Proposed Federal Minimum Wage Increase

Congress’s proposed changes to the federal minimum wage will effectively raise it $2.82, from its current $7.28 to $10.10, over the period of 2 years.  This article discusses the economical implications of such a proposition.  There is much discussion as to whether or not such an increase will positively impact the economy.  Despite any negative offerings outlined by this article or anyone else, I am in favor for the minimum wage increase.  My reasons are as follows; I do not ever see myself competing for a low-wage job, thus this area is not an area of concern for me, I feel it will only increase opportunity for workers in states whose minimum wages rates are currently low, and it will keep employee turnover relatively low.

Overall, I believe that increasing the federal minimum wage will spur growth in the economy and in overall business activity.


Paulo said...

Would an increase in income “spur the economy?” It’s true that as income increases, demand for normal goods also increases. However, the demand for inferior goods will tend to drop. Therefore, it appears there’s just a shift of the population moving from one good to another. Would that spur the economy? Logically it makes sense to assume that normal goods are better quality and higher priced. Selling more high priced goods would put more money in the economy and help it grow. This, however, could been seen as a temporary situation. For example, in the short run the quantity demanded of durable goods would spike but be reduced again in the long run. That might be similar in some other goods. Another factor to think about would be income elasticity. How elastic are particular normal goods? This would affect the amount of revenue received for these goods. The more elastic or discretionary an item the more revenue it could generate.

Dave Tufte said...

Nathan: 94/100 ("economic" not "economical")
Paulo: 50/50

So ... Nathan ... do you generally believe the government can make everyone better off by forcing up the prices of stuff we buy? If not, why should increasing the price of unskilled labor make us better off?

I think Paulo's points are well-taken, but he's only covering how the increase in income would help those who get it. How about those whose discretionary income is decreased by paying more for goods produced by these workers? How would that net out?

Ryan Brockway said...

Nathan, you make the comment that a minimum wage increase would not concern you and; therefore, is good. I would make the claim that just because something does not concern you does not mean it is good. In truth the minimum wage will concern you. As stated by Dave Tufte the cost of these higher wages will be passed on to the customer. Basic economic theory also states price floors will induce suppliers, workers, to enter into the market at higher than demanded rates. This theoretically would lead to higher unemployment.

One thing to remember when discussing the minimum wage is what demographic this applies to. The minimum wage is mostly made up of the unskilled labor force. Would it not be better to entice these laborers and those laborers that enter the work force to become skilled laborers? Would this not raise the efficiency of the labor force and thus economic productivity? Perhaps the better solution would be to find a way to subsidize skills instead of simply subsidizing labor through a price floor.

Dave Tufte said...

Ryan Brockway: 50/50

I'm glad you said that so that I didn't have to.

Do note that this might increase measured unemployment, but wouldn't actually make unemployment worse. I know that sounds odd. But, with a low minimum wage we'd have people out of jobs with less incentive to look for work, and therefore less ability to show that they deserve unemployment benefits. A higher minimum wage would draw people out to apply.

I also would not conclude that getting people more skills would be a good thing for the economy as a whole. More skills are good for an individual because they allow them to outcompete someone else. But it doesn't work that way for the economy as a whole because there may still be jobs that don't require many skills. In some sense, we already do this with things like English majors: we have way more people with that skill than jobs.