Alia Dahlan

Dr. Bret Zawilski

RC2001
2 December 2016
Raising the Minimum Wage
With 2016 being an election year, Americans were bombarded with stimulation about the
presidential election. On November 8th, we voted for many other issues at the state and local
level, including minimum wage laws in four states. Minimum wage is the lowest hourly pay that
a worker can legally make, unless the job falls into certain categories. Whether or not to raise the
minimum wage is currently a subject of debate on the national, state, and local levels. This is a
pressing issue because the decision to increase minimum wage at the state level or let it remain at
the national minimum impacts the economy. There has been much research conducted on the
impact of raising the minimum wage, most of which has yielded positive results.
The first minimum wage law was enacted in New Zealand in 1894 for all companies and
industries. Other countries followed their example and started enacting minimum wage laws
afterwards. In the United States, Franklin D. Roosevelt introduced the first federal minimum
wage law in 1938 at $0.25 per hour, which is equivalent to roughly $4.15 in todays dollars when
adjusted for inflation. This minimum wage implementation was a part of the Fair Labor
Standards Act, which included other labor regulations such as restrictions on child labor and
overtime. The federal minimum wage can only increase by congressional action. The most recent
increase was under President Obamas administration in 2009. States are increasing their own
minimum wages because their leaders find the federal minimum wage too low (History).

This year, four states voted on whether or not they should increase the minimum wage.
Minimum wage is a state regulation, except for the national minimum wage of $7.25 per hour for
non-tipped work. For example, North Carolina sticks to the federal minimum wage. The four
states that voted on this are Washington, Colorado, Maine, and Arizona. They all plan to
implement legislation gradually with target rates set for 2020. In Washington, the new minimum
wage was proposed for $13.50 per hour, while in Colorado, Arizona, and Maine they proposed
$12.00 per hour (Sahadi). All four states approved the recent decision to raise the minimum
wage. These state minimum wage increases, along with many in the past, have been broadly
accepted and citizens usually pass related proposed legislation. Colorado voted to initially start
the minimum wage at $12.00 by 2020, but it will increase in relation to living costs from that
point forward. There was also a vote for lowering the minimum wage in South Dakota, but it did
not pass. It would have lowered the minimum wage for non-tipped workers under 18 years old
(Domonoske).
There are a few useful terms to be aware of when discussing minimum wage in the field
of business, specifically finance and economics. Living wage is the local (usually calculated
based on city or county) hourly rate at which people could support themselves and be financially
independent (without assistance from public or private sources). This takes into account food,
housing, commute, and other necessities (Just Economics). Wage push inflation is inflation
that occurs as a result of widespread increases in salaries and wages (Minimum Wage
Investopedia). The wage gap refers to the disparities in hourly wage between different
demographics of people doing similar jobs.
There is much debate over the impact of increasing, or not increasing, the minimum
wage. Those who support increasing the minimum wage argue that $7.25 per hour for 40 hours

each week is not enough money to live off of independently and without financial assistance.
Increasing the minimum wage would also decrease job turnover and assist in addressing the issue
of income inequality in the US. Those who are against increasing the minimum wage argue that
companies cannot afford to pay their employees more without making cuts elsewhere, such as
laying off existing workers. Opponents of the minimum wage increase also argue that the job
market for low-skilled workers would shrink and prices may rise for consumers because goods
would be more expensive to manufacture (Cato).
The impact of changes in minimum wage affects many aspects of the economy from
stocks prices to commodity values (such as gold), and also consumer confidence along with the
political atmosphere. This is because the economy is so interconnected. Each change in policy
causes a ripple effect throughout the markets (Minimum Wage Investopedia). When studying the
wage effects of a minimum wage increase, researchers found that when minimum wage is
increased by less than 20%, it does not make much of a difference for the workers. If the
minimum wage is increased by over 20%, it has a strong positive wage effect, meaning that wage
growth increases. This is especially true for those who do not make much more than the new
minimum wage. Minimum wage increases have little to no effect on those making much more
than minimum wage because their compensation does not change (Lopresti and Mumford).
In terms of politics, those who are in favor of increasing minimum wage tend to be
fiscally liberal or progressive, generally members of the Democratic Party. This is tied to social
views because increasing the minimum wage reduces income inequality and levels the field for
people from different economic classes. If many businesses increase their hourly wages, it may
increase spending and spur job growth. Those who are not in favor of increasing the minimum
wage tend to be fiscally conservative, generally members of the Republican Party. This is tied to

