Executive Summary
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Executive Summary
Jaden Bennett
GOVT 230 - SUBTERM B
February 23, 2024
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Executive Summary
Executive Summary
The minimum wage debate has caused division across the nation for years. The divide
merely breaks into two categories: those in support of raising the minimum wage to create a
better living situation for workers, and those who believe if minimum wage rises than it would
cause inflation and destruction for businesses. The United States federal minimum wage has not
changed since 2009, although some states have made some alterations to what businesses can
legally pay their workers. It is evident though economic models and studies that raising the
minimum wage significantly can damage businesses and in end hurt employees. Many
businesses do not have the means to pay workers a higher wage while still making profit and not
raising prices for consumers. Raising the minimum wage will cause a rise in unemployment due
to employers not being able to staff and pay a proper wage to a surplus of workers. However,
with the trends of inflation the country has seen and the alterations to living costs, not changing
the minimum wage is unavoidable. A gradual increase of the minimum wage over the next years
is the most viable solution for businesses across the nation. Unlike a sudden rise in wages, this
will give time for businesses to accommodate to their new wage expectations.
Policy Brief
The concept of a minimum wage is not a new idea, a variation of it dates back to the
Code of Hammurabi from ancient Babylon. Now, no less then 115 countries enforce some sense
of minimum wage (Big Think, 2022). The debate of minimum wage has been a national concern
for many Americans over the past years. This issue is even more prevalent in the current state of
the U.S. economy. The current national minimum wage is $7.25 per hour although various states
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have a higher hourly wage for workers. Republicans typically believe the minimum wage should
be kept stagnant, or raised ever so slightly to prevent further inflation on goods and services.
Their belief is if wages are raised, food costs and services will also have a raised price. On the
contrary, most Democrats believe hourly wages should be increased to an average of $15-17.00
an hour to give more Americans the opportunity to live a comfortable life where they can afford
basic necessities and costs. Only one in ten Americans believe the minimum wage should be
increased, whether that is to $15.00 like the Biden Administration proposed or raised slightly
above $7.25 (Pew Research, 2024). This ongoing debate seems to have no end as no two sides
can come to a viable agreement on how to solve this issue.
According to the U.S. Department of Labor, the minimum wage law (FLSA) applies to
employees of enterprises that have a yearly gross of business of at least $500,000 (DOL, 2024).
The Center for American Progress states that Women, Black, Hispanic, and Latino workers are
most affected by the minimum wage (CAP, 2024). Many service workers in the restaurant and
retail industries are only making $2.13 and hour and are expected to work mainly off of tips.
If this issue continues to go unresolved, the state governments and legislators will likely
take matters into their own hands. Eventually, workers have the potential to go on strike or leave
their job. This would affect businesses and families who are now left unemployed. This has been
an ongoing issue but it has become more prevalent over the last few years due to record high
inflation and the influx of immigrants. The role of immigrants looking for jobs and citizens also
on the job search makes it challenging for businesses to hire and pay competitive wages.
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This issue can be resolved by Congress increasing the national minimum wage from
$7.25 or the state governments raising their wages. State wages must be higher then the federal
minimum wages, which in most cases states do have a higher set wage rate.
Legislative History
The debate of minimum wage has been a national concern for many Americans over the
past years. This issue is even more prevalent in the current state of the U.S. economy. This
debate arises when some parties believe wages should be raised and others believe it should be
kept stagnant. A minimum wage is the lowest sum a business or employer can allocate to its
employees. The United States's current minimum wage is $7.25, however many states have a
different minimum legal wage ($7.25 or more). In 2022, approximately 141,000 workers earned
exactly $7.25, the standing federal minimum wage. In this year, 79 million workers aged 16 and
over were recorded to be paid hourly rates which leaves only 1.3 percent to be making at or
below the federal minimum wage (Bureau of Labor Statistics, 2023). However many employees
who work off of tips (mostly in the service and restaurant industry) are paid a wage of $2.13 and
the hourly tips they receive must reach $7.25 (USA, 2023). Only one in ten Americans believe
the minimum wage should be increased, whether that is to $15.00 like the Biden Administration
proposed or raised slightly above $7.25 (Pew Research, 2024), although this opinion is often
rested in individuals spending power.
