
The minimum wage is a controversial topic that has resurfaced in the past few years, most noticeably because of the “Fight for Fifteen” movement. Within the past five years the issue of whether to raise the minimum wage has been largely debated and protested, but has gone nowhere. There are many different opinions on the topic, from wanting to raise the minimum wage to $20 an hour to wanting to get rid of the minimum wage altogether. Research, however, has shown time and time again that a higher minimum wage does in fact hurt the economy, and it inflates the value of goods and services. Raising the minimum wage will have a negative impact on the economy while at the same time hurting the people that it was initially meant to help. 

Before addressing the argument, it is important to understand the history of the minimum wage law, why it was made, and its effect on society. The minimum wage was first established in 1938 as a part of the Fair Labor Standards Act, and was set at 25 cents an hour (Glass), which is about $4.31 today. The first time the government set out to create a minimum wage was in 1933 during the Great Depression, but the National Industrial Recovery Act, which was the organization sponsoring the idea, was declared unconstitutional (Glass). Several attempts at State minimum wages had been shut down at that point also. In recent years, the minimum wage rose from $5.85 an hour, to $6.55, to $7.25 in 2009. In 2007, Congress allowed States to increase the minimum wage past the federal wage, and now there are 29 states with a higher minimum wage than at the federal level (Glass). The law was created as a point to which they could enter the work force during the Great Depression. At that point many of the jobs that were being created were in the Civilian Conservation Corps, or the CCC, which was a program created by Congress to create jobs and provide welfare. After that, in the Second New Deal, The Works Progress Administration, or the WPA, was created, and put thousands of people to work building roads, schools, and airports. The program put the government into even more debt, but it helped to artificially stimulate the economy and created jobs. Today, the main movement supporting a raise in the minimum wage is the “Fight for 15” movement, but it evolved from a movement called the “Living Wage” movement which has been around for about 100 years (Cunniah). 

The viewpoint that is typically associated with the Democratic Part is that the minimum wage should go up. How much it is raised varies depending on who is asked, but a common answer is $15 an hour, or an increase of $7.75. Their argument is that nobody should be forced to live off of a wage that cannot support them (Perez). If a worker is paid $7.25 an hour, which is the current federal minimum wage, they earn $15,080 per year if they work 40 hours a week. That wage is below the poverty line for a family of four, and for a family of one it is not enough to be eligible for Medicaid. They rely more heavily on an emotionally charged argument, but it is very effective. However, there are many economic studies that support this argument. But overall, instead of supporting a free market, this supports the idea of equal equity. 

The typical conservative view on this topic is that the minimum wage should not be raised. Their argument is that if the minimum wage goes up, it will harm the economy, small businesses, and even the workers that the minimum wage is meant to help. It is more of a free market standpoint, supporting the idea that someone should be paid what their job is valued at. The basic principle of a free market economy when it comes to wages would be that employers benefit from being able to afford more employees, workers benefit from being employed and gaining job experience, and the economy benefits because employment is in theory higher in a free market. They argue that if the job is forced to cost more than it is worth, the job won’t exist anymore, causing unemployment.

In 2016, the Governor of New York, Andrew Cuomo, proposed that the minimum wage for his state should be raised to $15 an hour by 2019. The University of California, Berkeley, did a study to find out the what kinds of effects that wage increase would have on the state’s economy and workforce. They determined that with a raise from $9 to $15 in New York, earnings would increase for about 37 percent of the state’s workforce, average annual pay would increase by $4,900, and almost 80 percent of workers in the restaurant industry would receive a raise in income. The study says that low wage jobs would be lost, but that jobs in the automation field would increase due to the fact that employers would want to replace some of their workers, causing an overall net increase of 3,200 jobs by 2021. Their model structure is split into two parts: Workers and Businesses. For workers, it starts with a higher wage received by low wage workers. The higher wage leads to increased taxes and less reliability on government benefits. Then the increased spending power that the workers have translates to higher consumer demand and more jobs. On the business side, it starts with higher payroll costs for the company. Those increased costs would force the businesses to increase their prices. Higher prices mean lower purchasing power for consumers, creating reduced demand and a loss of jobs. Another way for businesses to respond to higher minimum wages, according to the study, is by increasing investment in equipment. For example, a McDonalds may decide to invest in a $1500 automated kiosk instead of paying an employee yearly. Through their research, they found the information that was needed to plug into their model and they came to the conclusion of having more jobs, higher salaries, and an overall growth in the economy for the state of New York.

The conclusion that the University of California, Berkeley, study came to is not surprising, but at the same time misleading. A net increase in consumer purchasing power, economic growth, and even jobs within the first few years of a forced wage increase would be expected. This is because increasing the minimum wage artificially boosts the economy. The exact same thing happened during the Great Depression when the government enacted the CCC and the WPA and when the minimum wage law was first created. The country experienced artificial economic growth, which was desperately needed at the time. But the minimum wage and the creation of government jobs was not enough to break out of the Great Depression. If you went to history class in 10th grade, you know that what brought the United States out of the Great Depression was the start of World War II, which created a huge increase in both private sector jobs and wages because the demand for employment grew. The creation of the New Deal and the Second New Deal, along with the minimum wage during the Great Depression were necessary and they helped keep the country afloat. Right now, however, what will happen if the minimum wage is increased is that the economy will be artificially stimulated for a short time, giving the country job growth and increased purchasing power. But not very long after this, inflation would increase to the point where the purchasing power of that increased wage would equal the purchasing power of the current minimum wage, causing the same dilemma that is happening currently. People would want to raise the minimum wage again, causing a temporary increase in purchasing power and jobs, but it would never perinatally change the economy for the better. 

