The debate as to whether or not to raise the federal minimum wage is a reflection of the growing disparity between what people want and what economics dictates. Technically, the intense conflict in opinion echoes the widespread ambiguity between relatively simple interventions (such as increasing the wage minimum to $15) and the long-term trickle-down fiscal and monetary effects on the economy. A section of the opinion, mostly conservative-leaning, oppose the suggestion to raise the limit from the current $7.25 to $15. Their reasons are plenty, including a forewarning of increased unemployment. On the other hand, those in favor of the Raise the Wage Act of 2021 cite the weight of public opinion and high inflation as the reasons. In between is a disconnect between abstract economic statistics and employed people living below the federal poverty line. This paper argues that like all bold moves, increasing the minimum wage will have setbacks, but since they are anticipated, they can be excellently managed with interventions such as using the increased money supply to cushion the unemployed.
Against Raising the minimum wage: The argument on the cost of production and unemployment
One of the sharpest criticisms of raising the minimum wage is that it can increase production costs because of increased labor costs. As a result, critics reason that many employers will lay off workers or force them to cut working hours to sustain labor overheads. Corpuz (2021) argues that the purported layoffs will have a first-hand consequence on social inequality since most retrenched workers are projected to come from low socioeconomic societies (SES). Opinion on this side of the argument perceives the cost of labor as a strong driver of production to the point of suggesting inflation as a consequence.
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Furthermore, Ruesga-Benito (2017) adds that increasing the minimum wage will reduce profit margins since employers will have to pay extra for labor, badly hurting the economy. By extension, the argument foresees reduced motivation by investors to do business locally. Similarly, the Fraser Institute hypothesized that employees might be unable to offer benefits such as training and international skills exchange due to increased labor costs, limiting skill growth in local labor pools (Veldhuis and LeRoy, 2018). As a result, opponents of the minimum wage raise suggest direct cash subsidies, which are perceived to possess less danger to the economy.
The Counter-Argument: Social Factors Must Be Considered
While the rationale presented in the above arguments has a fair share of merit, they fail to appreciate the bigger picture in raising the minimum wage. For instance, the ideas are almost entirely centered around economic interests, considerably ignoring social factors such as improved worker morale and happier families. These factors, although subtle, bear a significant impact on productivity in the economy. In light of the matter, Ku (2020) observed that Florida’s rise in the minimum wage from $6.79 to $7.21 in 2009 recorded an improvement in worker productivity of up to 9% due to increased morale and other social factors. Similarly, raising the wage will reduce the wealth gap, considering that people of color are overrepresented at the base pay.
Notably, the arguments by Veldhuis and LeRoy (2018) overstate the impact of raising the wage limit on training. His reasoning is inconsistent with the standard fact that training identifies as an ‘asset’ to the company. Thus employers will keep training their workers regardless of the budgets. Similarly, Corpuz’s (2021) argument fails to acknowledge the proportional impossibility of retrenched workers exceeding those in the workforce. Therefore, his point on social inequity fails to realize that a $2.55 increase on the minimum wage would put an extra $40 billion in their pockets (Scott, 2019). Assuming less than 5% of workers are laid off, the net impact would still be appreciable.
Analysis of The Social Aspect and Debunking the Opposing Argument
The antagonistic argument that businesses will go under because of increased labor costs completely ignores the fact that buyers’ purchasing power will have increased due to higher wages. While the idea that employers will have to face anomalous labor budgets is undeniable, it is a matter of time before an equilibrium with increased sales is established. That naturally offsets the rising nudge to increase the prices due to increased labor. Also, the same argument tries to downplay the economic benefits of increasing the wage minimum by claiming it will trickle job losses. The flaw in the argument lies in ignoring the fact that increased wages will save the government money used in direct transfer programs. In 2016, the Economic Policy institute established that about 69.2% of people under public assistance would benefit from a minimum wage increase (Cooper, 2016). As a result, suspension of these programs would naturally provide the economic adjustments needed to remedy unemployment, for instance, by subsidizing shrinking sectors.
Furthermore, arguments on unemployment and associated labor costs, as fronted by Ruesga-Benito (2017) and Veldhuis and LeRoy (2018), fail to acknowledge the sheer size of the labor market addressed by the minimum wage rise. The Bureau of Labour statistics documented that in 2017, 80.4 million US workers were paid by the hour, translating to 58% (BLS, 2018). Out of those, just about 2.3% of workers earned around the federal minimum wage of $7.25 per hour. However, their numbers have been decreasing steadily, with the ratio being projected to be 1.8% or below by 2023. With these figures in mind, it is difficult to figure out a national unemployment crisis happening when just a fraction is laid off due to the federal implementation of a $ 10 or higher minimum wage. While no one fancies for even a few to be laid off, the statistic comes in handy to point out that most opponents of the wage rise intentionally ignore some data.
An Argument for A Sectorial Minimum Wage Approach
Considering the overwhelming impact of raising the minimum wage, say to $15 per hour, a sector-by-sector approach could be taken across the economy. With such an approach, the sector(s) with the most inequalities have the minimum wage risen by a slight change, say $2, through a process scheduled for 2 to 4 years for completion. These changes can be instituted across counties and regions to protect job mobility thresholds, which ultimately restricts physical migration to areas with higher minimum wage. The hotel industry, for instance, could be considered first, given that amusement and recreation attendants, lobby attendants, ticket takers, cafeteria attendants, and recreational protective service people are among the least paid (Doyle, 2020). Other sectors like social service and home affairs could come in predetermined schedules after six months of the initial rollout.