The major actors of this issue are workers who get paid by an hourly wage, business
owners, policy makers (U.S. Congress and State Legislatures), and interest groups who either
advocate for or against the rise of minimum wage. Interest groups and current employees of
select businesses have the opportunity to do grassroots work and reach out to their state
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representatives addressing their support of the increase of minimum wage, or vice versa. State
representatives have the responsibility of being the larger voice of their given district to express
those citizens concerns in Congress.
Legislative History
To truly understand the concept of minimum wage, it is essential to know where this idea
came from. Minimum wage is a New Deal era policy that was initially created through the Fair
Labor Standards Act of 1938 (FLSA). The FLSA has been amended throughout the years since
enactment. The bill determined the wage floor and proposed a 44-hour work week and prevented
underage children from entering the work space (Economic Policy Institute, 2023). One fourth of
all workers during the 1930s were unemployed and were struggling to secure basic housing and
food. President Franklin Delano Roosevelt enacted the National Industrial Recovery Act (NIRA)
and establishing the National Recovery Administration (NRA). Roosevelt attempted to bring
back the economy by introducing “fair competition” codes that were to set wages and prices, and
create and bring back jobs. The Supreme Court invalidated the NIRA by stating that the
executive branch does not have the authority to induct these codes. One instance occurred where
a young girl from Massachusetts had been working in a sewing factory getting paid $11 a week,
and later cut down to as low as $4 a week. Roosevelt was able to create a minimum wage law in
response to this girl’s concern (Economic Policy Institute, 2023).
The minimum wage does not consistently fluctuate with the state of the economy nor
who the elected officials in Congress are at the time. Congress must pass a bill which is then
presented to the President to sign into law, however the national minimum wage has remained
$7.25 since July 24, 2009 (as of January 2024). Congress is the only branch of government with
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the authority to regulate commerce, such as minimum wage (U.S. Const., Article 1, Section 8).
The Department of Labor’s Wage and Hour Division is responsible for enforcing the federal
minimum wage.
Although the national base wage is $7.25, 30 states and Washington, D.C., have wages
that are as high as $17 (Washington, D.C.) (Paycom, 2023). There have been no official changes
to the federal minimum wage, however many states will be having their wages raised in 2024.
Since the first federal minimum wage, it was been increased 22 times (History, 2023). It is
important to consider the state of the economy and the constant changes in individuals spending
power and the cost of living in one given area. Some states have responded to this by raising
minimum wages, but the federal government has not. With 2024 being an election year and a
potential new President coming into office, there may or may not be changes regarding this
policy issue.
Policy Alternatives
When it comes to finding a solution to the minimum wage debate, there will be trade-offs
in one sense or another, as with all policies. Some economic models predict that if the floor is too
high above the point of the equilibrium (where supply and demand meet), then there will
potentially be a surplus of labor. This is due to the companies and businesses that are not at
means to hire workers at the minimum price (Big Think, 2022). Seattle had recently raised its
minimum wage to $15 and hour and the primary outcome was a short-term loss in hours for
those whose wages increased. This also meant a reduction at how many new employees
businesses were able to hire. Due to the debate of wether to raise or keep the nimbus wage
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stagnant, some have experimented with alternatives or alterations that can be put into place to
secure a livable lifestyle.
In Italy and Austria, minimum wages are determined by collective bargaining
agreements. A collective bargaining agreement is a written legal contract between an employer
and a union representing the employees (SHRM, 2023). Germany proposed a standard minimum
wage in 2015 when it was evident that this model did not ensure that the wages meant for a
decent living standard. Ireland followed the same model in the early 2000s.
