made by minimum wage workers, paired with a transfer program to the workers.

I don't think people would agree with this if it was couched in those terms: we'd certainly by appalled if other people decided for us that we had to put money in a tip jar on the counter.

For fun, take Russ Roberts minimum wage quiz: what percentage of the American workforce is paid the minimum wage?

FWIW: I worked at minimum wage jobs longer than most people - just over 7 years (although half of that was with tips).

puracara said...

The economy is already helping with the minimum wage in St. George. I don't have any %'s, but all the jobs that I see advertised for or know of are making more then minimum wage. Even all the fast food places are advertising on their marques for more then minimum wage. I am sure that it has already happen in otther places such as Cal and New York were the cost of living is high.
However, when I think about not raising the minimum wage I think about how hard it would be to live if you made minimum wage and worked 40 hours a week $10,712 before taxes if you didn't miss a day the whole year.

Dr. Tufte said...

1) I am not surprised that (equilibrium) wages are above the minimum wage in St. George. In most of the country this is the case, because we are almost 5 years into an expansion.

2) Agreed - it would be hard to "live" on minimum wage. This misses the point though - if you can't live on a low wage you are supposed to combine resources with others. This is what people have always done, and just because it is 2006 doesn't mean that anyone han an inalienable right not to do so. The big picture idea that economists are trying to get across is that raising the minimum wage has distributional consequences: some people (keep their jobs) and win, and some people lose (their jobs). It may be hard to "live" when you are part of the former group, but that isn't an ethical excuse for making it far harder to "live" for the people in the latter group.

econstudent said...

I forgot to stick a link to my original blog.


Dr. Tufte said...


Jackson said...

I agree, leave it alone...or...continue to leave it alone. It has been ten years since the last boost and within that time we have seen what happens to wages when our government doesn't fuss with them. Amazingly, wages seem to be rising and keeping pace with peoples needs. Granted, their are some economies (like Cedar City) who are in an economic funk and could benefit from a hike in wages. However, I still agree that the solution is not to raise wages through government intervention. Wages and housing prices will eventually balance out. However, the minimum wage is not the real issue here. The real issue is too many people wanting to buy too many things and when they don't have the money they need they expect Uncle Sam to give it to them. Society can't run on government hand-outs. If you can't make it, work harder, work within your wages or do as Dr. Tufte said, "combine incomes." Find a way to make it without government help.

Dr. Tufte said...

Well ... in this case the government doens't so much give it to them as force the particular people who buy from the companies where these people work to pay more for their products.