the interest in business and the success of corporations. Businesses that increase their hourly
wages might have to lay off current employees, which leads to higher unemployment rates. The
success of the economy is dependent on those with the most money (ProCon.org).
Those who argue to increase the minimum wage say it has many positive effects on the
economy. If employers pay better, they will have a lower turnover rate, which means that they
will cut training costs because they have to train less employees. Existing employees are also
more efficient because they have more experience. Employees who are financially secure
perform better at work because they have less stress about their financial situation, as opposed to
someone who is making $7.25 per hour (ProCon.org). Because raising wages and worker
productivity have a positive correlation, employers can save money by hiring less workers
because an employee who is paid well and has a lot of experience will be more productive than
multiple minimum-wage new-hires (Just Economics). Contrary to popular belief, increasing
wages decreases unemployment. This is exemplified in Seattle where unemployment decreased
from 6.3 to 5.2 percent when they increased the minimum wage (Worstoll). Another example is
from January 1950, when the federal minimum wage increased from 40 cents to 75 cents, but did
not have a significant impact on unemployment within the United States (Pollin and Wicks-Lim).
Also, when people make more money, they have more spending power to contribute to their
local economies.
The demographics of people earning minimum wage ($7.25 per hour) or less is
representative of those populations who have less privilege. According to Mayer and Levines
congressional report, in 2005, employees earning less than minimum wage were more likely to
be women, of Hispanic origin, young (16-24 years old) or old (over 65 years old), lacking a high
school degree, in service and sales jobs, working part-time (less than 35 hours each week), and

not represented by a labor union (Minimum Wage). These groups of people are expected to make
less than others, and they also usually come from poor families. The make very little money, and
they do not have additional resources to pull from such as wealthy family members. People who
make minimum wage or less perpetuate the cycle of poverty where the poor stay poor and cannot
move higher in socioeconomic status due to bad conditions (The Cycle). A higher minimum
wage would help the poorest families the most to help ends meet. Even those who make less than
minimum wage would likely see a pay increase if minimum wage increased (Minimum Wage).
Many researchers have written about different effects of increasing the minimum wage.
Pollin and Wicks-Lim conducted a study on how the fast food industry could adjust to a $15
minimum wage without laying off workers. Fast food restaurants are notorious for paying their
workers minimum wage. This is because fast food is cheap and the staff does not make tips.
Also, employers do not usually require fast food employees to have an educational degree,
except possibly high school. Minimum wage employers such as fast food chains or large box
stores, such as Wal-Mart, have a history of being accused of wage theft. Wage theft can be where
the employer withholds or steals a portion of the laborers pay or benefits, does not pay overtime,
or some other form of not fully paying workers (What is Wage Theft?). According to Pollin
and Wicks-Lims study, the business would have to adjust to the new expenditure by raising
worker productivity. The restaurant saves money by having a lower turnover rate, thus
decreasing recruiting and training costs. Higher paid workers are more loyal to their jobs. More
experienced workers are also more efficient. The fast food restaurants could also raise prices on
their goods. Though this is not ideal, restaurants need to adjust their prices periodically to
account for inflation anyways. Also, if people are making more money due to a higher minimum
wage, they can afford to pay more for fast food. Businesses can also make money by taking