The negative income tax is an income guarantee that would have the government give
payments to those who file taxes at a certain income level or below. This idea was proposed in
the 1940s but only gained recognition when Milton Friedman spoke out on his support for the
concept in the 1960s (Big Think, 2022). The government would set a break-even income point
with all earnings about the tax point. Workers who make less than the break-even point would be
issued a refund equal to half the difference between their income and the break-even point.
Friedman debated that this would replace welfare programs but it would not influence hiring or
work processes. This proposal would be significantly cheaper than other options. It could also
reduce poverty but also reduce some labor supply. This model is often brought up when
discussing solutions to the minimum wage issue.
Unlike most economists who are either in support or denial of the rise of the minimum
wage, there have been other solutions to boost lower incomes of low wage workers. Taking
inflation into consideration, policy makers could set the minimum wage as a percentage of the
cost of living for each city or region. By putting the minimum wage slightly above the standard
of living, this will ensure workers are able to afford a livable wage. The proposed minimum
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wage should be taken into consideration after each fiscal year to make alterations based off
economic trends and be phased in over a three to five year period to give businesses time to
make any adjustments necessary (Stanford Economic Review, 2023). Policymakers frequently
rely on the federal poverty level to judge an income that supports the standard of living, however
poverty levels can differ based off given cities and locations. The poverty standard does not
reflect important costs of living that is limited to a basic grocery budget. This does not account
for childcare, healthcare, education, and transportation costs.
By decreasing health care premiums or providing universal health care seems like a
common agreement amongst some Americans. This would eradicate one of the biggest
allocations that businesses face which can sometimes hurt a company by forcing itself to reduce
the workers wages. Workers with severe health conditions often find hardships in paying for
medical treatment and out-of-pocket expenses. Prescription medication and drug costs being
sometimes unaffordable can also play a role into this debate. If a more affordable healthcare
solution was imposed than there could be a raise in wages that businesses are able to pay their
workers, especially large corporations.
Many workers who are employed at a minimum wage job are often unskilled or not
equipped with a higher education, such as university or trade school. Skills that they might
possess could be outdates or low in demand. College students may even be considered unskilled
if their degree is general or the same as thousands of other job applicants. This could lead to
many college graduates seeking graduate school or another degree completion program. The
promotion and creation of the Workplace Innovation and Opportunity Act job counseling and
training programs could help more workers come out or above poverty. Those in this program
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would be equipped with skills to meet the workforce. Skilled workers have a higher chance at
obtaining a well paying job that is above minimum wage.
Some researchers and economists believe that allocating funds to minimum wage
workers via tax cuts is a more efficient solution for giving workers more livable wages. This
method could also help support local communities and businesses which are community hubs
rather then just economic interests. Tax cuts for minimum wage works allow the government to
help small businesses and workers. This mechanism allows the government to increase workers’
incomes without influencing the business or impacting the jobs. Reduced tax rates could boost
savings and investment which would later boost the economy, while also reducing
unemployment. This raises disposable income which gives workers more spending power. It is
important to know that a tax cut does not equal a tax break. On the flip side, tax reductions can
reduce the funds which are available for federal programs which many low wage workers are
involved with.
Proposed Solutions
It is inevitable that by raising the minimum wage, companies will have to face many
challenges to keep their business afloat. Both parties of this minimum wage debate must find
common ground and the best way to do that is to set the new minimum wage at $10 an hour.
Employers can face the pressure to raise wages of those workers already making above minimum
wage which in turn would add to the labor costs. Restaurants in particular often operate on a
profit margin of 3% to 9% (Lending Tree, 2024). Outside of the restaurant business, many
industries will have to face challenges to accommodate the minimum wage increase. By
restaurants having such a low profit margin, those businesses do not have much space to pay
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higher wages to their workers without influencing the price of goods. This concept also applies
heavily to the retail industry.
