Continuing the thoughts from the post I had on Valentine’s Day, I wanted to address a few of the questions I received surrounding the proposed hike to the federal minimum wage. During his State of the Union speech, President Obama stated that a full-time worker earning the current federal minimum wage of $7.25 per hour would fall below the poverty line. So the question popped up, what’s the relationship between low-wage workers and those who require government assistance?
Well, I was able to track down some research through the Office of The Assistant Secretary for Planning and Evaluation (that’s in the U.S. Department of Health & Human Services), and it paints an interesting picture.
The first thing to realize is that not everyone earning around the minimum wage is in dire economic straits. Read more
Back on Valentine’s Day, I posted about the link (or lack of one) between a proposed hike in the federal minimum wage and unemployment levels. I know…not a very romantic post for Valentine’s Day. I got several questions, so I thought I’d expand on them and do a couple follow-ups with a bit more information. To recap, basic economics would suggest that as the minimum wage increases (the price of labor), the consumption of labor (employment rate) would decrease as employers consume less of it. The problem though is that a good deal of research shows that this relationship doesn’t exist.
In my initial post, I referenced Washington and Oregon as two states whose minimum wages were already above or near the proposed $9/hour federal minimum. So the question is…how have they been doing? Has that higher minimum wage meant higher unemployment? Read more
Your entry-level economics class taught you (or should have) that when the price of something goes up, less of it is consumed. This holds for cars, interest rates, widgets, and wages. So, during this week’s State of the Union address, when President Obama called for raising the federal minimum wage from its current level of $7.25 per hour to $9.00 per hour, and tagging the minimum wage to the cost of living, it drew a decent amount of criticism. The thinking against raising the minimum wage goes like this: if you raise the minimum wage, employers will be able to afford fewer workers; employment will go down; the economy is worse off. The counterargument is that with more money in their pockets, minimum-wage workers, will contribute more to the economy. However, with unemployment at 7.8%, nobody wants to be on the wrong side of the argument.
The problem is that basic economics seems to break down on this point. A recent paper from John Schmitt at the Center for Economic Policy Research surveys recent research on minimum wages and finds that there’s little effect on employment.
Before we look at that, though, let’s look at what this minimum-wage issue really looks like. Read more