1

Cynthia Watson Social Research Methods (SOC 380) Fall 2010

The Effects of Minimum Wage on Poverty, Unemployment Rates, and Inflation Rates Cynthia Watson 12/8/2010

The topic that I will be researching is the effect that the minimum wage has on unemployment, poverty, and inflation. The research question I will be addressing is: How has the change in minimum wage affected unemployment, poverty, and inflation? I will be looking at three different time periods to answer this question. These time periods include 1980-1990, 1990-2000, and 2000-2010 because there have been significant changes in the minimum wage during these time periods. Therefore, I will be able to show how these changes in the minimum wage have affected unemployment, poverty, and inflation during the three time periods mentioned above. This topic and research question is of interest to me because there are many different opinions about the effects of minimum wage and I would like to research the different arguments that are present about the effects of minimum wage. Also, it would be great to do further research in order to help the government see the different effects that minimum wage has on the people that it services. It is necessary that the government understands that imposing a minimum wage may not always have a positive effect on the economy as everyone thinks it does. My topic should be of interest to a larger audience because the people who have to suffer from the minimum wage need to understand how the minimum wage is affecting their lives. People may support the minimum wage, but when they find out the negative effects that the minimum wage may have on their lives, they will be less quick to support a minimum wage being imposed. I will also target people who usually are paid minimum wage such as people who work low skill entry level jobs. These jobs include dishwashers, busboys, and fast food workers. These are the workers who are usually paid minimum wage. My audience will be the government and the general public of the United States especially those who the minimum wage may affect such as unskilled workers and immigrant workers. Researchers who do not support

the minimum wage and who have done research to show the negative effects of a minimum wage will probably be the ones reading my research. They also may be the ones who fund my research because my research supports their argument. The government may also fund my research because it can help the government to figure out if imposing a minimum wage would be the right thing to do at a given time. Politicians are also very interested in the topic of minimum wage. According to Joseph Sabia and Richard Burkhausert, Proposals to increase the minimum wage are politically popular because they are widelyseen as an effective way to help the working poor (AP-AOL 2006). Former President BillClinton captured this majority view in his statement of support for an increase in the federalminimum wage when he said: "It's time to honor and reward people who work hard and playby the rules....No one who works full time and has children should be poor anymore"(Clintonand Gore 1992). Politicians use the minimum wage to determine certain policies and pass different legislation. For example, Joseph Sabia and Richard Burkhausert states, The goal of helping the working poor was also an important motivationbehind the most recent legislation to increase the federal minimum wage from $5.15 to $7.25per hour in 2007, and it remains a key rationale for Senate Bill 2514, the Standing withMinimum Wage Earners Act of 2007, which would increase the federal minimum wage yetagain from $7.25 to $9.50 per hour. (Burkhausert and Sabia, 2010). As stated above, the minimum wage is used to enact certain legislation, such as the Senate Bull 2514 and the Minimum Wage Earners Act of 2007. Some studies that have been done on this research topic have concluded that raising the minimum wage has had a negative effect on unemployment. For example, in the journal titled, The Effect of the Minimum Wage on Employment and Unemployment, it concludes that a ten percent increase in minimum wage decrease employment by one to three percent. Also in the

journal titled, The Effects of Minimum Wage Increases on Retail Employment and Hours: New Evidence from Monthly CPS Data, it concludes that a ten percent increase in the minimum wage causes retail employment to decrease by one percent. The consensuses found by the sources Ive used seem to suggest that employment does decrease when the minimum wage is increased. This decrease seems to be by about one percent when the increase in the minimum wage is about ten percent. Also, most sources that Ive found suggest that minimum wage doesnt reduce poverty. For example, in the article titled, The Minimum Wage and Poverty among Full-Time Workers, it concludes that minimum has no effect on poverty. Therefore, minimum wage doesnt increase nor reduce poverty according to the sources Ive used. Many people who work with labor/industrial relations are researching this topic as well. Others who are researching this topic are researchers who work closely with the economy to figure out what works best for the economy at a given time. I am not interested in addressing primarily an academic audience because those who are affected by the minimum wage may not be those who are an academic audience. Therefore, I am interested in addressing a public audience because the public is who will most likely be affected by a minimum wage. I am also interested in addressing a policy audience as well because this is who would be in charge of imposing a minimum wage or not. I am almost certain that the research questions that I propose to address have already been answered for this audience. However, there is a possibility that the research questions that I propose have not be answered for this audience because the public doesnt usually read documents geared towards an academic audience. Therefore, I want to gear my research more towards a public audience so that they can get a chance to find out the effects that the minimum wage is having on their lives. Research Questions I plan to answer:

