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Saturday
Jun112011

New Data Renews Debates on Minimum Wage

By Alison Liu

 

This week, the Center for American Progress hosted a panel of economists that reexamined arguments for raising the minimum wage. They addressed the usual counterarguments. Traditionally, business owners say that raising the minimum wage will increase unemployment. Raising the price of labor will cause labor supply to increase and the demand for labor to decrease, resulting in fewer jobs. It’s just simple economics right?

The simple response is no. Princeton economists David Card and Alan Krueger countered outdated Econ-101 by releasing a groundbreaking report where they studied fast food industries in New Jersey and Pennsylvania and found that raising the minimum wage did not increase unemployment.

In addition, traditional arguments of labor supply and demand only apply to a perfect market. However, we all know that the labor market is far from perfect. For example, job turnover is extremely high in low-wage industries. On the panel, Michael Reich, University of California Berkeley economics professor and director of the Institute for Research on Labor and Employment also at Berkeley, conducted a study of San Francisco Airport and found with an hourly wage of $5.15, employees stayed only 6-7 weeks on average. With a $10 minimum wage however, turnover was more than halved. Do we really want employees with bare-bones training to secure our airports? Even conservatives would agree on that point.

Some Americans are worried that raising the minimum wage will hurt the already suffering economy. However, this worry has no sound basis. On the panel, Heidi Shierholz, economist at the Economic Policy Institute, argued that putting more money into the pockets of the poor leads to greater spending in local markets. They have no choice but to spend on basic living needs. Statistically, employers spend less. The failure of the Bush tax cuts should teach us that those who make more typically do not spend extra earnings. On one hand, we can prefer corporate profits. On the other, we can help minimum wage workers revitalize local businesses and our economy.

The economic arguments for raising the minimum wage are sound. Yet, during Q and A, someone in the audience asked a very important question, “Why have we forgotten to discuss minimum wage as a living wage?” Minimum wages are not enough to support a family and 60% of those who make minimum wages are women. Thanks to economics, we have the numbers to renew claims for common sense policy. But let’s not forget the people who cannot make ends meet in 21st century America.

 

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