Strategic implementation of such a minimum wage policy could have the policy implemented region-wise. For instance, the minimum wage in the hospitality industry could be implemented in the Midwest, social service in the Southeast, transport in Great Lakes, agriculture in Mid-Atlantic, and so on. With a well-crafted plan, nationwide implementation of the policy can be effected within a four-year period with minimum setbacks. Ideally, the essence of such a step-wise approach is to prevent the overwhelming economic impact of immediate implementation. The International Labour Organization (ILO) also observes that the approach has worked out pretty nicely in South Africa.
An Objection to The Sectorial Approach to Minimum Wage
Critics will claim that the ‘scheduled’ approach to the minimum wage will cause economic instability by facilitating the acceleration of some sectors ahead of others. If, for example, the mining industry will implement a $15 minimum wage four years ahead of the education sector, significant progress will have been made. It might take years to normalize the progress across the sectors. The same argument applies to regions too, whereby some will have most of their sectors paying people handsomely, while others are lagging. It is undeniably tricky to remedy this problem. Selective implementation of minimum wage also has the potential to disrupt the set strategic goals for different sectors. To warranty such a massive adjustments of wages, which carries enormous impact to the GDP, a national consensus is needed. And the challenge with obtaining a national consensus for the same is the long time it takes, on top of the uncertainty with gaining approval at the end.
Another possible objection to the sectoral approach is the lack of solid evidence to support its advantage over the conventional course. Given the unpopularity of the scheme, strategists will have problems obtaining the suitable model to build upon when ratifying a local strategy. On the other hand, economists, lawmakers, and even citizens are keen to see a solid conviction that the approach will work before giving consent. Due to this obscurity, the rollout might receive a bad reception, which effectively impacts morale and outcomes. Likewise, the model does not have robust structures to account for the differing cost of goods and services across regions and sectors. That was a problem in the South African context and a possible source of opposition. Milea et al. (2017) noted that sectorial legislation in South Africa potentially harmed the informal sector since it was super susceptible to disparities in prices of goods and services. Alongside the effects of inflation, experts will reason that the approach can escalate economic stability across the nation. As a result, the suggestion might not be the most convincing.
Controversial topics like minimum wage adjustments face typical problems with skewed data and flawed interpretation of data in the public domain. Like the rest, minimum wage finds a solution in accommodating the opinions and needs of both sides of the divide. Clearly, the debate on minimum wage has equally competing arguments, but the side favoring wage rise seems to have a more rational take on the matter. Therefore, hybrid solutions like the sectorial approach to raising the minimum wage can be used to transition towards progress gradually. For the discussion in this paper, none of the two extremes could suffice since unrelenting perspectives heavily defend each. Critical thinkers are tasked with finding the most favorable opinion, which includes countering fallacies with facts and positively reckoning skewed interpretations of statistics.
References
Cooper, D. (2016). “Balancing Pay Checks and Public Assistance.” Economic Policy Institute. Briefing Paper 418.
Corpuz, V. (2021, March 31). Advantages and Disadvantages Of Raising Federal Minimum Wage To $15 . Jackson Lewis. Https://Www.Jacksonlewis.Com/Publication/Advantages-And-Disadvantages-Raising-Federal-Minimum-Wage-15#
Doyle, A. (2020). “The 25 Lowest Paying Jobs in America.” The Balance. Https://Www.Thebalancecareers.Com/Top-Worst-Paid-Jobs-2061699
International Labour Organization. (ILO). (2015). “Minimum Wage Policy Guide.” Https://Www.Ilo.Org/Wcmsp5/Groups/Public/---Ed_Protect/---Protrav/---Travail/Documents/Genericdocument/Wcms_508527.Pdf
Millea, M. J., Rezek, J. P., Shoup, B., & Pitts, J. (2017). Minimum Wages in A Segmented Labor Market: Evidence from South Africa. Journal of Labor Research, 38(3), 335-359.
Ruesga-Benito, S. M., González-Laxe, F. I., & Picatoste, J. (2017). The Debate On the Economic Effects of Minimum Wage Legislation. European Journal of Government and Economics , 6 (2), 171–190. Https://Doi.Org/10.17979/Ejge.2017.6.2.4328
Scott, B. (2019). “Raising The Minimum Wage: Good for Workers, Businesses, And The Economy.” Committee On Education and The Workforce Democrats. Https://Edlabor.House.Gov/Imo/Media/Doc/Factsheet-Raisingtheminimumwageisgoodforworkers,Businesses,Andtheeconomy-FINAL.Pdf
US Bureau Of Labour Statistics. (2018). “Characteristics Of Minimum Wage Workers, 2017.” Https://Www.Bls.Gov/Opub/Reports/Minimum-Wage/2017/Home.Htm#
Veldhuis, N And Leroy, S. (2019). “Does The Minimum Wage Need To Be Raised? No: An Increase Hurts Those It Is Meant To Help.” Fraser Institute. Https://Www.Fraserinstitute.Org/Article/Does-Minimum-Wage-Need-Be-Raised-No-Increase-Hurts-Those-It-Meant-Help#