What are the effects of minimum wage on poverty? What are the effects of minimum wage on unemployment rates? What are the effects of minimum wage on inflation rates? I plan to answer the research questions above by conducting quantitative research about how the minimum wage affects poverty, unemployment rates, and inflation rates. I plan to collect data from different time periods so that one time period can be compared to the others. If all time periods suggest the same results, then it is more likely that the results are accurate because all time periods show the same results. This means that the minimum wage had the same affect each time. I will be conducting quantitative data in order to support my results. The data collection technique that I will use in order to conduct my research is the approach of using existing statistical sources. By using existing statistical sources I will be able to show how previous documents support my hypothesis. The research that I will be conducting will be descriptive research because I will be presenting a picture of the specific details that the minimum wage has on poverty, unemployment rates, and inflation rates. I will also be showing the relationship between minimum wage and poverty, unemployment rates, and inflation rates. My study will document the different data that are available to show the effects of minimum wage on poverty, unemployment rates, and inflation rates. My study will also describe the kinds of people who are most affected by the minimum wage and in what conditions these people live in. My research will be basic social research because I will be advancing fundamental knowledge of how the minimum wage affects different parts of the economy such as poverty, unemployment rates, and inflation rates. I will be either refuting or supporting different theories that already exist about the effects that the minimum wage can have on poverty, unemployment

rates, and inflation rates. I will be using existing documents such as scholarly journals and newspaper articles that have different data about the effects of the minimum wage on either poverty, unemployment rates, or inflation rates. Some journal and newspaper articles will only discuss the relationship between the minimum wage and unemployment rates, whereas some journal and newspaper articles will discuss the relationship between the minimum wage and the economy as a whole. In my research study, I dont believe that there are any ethical issues raised by my research. The reason for this is because I will not be conducting any research on human beings or animals that may harm them. I will just be using existing statistical sources in order to conduct my research study. Therefore, no one will be harmed by my research. The populations of interest to me are the general public(specifically those affected by the implementation of a minimum wage) and the government. The reason for this is because I want those who are most affected by the implementation of a minimum wage to be aware of the effects that the minimum wage may have on their lives. As for the government, I want the government to be aware of the effects that the minimum wage that he implements may have on the general public. If the government sees the effects that the minimum wage may have on the general public, then maybe he would change different policies that include the enactment of a minimum wage.

