Case Against The Minimum Wage

1887 words - 8 pages

Amanda ColesProfessor John HobackMacroeconomics (WB FA13)04 December 2013Case Against Raising the Minimum WageThe raising of the federal minimum wage will negatively affect individuals, small business, and the labor market, therefore; the minimum wage should not be raised. The federal minimum wage ($0.25 per hour) was instituted in 1938 in the Fair Labor Standards Act and has been raised at least 22 times since then. Originally, it covered the mining, manufacturing, and transportation industries but now covers over 85% of the workforce. Currently, there are states that have implemented a minimum wage higher than the federal current of $7.25 per hour (Wilson).The subject of raising ...view middle of the document...

Worst case scenario, a childless single person would net about $14,664.00 per year. There has been much research done and this research included states with higher minimum wages. The research has concluded that even in areas with the minimum wage equal to or higher than $9.00 per hour, people still lived in poverty.Another reason increasing the federal minimum wage will not alleviate poverty is that 75% of employees who earn that wage are part-time not full-time employees (Wilson). A lot of these employees are teens living at home or adults voluntarily working part-time. Also, a lot of these minimum wage positions are of high turnover and most employees are motivated to be promoted (Wilson). The employees who would receive an increase to $15.00 per hour might be happy but fellow colleagues may lose their jobs and that does not help poverty. Zero dollars per hour is a lot worse than $7.25 per hour. Without a job that employee loses a chance to gain work experience and marketable skills that would help the employee out of poverty. People who support raising the federal minimum wage believe a lot of minimum wage workers are adults working full-time trying to support a family. In reality, only 5% of households actually fit the description politicians describe. Finally, poverty will not be alleviated by raising the federal minimum wage because approximately 60% of people in poverty do not work (Dunkelberg.)Now there is an exception. Labor union members are the only ones that due benefit from minimum wages being raised. Labor unions have selfish reasons for the increased minimum wage as it reduces competition from low skilled workers (Dorn, James).Many economists do not care for labor unions because the wages they demand are above levels that are competitive. These labor unions make it that a unionized company will not hire more people. Unions are only able to have the power as long as the government protects them (Reynolds.)Small businesses, not big corporations, will be affected in a negative way if the federal minimum wage is allowed to be raised. Small businesses are dealing with higher taxes, increased regulations, and increased health care costs. Asking a small business to increase the minimum wage is just one more increased operating expense they do not want. When it comes to cutting costs, wages and/or benefits cuts is where most small businesses would cut. Rarely is any business going to allow their net profits to be cut. The following is an example used by a Forbes magazine contributor explaining why the federal minimum wage being raised is not a great idea (Dunkelberg.).Consider a community based pizza parlor selling 100 pies a day for 360 days at $10 each. Total revenue is $360,000. It employs 10 minimum wage workers earning $7 per hour, working 2000 hours a year, making labor costs $140,000. Assume rent, utilities, equipment, depreciation, insurance, supplies, licenses, and food costs come to $170,000 per year, leaving a profit of $50,...


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