Who's Right When It Comes To Minimum Wage?

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Bernardo J. Cuevas Economics May 26, 2005 Who’s Right When It Comes to Minimum Wage? In 1938, the federal minimum wage started at 0.25 cents an hour. In 1997, the minimum wage was increased to $5.15 and may increase as time passes. The Fair Labor Standards Act (FLSA) establishes minimum wage. The FLSA also establishes overtime pay, recordkeeping, and child labor standards affecting full-time and part-time workers in the private sector and in Federal, State, and local governments. What is minimum wage? Minimum wage is a wage floor, legislated by government, setting the lowest hourly rate that firms may legally charge workers. With that being said, I will discuss the effects of raising the minimum wage and how that does…show more content…
On one hand, it’s simply a supply and demand issue. As wages rise, the demand for labor decreases. In other words, employers will simply stop, decrease, or slow down their hiring. Economists estimate that a ten percent increase in the minimum wage relative to the prices of goods and services decreases total employment of those affected by one or two percent. If the minimum wage increases too much, then it could even force some smaller firms out of business. Then even more people will be out of work. On the other hand, better-paid employees could feel more motivation to increase their productivity. If productivity is high enough that, in order to keep up supply, it might need to hire even more employees. In this case, raising the minimum wage has increased employment. So who’s right? The debate actually centers on how to best help the unskilled, the low skilled, the poor and the near poor out of the abyss of poverty. Increasing minimum wage not only may fail to help those people but also actually hurt them. With that being said, while a minimum wage increase may lift some families out of poverty, they push even more families into poverty as employers try to control cost by eliminating jobs, displacing low skilled adults for more productive employees or shaving work schedules. Equally important, raising the minimum wage can have the unintended consequence of actually costing the working poor most of the higher earning accompanying their wage increases. A mandated increase may reduce government assistance programs, such as food stamps, Medicare benefits, housing subsidies and even welfare payments. You can therefore state, as earned incomes rises, public assistance

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