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Will the Minimum Wage Increase Hurt Low Skilled Workers?

Will the minimum wage increase hurt low skilled workers? With Biden looking to help the country recover from the government imposed lockdown, minimum wage debate is being fiercely debated. Let’s take a brief look at both sides of the debate to see the pros & cons.

On one side of the debate Noah Smith had this to say:

Suppose some employers are big and powerful, or they somehow cooperate to keep wages down, or simply that it’s really hard to switch employers. Then the theory changes a lot. In the extreme case — a “company town” with only one employer — the market outcome is whatever The Company wants it to be.

Will the Minimum Wage Increase Hurt Low Skilled Workers?
From: Why $15 minimum wage is pretty safe

This is called a monopsony model. “Monopsony” means “single buyer”, which refers to the big and powerful Company. As you can see in the graph, minimum wage moves the economy closer to full employment — it creates jobs.

From: Why $15 minimum wage is pretty safe

This goes against hundreds of years of economic theory & research. Here are some of the counter arguments in this debate.

From the Seattle Minimum Wage Study:

Will the Minimum Wage Increase Hurt Low Skilled Workers?
From Capital Hill Seattle wage study

The minimum wage increase is just one more increased expense restaurants will have to manage at a time when revenues are down, indoor dining is closed, and no date to reopen or meaningful relief is in sight,” she said. “Seattle bars and restaurants need a clear plan to reopen at a profitable level and substantive financial relief from all levels of government to restore business and bring employees back to work.

From: $15 Now: Seven years later, Seattle’s smallest employers hit minimum wage milestone

It continues:

Wages: The impact on wages varied. Hourly wages did go up approximately 3% for jobs paying less than $19 an hour. More experienced workers wound up taking home an average of $20 more a week. However, less experienced workers who already had a job had their hours cut so they took home same amount.

From: Econ life Why Minimum Wage is Like A Google Map

Robert Murphy had this to offer:

Minimum wage increases make it more likely that firms won’t hire new people than that they will fire current employees. For example, movie theaters have stopped employing ushers almost entirely. And many companies are moving toward more automation, at least partly because of minimum wage increases.

Robert Murphy – Yes, Minimum Wages Still Increase Unemployment

It should be noted, raising minimum wages only addresses one aspect of work, mainly the money earned in an hour. It disregards hours work & non-monetory benefits.

The minimum wage mandates that a person must make a certain amount of money per hour but says nothing about the total amount of money an employer must pay out to their employees in total. Any mandated increase in hourly wage can be offset by a decrease in number of hours worked and the value of non-monetary benefits. The Incentives of the Minimum Wage

We will see…

Will the Minimum Wage Increase Hurt Low Skilled Workers?
Minimum wage

In closing, I do believe we will see some form of minimum wage increase as they are very popular with the public. That is why it’s extremely important to get these counter arguments out to the people. We all want to help those less fortunate, but we must cautiously & carefully wait the pros & cons of the solutions our political thinkers advocate. What good is a cure if it is worse than the cure?

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