advantage of economic growth. When employees are paid more, they contribute more to the
local economy and increase revenue for the communitys businesses. Restaurants can also make
up for spending more money on wages by redistributing revenue. They could decrease their
profit margin, reduce pay increases for high-paid employees, and/or reduce spending. A $15
minimum wage for fast food workers is feasible and beneficial for business if the company is
willing to make that initial investment (Pollin and Wicks-Lim).
Because fast food chains employ a large number of the American population, increasing
wages there would increase the overall income of American families. Also, the U.S. economy is
well interconnected, which would imply that if fast food minimum wages increased, other
sectors (such as sit-down restaurants, grocery stores, and other food handling entities) and other
industries (such as agriculture and materials manufacturing) may follow suit. Fast food wage
increases may even have international economic effects because fast food chains such as
McDonalds have franchises in many different countries.
Large profitable businesses such as fast food restaurants have political power due to
lobbying. As we have seen in this past election, more states decided to increase the minimum
wage. These increases may pressure the federal government to increase the minimum wage.
There will always be debate over the rate of minimum wage and whether or not it should exist as
legislation because family income is connected to many other economic indicators. It is
ultimately up to the voters to determine if minimum wage at the state level should increase,
decrease, or remain the same (without adjusting for inflation). Americans will have to continue
thinking about the short- and long-term effects these decisions it on the economy. Changes in the
minimum wage affect so many people that it is an issue that calls for more research and analysis
as more policy is written about it.

Works Cited
Cato Institute. "Four Reasons Not to Raise the Minimum Wage." (n.d.): n. pag. Web. 17 Nov.
2016.
Domonoske, Camila. "4 States Opt To Raise Minimum Wage; 7 Loosen Marijuana Laws." NPR.
National Public Radio, 9 Nov. 2016. Web. 10 Nov. 2016. <http://www.npr.org/sections
/thetwo-way/2016/11/09/501350808/4-states-opt-to-raise-minimum-wage-6-loosen-marij
uana-laws>.
"History of Minimum Wage." Be Businessed. Be Businessed, 25 Mar. 2016. Web. 27 Nov. 2016.
<http://bebusinessed.com/history/history-of-minimum-wage/>.
Just Economics. "About Living Wage." Just Economics. Just Economics of Western North
Carolina, 2016. Web. 10 Nov. 2016. <http://justeconomicswnc.org/about-living-wage/>.
Lopresti, John W., and Kevin J. Mumford. "Who Benefits From A Minimum Wage Increase?."
ILR Review 69.5 (2016): 1171-1190. Business Source Complete. Web. 10 Nov. 2016.
Minimum Wage. [Electronic Resource] : Characteristics Of Low-Wage Workers And Their
Families. n.p.: [S.l] : [s.n.], 2008., 2008. Library Catalog. Web. 10 Nov. 2016.
"Minimum Wage." Investopedia. Investopedia, LLC., 29 July 2015. Web. 10 Nov. 2016.
<http://www.investopedia.com/terms/m/minimum_wage.asp>.
Pollin, Robert, and Jeannette Wicks-Lim. "A $15 U.S. Minimum Wage: How The Fast-Food
Industry Could Adjust Without Shedding Jobs." Journal Of Economic Issues (M.E.
Sharpe Inc.) 50.3 (2016): 716-744. Business Source Complete. Web. 10 Nov. 2016.
ProCon.org. "Minimum Wage ProCon.org." ProCon.org. 9 Nov. 2016, 2:00 p.m.,
minimum-wage.procon.org/
Sahadi, Jeanne. "4 States Will Vote on Raising Minimum Wage." CNNMoney. Cable News
Network, 1 Nov. 2016. Web. 10 Nov. 2016. <http://money.cnn.com/2016/11/
01/pf/minimum-wage/>.
"The Cycle of Poverty." ESchoolToday. ESchoolToday, 2010. Web. 28 Nov. 2016.
<http://www.eschooltoday.com/poverty-in-the-world/the-vicious-cycle-of-poverty.html>.
"What Is Wage Theft?" UCLA Labor Center. UCLA Center for Labor Research and Education,
2014. Web. 02 Dec. 2016. <http://www.labor.ucla.edu/wage-theft/>.
Worstall, Tim. "We Are Seeing The Effects Of Seattle's $15 An Hour Minimum Wage." Forbes.
Forbes Magazine, 16 Mar. 2015. Web. 10 Nov. 2016. <http://www.forbes.com/sites
/timworstall/2015/03/16/we-are-seeing-the-effects-of-seattles-15-an-hour-minimum-wage
/#4f970a18715a>.