Thursday, March 5, 2015

There Is Talk About Raising the Minimum Wage

Mark Knold, Supervising Economist

Wal-Mart is raising its starting pay to $9/hour. Many economic watchers view this as the economy’s way of saying the unofficial minimum wage has risen above its current $7.25/hour. Wal-Mart is large and pervasive, so it can serve as that type of an economic barometer.

The federal minimum wage was last raised in 2009. Some cities and states have implemented their own minimum wage over and above this, but much of the country is still operating under the 2009 law. Talk has arisen about the possibility of raising the federal minimum wage. When that happens, the speculation about the minimum wage increase brings forth questions about its impact and drawbacks.

A common question is how does the minimum wage affect the economy? The answer is usually very little if at all, because the minimum wage typically measures higher than the market wage for minimum-wage jobs and therefore does not have a “binding” effect upon wage rates. The concern is that if the minimum wage is raised, then employers will be less likely to hire the minimum-wage workers — the very people the law is trying to help. In 25 years of professionally observing the economy, I cannot look at any time period and say, “Oh look, see that economic setback there? That was because of the minimum wage increase.” However, an increase in the minimum wage significantly above the market rate would generate some decrease in the demand of employers for low-wage workers.

In other words, a minimum wage increase either pushes the entire wage scale upward from the bottom, or the wage scale has already climbed upward and the increase is nothing more than the wage scale reaching down and pulling the minimum along. In nearly all cases, it is the latter, not the former. If it were the former, then you might see some visible hiccups in the economy over time. But since it is nearly always the latter, no direct hiccups emerge.

Another reason it is not overtly tangible is due to how few workers actually work at or below the minimum wage. In Utah, that is less than 3 percent of all wage and salary workers. And then, about a third of those workers are waiters and waitresses whose tip earnings normally take them over and above the minimum wage.

This is not to say that raising the minimum wage has no effect. It does for those whose pay gets raised. At the same time, there has been no discernible “negative” impact upon the economy or minimum-wage workers by such moves in the past.

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