Increasing the Minimum Wage: Pros & Cons

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Will Increasing the Minimum Wage Hurt or Help Employees & Businesses?

For many American workers, minimum-wage employment was a temporary, teenage condition, as we bussed tables or answered phones or cleaned rooms for tiny paychecks before moving on to more financially rewarding work.

However in 2011, 3.8 million American workers -- most of whom were out of their teens -- earned the federal minimum wage of $7.25 per hour or less, according to estimates by the U.S. Bureau of Labor Statistics. And recently, debate has heated up about whether the government should raise the minimum wage, increasing both the earnings of the lowest-level employees and the costs for employers.

Advocates for a higher wage floor argue, first and foremost, that it is right to ensure that workers to earn enough to live on.

An employee working a 40-hour week at the federal minimum wage would earn $15,080 per year. This income would leave a two-person household -- say, a single parent with one child -- just below the federal poverty threshold of $15,130.

About 70 percent of minimum wage employees, however, work fewer than 35 hours per week and thus earn proportionately less, according to federal labor statistics.

Sen. Tom Harkin, D-Iowa, has introduced legislation that would raise the federal minimum wage to $9.80 -- about $20,400 for a year of full-time work -- within two years. In subsequent years, the required pay rate would be increased each year by the same percentage that the federal Consumer Price Index rises.

Supporters of increasing the minimum wage also contend that such a move would act as economic stimulus. When low-income households earn more money, they are likely to spend it, pouring more dollars into the economy, the argument goes.

In fact, a recent study by the Federal Reserve Bank of Chicago concluded that, following an increase in the minimum wage, spending by households with at least one minimum-wage worker increased by $700 per quarter.

"By increasing workers' take-home pay, families gain both financial security and an increased ability to purchase goods and services, thus creating jobs for other Americans," concluded left-leaning Washington, D.C.-based think tank the Economic Policy Institute in a brief supporting minimum wage increases.

A higher minimum wage might also decrease turnover and thus keep training costs down, supporters say.

Those who oppose an increase to the minimum wage, however, argue that the effects on employment rates would be exactly the opposite of those supporters foresee. A higher minimum wage, they claim, would be too heavy a burden on employers, especially small business owners. And those employers, in turn, would be unable to hire as many people -- an undesirable result when unemployment continues to hover at about 8 percent.

"When legislators raise the price of low- and unskilled labor, it’s usually low- and unskilled laborers who end up paying the price," Boston Globe columnist Jeff Jacoby wrote recently.

Young workers willing to accept $5 per hour for low-level work or to gain valuable experience should be allowed to do so, Jacoby argued, especially if the alternative is being unable to find a job at all.

Furthermore, increasing the minimum wage has not proven to be effective at lowering the poverty rate, according to the business-backed nonprofit Employment Policies Institute.

"Multiple studies have demonstrated little to no relationship between a higher minimum wage and reductions in poverty," the institute says in a policy brief.

Where does this all leave the minimum wage? Harkin's bill has been referred to committee, which means it is several legislative steps away from becoming a law. And in a highly polarized election season, action on such a controversial issue is unlikely.

So it looks like the minimum wage will probably be staying right where it is for some time to come.

What do you think? Would a higher minimum wage help to economy or hurt it?

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