Something else that needs to be addressed in this study is the job growth that they calculated. The net increase in jobs was said to be 3,200 by 2021, but that is because they were accounting for the increase of jobs in the automation industry. There would be a net loss of jobs for low wage workers. In fact, they calculated that 36,764 low wage workers would be laid off due to budget cuts of companies in addition to the estimated 41,590 low wage workers who would be replaced by automation. Then they estimated that there would be 81,532 jobs created, with about half of those jobs being low wage jobs and half being in the automation field, which is not considered low wage. That means that there would be a loss of more than 35,000 low wage jobs. A higher minimum wage doesn’t help people who are out of work because of it. So, while all of the information that was found in the study would probably come true, it addresses the short-term effects of what would happen. The study even specifies that if the minimum wage in New York is raised to $15 an hour by 2019, the information that they found will not be relevant after the year 2021.

*In the long run, raising the minimum wage will not help businesses, low wage workers, or the economy as a whole. A business always wants to make an increased profit every year. If their profit decreases one year due to a minimum wage increase, then they try to find ways to get it back up. For large corporations, this is usually not too difficult. They can afford to lay off workers, and for many large corporations, the majority of their employees are already paid more than the minimum wage. The companies that a raised minimum wage would hurt the most are the small businesses, which employ just below 50 (49.2) percent of the private sector workforce in the United States. And not only could a higher minimum wage drive some of these small businesses out of business, but it could prevent more from being opened in the future. Businesses would also be forced to raise the prices of their goods in order to maintain profit, which in the end might mean that less people want the business is selling. The effects on businesses would not be seen right away however. These things would happen over the period of a few months, or even as long as in several years. 

A lot of low wage workers would also be hurt by a higher minimum wage. As was seen with the UC Berkeley study, a raise in the minimum wage would cause a net decrease in minimum wage jobs. This could be because of small businesses that were barely getting by shutting down due to higher payroll costs, employees being laid off so that a company could maintain profit, or employees being replaced in favor of automation. A higher minimum wage doesn’t help people who are unemployed. This happens because “it is impossible to sustain employing anyone doing work which is valued less than their wage” (Patterson). About 50 percent of the people who earn the minimum wage are teenagers (Wilson). By looking at the employment rate in 2008 after the minimum wage was increased, teenage employment fell by 8.9 percent, while the employment of people 25 and older fell by 3.9 percent (Wilson). This helps to show that a raise in the minimum wage disproportionately hurts low wage workers. A minimum raise increase, as was said before, also causes businesses to increase prices in order to maintain profit. This hurts low wage workers the most, even though they are who the minimum wage is aiming to help. 

We can also see the negative effects of the minimum wage by looking at the economy over time. While it can create jobs in some instances, it also destroys them. If people aren’t working, it hurts the economy. Since fewer businesses start up when there is a higher minimum wage, that prevents the creation of additional jobs. It also creates inflation over time, which harms the economy more. In a free market, however, the economy benefits since more people are working, businesses are making money from having employees instead of losing it, and the increased income and jobs helps create economic prosperity (Patterson). The effects on the economy would also take time to be seen, because the economy is like a living thing. Things can affect it in ways that make it grow or ways that bring it down, but there is a “reaction time,” or lag that prevents things from having an immediate impact every time something happens. But they eventually appear, as they always have in the past.

A huge argument to raise the minimum wage is that all the big companies can afford to pay their employees more than the minimum wage. And to that I say, you are completely correct. Something to point out however, is that nearly 2/3 of said large (500 or more employees) businesses who pay their employees minimum wage provide a raise after one to two years of employment (Sherk). Also, more than 50% of companies that pay their employees the minimum wage are small (100 or fewer employees), independently owned businesses (Saltsman). The idea that everyone who has a minimum wage job works for the “big bad corporations” is a misleading and largely politicized statement. While an increase in the minimum wage could potentially help a select few people, politics is a large component of why so many people feel the need to increase the minimum wage. “It’s disappointing, but not surprising: In labor’s political campaigns, truth is always the first casualty” (Saltsman).

There can also be many other disastrous impacts of the minimum wage that are not discussed very much. It can raise the chances and duration of unemployment for workers, especially during recessions. It can also make employers decrease job training, thereby causing increased turnover in jobs (Wilson). The minimum wage has also been seen to have a positive correlation with less part time work, reduced attendance in schools, an increase in teenage crime rates and an increase in labor saving capital, such as automation (Wilson). The minimum wage laws can also encourage the employment of illegal aliens, and encourage the reduction of employee benefits. Past studies have also seen that an increase in the minimum wage causes fewer pay increases for employees who are making any wage, anywhere from the minimum wage to the highest levels of large corporations (Wilson).

While the idea of raising the minimum wage may seem like a good choice in the short-term, the long-term effects of it can severely harm the economy. The increase in economic activity, purchasing power of unskilled workers, and jobs would be very shortly followed up with economic hardship, recessions, increased inflation, and job loss. High wages are not a bad thing. They can be the sign of a thriving economy and a well-developed and industrialized country. However, forcing people’s wages to go up through minimum wage laws does not help the economy, and the people that it hurts the most are the low-wage workers, the same people that it is supposedly meant to help. 