Annotated Bibliography Minimum Wages and Poverty: Will a $9.50 Federal Minimum Wage Really Help the Working Poor?Sabia, Joseph J.; Burkhauser, Richard V.. Southern Economic Journal, Jan2010, Vol. 76 Issue 3, p592-623, 32p Annotation: In this journal, data taken from the March Current Population Survey is used to look at the effects that the minimum wage has on poverty rates. In the journal, it was found that an increase in federal and state minimum wage between 2003 and 2007 had no effect on state poverty rates. Therefore, this shows that the minimum wage does nothing to help those living in poverty. Also, the effects of a proposed increase in federal minimum wage from $7.25 to $9.50 per hour were also looked at. It was found that such an increase would be even less helpful to those living in poverty and the working poor. The results presented in this journal suggest that an increase in the federal minimum wage is an inadequate way to help the working poor or those living in poverty. Raising the minim wage: effects on family poverty. Mincy, Ronald B.. Monthly Labor Review, Jul90, Vol. 113 Issue 7, p18-25, 8p, 4 Charts Annotation: This journal provides estimates of how a higher minimum wage affects the poverty gap in the U.S. The information is based on household data. The difference between the income that is necessary to bring families up to the official poverty level and the actual income of families living in poverty is discussed. In this journal, it is argued that an increase in minimum wage actually decreases the amount of families living in poverty. Other barriers to reducing poverty through a higher minimum wage are also discussed. Minimum wages and poverty with income-sharing. Fields, Gary S.; Kanbur, Ravi. Journal of Economic Inequality, Aug2007, Vol. 5 Issue 2, p135-147, 13p, 1 Chart; DOI: 10.1007/s10888006-9037-5 Annotation: In this paper, the author discusses the basic theory of the minimum wage. The effects of an increase in the minimum wage in terms of poverty, but not unemployment are analyzed. The authors find situations in which an increase in minimum wage increase poverty, decrease poverty, and situations in which poverty is left unchanged by an increase in the minimum wage. In this paper, the author proposes that poverty is affected by the degree of poverty aversion, the elasticity of labor demand, the ratio of the minimum wage to the poverty line, and the extent of income-sharing. By shifting the perspective from unemployment to poverty leads to enrichment in the theory of the minimum wage.

The Effects of Minimum Wages on the Distribution of Family Incomes. Neumark, David; Schweitzer, Mark; Wascher, William. Journal of Human Resources, Fall2005, Vol. 40 Issue 4, p867-894, 28p Annotation: In this journal, the goal of the minimum wage is discussed. The goal of the minimum wage is to increase the incomes of families living in poverty or low-income families. The effects of a minimum wage on the distribution of family income relative to the needs in the United States are discussed. The author proposes that the reductions in the proportions of families that are living in poverty or near-poverty should not be included in the benefits of a minimum wage. MINIMUM WAGES AND THE 'WORKING POOR.'. Wooden, Mark; Wilkins, Roger; McGuinness, Seamus. Economic Papers, Dec2007, Vol. 26 Issue 4, p295-307, 13p, 5 Charts Annotation: In this paper, data from the HILDA Survey is used to examine the effects of a minimum wage on poverty. The paper discusses whether or not an increase in minimum wage can do much to decrease poverty or reduce the inequality in earnings. The results in this paper show that any effects on reducing poverty would be modest. This paper suggests that most employees who receive low-wages are not the ones living in the poorest households. It is also suggested that many people living in the poorest households, combine part-time work with the receipt of government benefits. Therefore, this paper concludes that an increase in minimum wage would likely be of limited effectiveness in protecting the living standards of those living in poverty or the working poor. Minimum Wage Hike Won't Solve Poverty.LeRoy, Sylvia. Fraser Forum, Mar2006, p23-25, 3p Annotation: This article discusses an increase in the minimum in Ontario. This increase in minimum wage only hurt the people that it intended to help, which is the poor. Just as many other articles have said, the increase in minimum wage causes employers to have to pay higher labor causes. This in turn, causes employers to cut positions for low-skilled workers because they now cost more money to keep. This means that increasing the minimum wage would increase unemployment. Therefore, the government needs to think twice before the minimum wage is raised because it may not create the effects that it is intended to do. The Minimum Wage and Poverty among Full-Time Workers. Vedder, Richard; Gallaway, Lowell. Journal of Labor Research, Winter2002, Vol. 23 Issue 1, p41-49, 9p, 4 Charts Annotation: This journal discusses the relationship between minimum wages and poverty. This journal takes a more different approach than some of the other sources that Ive read. In this journal, the author states that there was no significant relationship found between the minimum wage and poverty rates. This shows the different theories that are

