Less Welfare, More Economy BLUE COLUMN
By: Maris Lambie
Raising minimum wage has been a hot topic in the United States for the past few years, with many workers fighting for a livable wage of $15 an hour. Twenty-one states have already implemented a higher wage with annual increases to reach this livable wage. However, not all states have worked to reach a higher state minimum wage leaving many workers to live below the poverty line. Many argue that the best way to fix this is to increase the federal minimum wage.
The Federal minimum wage was last increased to $7.25 per hour in 2009. A 2016 article from USA Today reports there are five states without minimum wage laws and 15 with outdated laws. This leaves many workers only earning the federal minimum wage, leaving many living in poverty.
The federal minimum wage was first introduced in 1938 as a part of the Fair Labor Standards Act to protect low wage workers from facing poverty. However, as a 2014 article from the New York Times reports, the laws were set so minimum wage would not increase with inflation, but could only increase through congressional action. Because the federal minimum wage has not increased with inflation, and the costs of goods and services, it has left many low wage workers, especially families struggling financially.
Despite that raising federal minimum wage could help these workers, there are many who disagree, arguing an increase could lead to more trouble for low wage workers. NYT reports opponents claim the raise would lead to fewer jobs as some employers with lower budgets will have to lay off employees to keep up with the increase, or some companies might outsource their labor overseas to areas with a lower minimum wage. Opponents also argue it would be harder for college graduates to find a job as employers might pass them by in favor of more experienced employees. However, NYT reports numerous studies have been done on the topic showing positive results.
A 2010 study conducted by University of California, Berkeley found a federal minimum wage increase would lead to “strong earning effects” and “no employment effects.” The study also showed that employers would not immediately lay off employees to cope with a higher pay, but would instead “pay up out of savings from reduced labor turnover, by slower wage increases higher up the scale, modest price increases or other adjustments.” As Chad Halvorson, blogger for When I Work, explains, this is due to a lower turnover rate as a result of a higher pay, as employees will not have to leave their current jobs for different jobs with a higher pay.
While an increase in federal minimum wage could lead to some price increases, the NYT reports research has shown these increases would be “modest.” While this could lead to a higher “cost of living”, an increase in minimum wage would lead to consumers spending more money that could lead to economic growth. Chris Lu, writer for Time magazine wrote in a 2017 article “When low-wage workers get a pay raise, they don’t invest the extra money with financial advisors. They spend it, and that leads to greater consumer demand for goods and services.”
An increase in minimum wage would also lead to a decrease in spending for government social programs, as some families would be able to support themselves without assistance while earning a higher wage. Halvorson explains a decrease in spending for these programs due to an increase in minimum wage could lead to “lower taxes or a reallocation of those funds to support other needs.”
Overall, a federal minimum wage would improve the lives of many. Halvorson claims a federal increase to $10.10 an hour would be able to bring 900,000 people out of poverty. While an increase in federal minimum wage won’t end poverty all together, it is definitely a step in the right direction.