Wage War
Why the minimum wage increase is so good for young people.
By Niral Shah, Dartmouth College
Thursday January 11, 2007
When I was 15, I worked at McDonald’s. One day someone from the corporate office came down to speak briefly with each employee, presumably to make sure everything was up to snuff. As I sat down, thankful for the respite from the deep-fryer, she asked me sweetly, “and how much are you being paid?”
I responded, “I make whatever minimum wage is, so $5.15.” Just as sweetly, she corrected me. “No, no, McDonald’s doesn’t pay minimum wage. You must be making $5.20.” Failing to see how the distinction moved me any closer to personal fiscal solvency, I ended our chat and trudged back to the french fries.
So it is with great pleasure and an inexplicable feeling of personal vindication that I report to you the 315-116 decision by the House to increase the Federal minimum wage to $7.25. This bill’s passage is of special importance to teenagers and young adults. Of those who will benefit from the minimum wage increase, 21 percent are between 16-19 years old, and 26 percent have children under the age of 18. It is a long overdue recognition of nearly 15 million Americans who work for low wages, of those teens who work to help support themselves and their educations, and those parents who work multiple jobs and long shifts and still struggle to provide for their families.
The minimum wage hike may not reverse the growing gap between an increasingly wealthy minority and the rest of America, but it will (however slightly) improve the lives of millions of Americans, and help return the long-absent promise of upward mobility known as the American dream.
With the last minimum wage increase occurring in 1997, the real value of the minimum wage (due to inflation) had decreased to the point where full-time work, even supplemented by the Earned-Income Tax Credit (a wage subsidy for people who earn below a certain amount), still did not keep a family above the poverty line in 2005.
This stagnation, justified by selective and misleading economic arguments by the very politicians who advocate self-help, left millions exposed to the poverty trap and has been no small part of the working class’s increasingly tenuous grasp on financial security. Despite claims that a minimum wage hike would hurt the economy, economists have found no conclusive link between wage increases and reduced employment. Furthermore, in a situation where one firm is the sole employer of 15-year olds in a community (say, McDonald’s), establishing a higher minimum wage lowers the marginal cost of the firm hiring additional workers, resulting in a higher wage and a higher level of employment, benefiting both employers and workers.
Taking notice of this situation, Americans across the political spectrum have already raised the minimum wage in 29 states and countless municipalities. With this increase occurring at the federal level, those working for minimum wage will have a better chance of keeping their head above water, and the “spillover effects” of forcing up the wages of those who earn just above minimum wage will similarly assist another 8.3 million workers. Starting from a higher national minimum wage, perhaps local-level advocates of living wage laws will find that they can raise the local baseline wage higher still.
The increase will occur incrementally, growing to $5.85 sixty days after being signed into law, $6.55 a year later, and finally $7.25 a year after that. We can only hope that, in the meantime, this bill is followed by further progressive economic reforms, including the passage of card-check neutrality so that workers face fewer impediments to forming unions, the provision of universal health care, and moves to increase the affordability of a college education.
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Comments
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This bill still does not provide enough financial support for a young adult 19 -22 looking to move out, on his own…. do the math,
— JD - Jan 11, 12:28 PM - #the Teen would have to work 2 full time jobs just to live on his own.
min should be 15.00 per hour.
Do some actual research rather than taking what EPI says at face value. Their proof that a minimum wage hike won’t lead to job loss it the Card-Krueger study, a study rejected as being garbage by the vast majority of economists.
Also, what is most likely to happen if the minimum wage is increased is a spike in the number of workers who make less than the minimum wage, this is what happened after both of the previous two minimum wage increases.
Finally, the vast majority (97.5%) make more than the minimum wage and of those who do about three quarters are making more within two years. If you want to help poor people this isn’t the way to do it. However, if your goal is to give more money to middle class suburban kids, then a minimum wage increase is the way to go
— C M - Jan 11, 12:32 PM - #jd is right. we should be making twice as much as we are in order to be able to support ourselves. the way this system is set up, it forces everyone to partner up—either with a friend, or their significant other.
we’re all struggling.
— alyson - Jan 11, 12:47 PM - #In addition to the problems with the EPI report described by C.M., your other strand of evidence is extremely weak. You mention that if there is only one employer of 15-year-olds in a community, then a higher minimum wage will actually increase employment rates. That may be true, but it is extremely rare to have only one employer of young workers. True, there may not be many in a community, but according to your own source (Wikipedia), if there are even two employers, then a higher minimum wage reduces employment rates:
“Even when it is sub-optimal, a minimum wage higher than the market rate raises the level of employment anyway. This is a highly remarkable result, because it only follows under monopsony. Indeed, under competitive conditions any minimum wage higher than the market rate would actually reduce employment, according to classical economic models.”
— Scott - Jan 11, 01:34 PM - #I have just recently written a paper on the minimum wage. It is due to be raised BUT I believe it is a state and only a state issue. The federal government should not dfictate what the minimum wage should be in any of the states.
— James - Jan 11, 04:33 PM - #Do you know why some states keep the minimum wage low? Because it attracts companies to move to their states and this create jobs. Look at NY for example, Upstate NY is hurting pretty bad right now. Property taxes are high and the economic climate is just not reasonable to have a company there.
Some states the cost of living is much higher than others, thats why the minimum wage is set higher in those states. It cost less to live in North Carolina than it does in NY. Let the states decide, If people feel they need a higher minimum wage, then let them go to their state representatives and have them enact it.
I relied on the EPI study mainly to link to statistics. As far as the Card-Krueger study goes, yes I understand that its somewhat contested, but I think to say its “rejected as garbage” is a bit of an overstatement. In fact, pretty much every study on the minimum wage, because the issue is so politicized, is criticized over its methodology. Even if you do believe there is a negative effect on employment, many studies suggest that elasticity very slight (others take a higher assumption and extrapolate from there). Other studies suggest that states that had raised their minimum wage had higher levels of small-business growth. (There are always arguments to be made about efficiency wage and turnover rates or productivity, etc).
— Niral Shah - Jan 12, 12:15 PM - #Also, obviously its a minority making minimum wage, but the number of people who will be directly affected, those making under $7.25 currently, is a pretty significant number.
Now, I never suggest that this is some panacea for poverty, but it does increase the incomes a sizeable portion of the labor market, not just “middle class teenagers.” These proportions can easily be misrepresented, such as the Heritage organization does by using the 16-24 demographic to describe “suburban teenagers.”
On the point about monopsony: I linked to wikipedia mainly because I thought a visual aid could illustrate the point better than I could explain. (So, if it allays your fears, I’m not learning labor econ from an online encyclopedia.) But, in most smaller suburbs, young people in fact have very few options for employment, especially 14 or 15 year olds looking for something other than summer employment.
One last thing – an argument about, well, federalism is a bit off the topic, since wages are only one small part of what would keep an area economically depressed (say, massive technology driven de-industrialization), but there was an interesting article in yesterday’s New York Times about the Idaho/Washington border and the wage contrast:
Ah, it seems my refutation of the piece is not necessary. Thanks, all.
— GhaleonQ - Jan 16, 04:37 PM - #“But, in most smaller suburbs, young people in fact have very few options for employment, especially 14 or 15 year olds looking for something other than summer employment.”
My point is that the difference between “one” and “a few” is miles wide. If there are even two teenage employers in an area, the monopsony effect disappears. I agree that most areas have few such employers, but there are few that would truly have only one. For example, I came from a small town in upstate NY, and we had both a McDonalds and Burger King — intrinsically preventing monopsonic effects.
— Scott - Jan 18, 04:35 PM - #