available about minimum wage because this one is different from the other theories that Ive come across. THE EFFECTIVENESS OF MINIMUM-WAGE INCREASES IN REDUCING POVERTY: PAST, PRESENT, AND FUTURE. Burkhauser, Richard V.; Sabia, Joseph J.. Contemporary Economic Policy, Apr2007, Vol. 25 Issue 2, p262-281, 20p; DOI: 10.1111/j.14657287.2006.00045.x Annotation: This journal discusses how increasing the minimum wage isnt an effective antipoverty policy. This journal talks about how most families living in poor arent working minimum wage jobs. It also talks about how families who actually work minimum wage jobs arent usually poor. This is an interesting theory because it would seem as if a family who is working a lower-paying job would be poor instead of a family who is working a higher-paying job. The Effects of Minimum Wage Increases on Retail Employment and Hours: New Evidence from Monthly CPS Data. Sabia, Joseph. Journal of Labor Research, Mar2009, Vol. 30 Issue 1, p75-97, 23p, 8 Charts; DOI: 10.1007/s12122-008-9054-1 Annotation: This journal talks about the effects of the minimum wage on retail employment. This journals theory is that minimum wage has no huge impact on retail employment. For example, the journal states that a 10% increase in the minimum wage only caused a 1% decline in retail employment. In this journal, the author also discusses other authors findings. The author shows how there have been mixed findings on the relationship between minimum wage and retail employment. The author talks about how some authors have found that an increase in minimum wage has little of no effect on retail employment. However, the author also talks about how other authors have found that an increase in minimum wage has caused retail employment to decrease. This shows how there are many different theories available about the relationship between the minimum wage and the employment rate. EMPLOYMENT EFFECTS OF A LOCAL MINIMUM WAGE.Benewitz, Maurice; Weintraub, Robert E.. Industrial & Labor Relations Review, Jan64, Vol. 17 Issue 2, p276-288, 13p Annotation: This journal talks about how there are many different variables that play a role in poverty. Therefore, it is hard to determine what exactly causes it by just observing the minimum wage, which is just one variable. This journal also brings up other empirical studies, in which the theory was once again that the minimum wage caused a decrease in employment. Although there are other studies on minimum wage, the most profound theory is that minimum wage causes a decrease in employment as seen here.

10

The Effect of the Minimum Wage on Employment and Unemployment. Brown, Charles; Gilroy, Curtis; Kohen, Andrew. Journal of Economic Literature, Jun82, Vol. 20 Issue 2, p487-528, 42p, 6 Charts, 2 Graphs The Effect of Minimum Wage on Teenage Unemployment Rates. Moore, Thomas Gale. Journal of Political Economy, Jul/Aug71, Vol. 79 Issue 4, p897-902, 6p, 3 Charts What! Another Minimum Wage Study? Eccles, Mary; Freeman, Richard B.. American Economic Review, May82, Vol. 72 Issue 2, p226-232, 7p, 1 Chart A Direct Attack on Unemployment and Inflation. Eisner, Robert. Challenge (05775132), Jul/Aug78, Vol. 21 Issue 3, p49, 3p A National Minimum Wage -- Some Thoughts. Sussams, John. Management Services, Nov95, Vol. 39 Issue 11, p20-22, 3p Minimal Wage Increase. Son, Jason. Dollars & Sense, May/Jun2008, Issue 276, p4-4, 1/4p The Minimum Wage Debate Balancing the Needs of Workers and Business.Congressional Digest, Mar2007, Vol. 86 Issue 3, p65-65, 1p; (AN 24361301) Should Congress Provide For Automatic Adjustments In The Federal Minimum Wage? PRO. Marshall, Ray. Congressional Digest, May77, Vol. 56 Issue 5, p140, 4p; (AN 11021919) Minimum wage raise goes into effect today: Opinions differ on what effect the increase will have on the economy, as some warn it will only freeze hiring even more. Gomez Licon, Adriana. Roanoke Times, The (VA), 07/24/2009; (AN 2W64068643566) Imminent increase in the minimum wage could ripple through the state's economy. Craver, Richard. Winston-Salem Journal (NC), 06/04/2006; (AN 2W62W6703184234)