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Develop and improve products. List of Partners vendors. Ever since the federal minimum wage was established in at 25 cents an hour, politicians have debated whether it's good or bad for overall employment. On one side of the debate is the argument that if workers are paid more, employers will hire fewer of them: A higher minimum wage—while good for some workers— would have a negative effect on total employment, with fewer jobs to go around, especially for the low-skilled.
Higher wages would also eat into profits , hurting both employers and, in the case of publicly held companies, their shareholders. On the other side, there's the argument that any increase in pay would not only put more money in workers' pockets but also give a boost to consumer spending and benefit many of those very employers. Plus, employers would be able to retain employees for longer and save on the cost of hiring and training new ones.
In addition, higher minimum wage advocates contend that the minimum wage needs to rise considerably just to keep workers and their families out of poverty and avert the personal and societal problems that poverty is known to cause.
For people who make the minimum wage for a brief period but later move on to better-paying work—the classic example is teenagers in fast-food jobs who live with their parents—the low minimum wage may not be a major problem.
However, for people with little expectation of higher-paid work, it's a significant issue. Fortunately for many workers, 29 states plus the District of Columbia mandate minimum wages that are higher than the federal minimum. As of Jan. Some cities and counties—53 in all, as of Nov. In many of these states, cities, and counties, the minimum wage is scheduled to rise automatically in future years.
Apart from what legislators are doing, some large employers have taken it upon themselves to establish companywide minimum wages in recent years.
Hourly wages are, of course, only part of the equation. Changes in employment would be seen in the number of jobless, not just unemployed, workers. Jobless workers include those who have dropped out of the labor force for example, because they believe no jobs are available for them as well as those who are searching for work. How did CBO estimate effects on employment? Effects would generally be greater if the minimum-wage change affected more workers, if it led to larger mandated increases for directly affected workers, if firms had more time to respond for example, because the change was phased in over a longer period , and if the minimum wage was indexed to inflation or wage growth.
If workers lost their jobs because of a minimum-wage increase, how long would they stay jobless? At one extreme, an increase in the minimum wage could put a small group of workers out of work indefinitely, so that they never benefited from higher wages.
At the other extreme, a large group of workers might shuffle regularly in and out of employment, experiencing joblessness for short spells but receiving higher wages during the weeks they were employed. In analyzing the effects of joblessness on poverty, CBO used its estimates of the distribution of durations of unemployment for the — period to assign directly affected workers either no joblessness or a duration of joblessness within the projection year that was randomly chosen from that distribution.
The Effects on Income. How would increasing the minimum wage affect family income? However, income would fall for some families because other workers would not be employed and because business owners would have to absorb at least some of the higher costs of labor.
For those reasons, a minimum-wage increase would cause a net reduction in average family income. How did CBO estimate effects on family income? CBO projected the distribution of family income in future years and then combined those forecasts with estimates of effects on wage rates, employment, business income, and prices. Effects on wage rates include increases in the wages of workers who would have earned slightly more than the proposed minimum wage in the absence of the policy.
That increase in productivity might occur through a variety of channels, such as a reduction in turnover. How would increasing the minimum wage affect the number of people in poverty? But low-wage workers who lost employment would see their earnings decrease, and in some cases their family income would fall below the poverty threshold. The first effect would tend to be larger than the second, so the number of people in poverty would generally fall.
How did CBO estimate effects on the number of people in poverty? CBO projected the distribution of poverty in future years using the same methods it used to project the distribution of family income, applying the same definitions of income and poverty thresholds that the Census Bureau uses to determine the official poverty rate.
Uncertainty and Other Effects. How certain are these outcomes? There are two main reasons why. Answers to the most commonly asked questions here. To read the full version of this content please select one of the options below:. Other access options You may be able to access this content by logging in via your Emerald profile.
Rent this content from DeepDyve. The rate has changed nationally more than 20 times since then. But some feel the increases haven't been enough, leading to heated debates over whether or not federal and state governments should raise the minimum wage.
The minimum wage is the minimum amount employers are legally required to pay their employees. Advocates who push for increases say those who work minimum wage jobs just can't afford to keep up with the rising cost of living; many of whom are living below the poverty level. But according to leading economists—including famed billionaire investor Warren Buffett—minimum wages can actually raise unemployment by giving employers less incentive to hire and more incentive to automate and outsource tasks that were previously performed by low-wage employees.
Higher mandated minimum wages also force businesses to raise prices to maintain desired profit margins.
Higher prices can lead to less business, which means less revenue and, therefore, less money to hire and pay employees. For example, Washington, D. Several large U. So if there's a discrepancy between the federal and state rates, how do employees get paid?
According to the U. Department of Labor, employees receive the highest minimum rate in cases where they are subject to both state and federal wage laws. One important point to note, though, is that minimum wage rates are slightly different for employees who receive tips. If their hourly earnings are less than the federal rate, the employer has to make up the difference. There is no question just how tough it can be to make a living and support a family on a minimum-wage income.
Compounding the issue is the fact that minimum wage increases have not kept pace with the cost of living since the s. Relative to living costs, the value of the minimum wage in the United States peaked in and has been on a downward trend ever since.
Here's an example to demonstrate. Let's say single-father Adam works a minimum wage job in Tennessee. This figure, of course, doesn't factor in any taxes or deductions from Adam's paycheck.
This doesn't leave him with much money to save or to spend on any emergencies. Feeling the pinch of lowered real income, minimum wage employees and their advocates have gone to great lengths since the s to raise awareness about the plight of low-wage workers.
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