A Congressional Budget Office (CBO) assessment expected that increasing the minimum
wage could raise the income of low wage workers but cause some workers in the same field to
lose their jobs (Lending Tree, 2024). Increasing the wages that employees are paid can force
management to cut down on staffing. This in return can hurt those employees who rely heavily
on their low wage job to provide for their families and their cost of living. In whole, this lowers
employment and makes it more challenging for unemployed workers to find jobs. In the scope of
the future, smaller businesses will face the reality of not being able to adequately staff their
business.
The debate over the minimum wage often overlooks the purpose of what the minimum
wage is in place for. Those in favor of raising the minimum wage tend to believe that a minimum
wage should be a living wage when that is not the case. The minimum wage is not a livable
wage, rather it is a baseline and an opportunity for younger and less experienced workers to gain
knowledge in certain industries and master skills which in return will help them earn a spot in a
higher paid position. In many businesses employers often offer raises and higher wage
opportunities for those workers who are excelling in their position or have shown mastery of the
company as a whole. For many minimum wage jobs, there is often a shift leader or a more
managerial position which is for the more skilled and knowledgable worker. This position offers
a higher pay rate which most baseline pay workers should be aiming for. It is not fair for those
workers who are more experienced to be getting paid the same wage as someone in an entry
level position. Contrary to popular belief by those in favor of raising the minimum wage, there is
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no fast guarantee that workers will receive a higher income once wages are increased (Wharton,
2023). This was verified by experts at Wharton in a brief called “The Macroeconomic Dynamics
of Labor Policies.”
An increase of minimum wage could also lead to a world of automation. Even without
any fluctuation of the minimum wage in years, civilians already seeing changes in how
businesses are ran, increasing the minimum wage is just another incentive for employers to rid
their company of manual labor and make the change to technology. Many retail stores have done
away with the guest services at checkout and now use automated systems. Almost all grocery
stores now have implemented self check out registers and have minimized the employees on the
floor to assist guests. This was once someone’s job that they had to provide themselves and their
family a living. Businesses will be searching for new ways to reduce manual labor and replace it
with computerized and automated systems to still complete jobs, with less error. Numerous jobs
such as cashiers, hostesses, researchers, warehouse assistants, marketing and social media
workers, and more can be taken away in the future if businesses can no longer sustain maximum
revenue to pay their workers (Indeed, 2023). Any business, wether that is one providing a service
or not, their goal is to make as much profit as they can. With the increased cost of labor, business
are highly likely to turn to a cost-effective choice which is technology and automation.
When employees are paid a higher base wage, businesses must find ways to compensate
for the more money they are putting out. Simply, businesses will be raising prices of goods and
services done. Bobby Scott, U.S. Representative argued that “Raising the federal minimum wage
will also stimulate consumer spending.”. Contrary to Scott, Mark Wilson, former deputy assistant
secretary of the U.S. Department of Labor argues that “If a minimum wage is partly or fully
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passes through to consumers in the form of higher prices, it will hurt the poor because they
disproportionately suffer from price inflation.”
If the federal government decides to raise the minimum wage there is a possibility that
companies may move production from America to countries elsewhere. If production businesses
believe it will be best for their company to be ran internationally, this will strip citizens away
from their jobs and will result in them looking for new jobs, even through the job market is very
challenging as it is. There would be an increase in the amount of unemployed individuals in the
U.S. as businesses owners would go with the more financially appealing option, to hire cheaper
workers overseas (Faster Capital, 2023).
It is inevitable that the minimum wage will have to rise over the years to accommodate
for modern living standards and the state of the economy. Although making a giant leap from
$7.25 to perhaps $15 and hour can truly create havoc. This will still allow for low wages workers
to see an increase in their income without overdoing it. Ultimately, states have the freedom to set
a unique wage as long as it is above to equal to the federal wage. Business owners have the
freedom to give workers opportunities to show mastery and excellence in their industry to
achieve a higher wage. Raising the minimum wage to $10 an hour is not a huge leap where it can
pose many negative effects on businesses, but it still is appealing to those who struggle to make a
living wage at $7.25.
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References
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