Minimum Wage Essay, Research Paper

It sounds simple raise the minimum wage, reward hard work, and strike a blow against the society’s inequalities. It’s an emotional argument that blurs out the truth and make’s people forget one important economic lesson: There’s no such thing as a free lunch. The minimum wage has not been increased since the industrial welfare commission raised it to $4.25 an hour. The IWC and the legislature have not agreed since that time that any additional increase is justified because of California’s recession and the downward turn in the business climate. There was a measure out on this last ballot called prop 210 which passed and increased the minimum wage from $4.25 an hour to $4.75 an hour and on March 1, 1997 it will raise to $5.00 an hour and beginning March 1, 1998 it will increase to $5.75. The minimum wage in California has increased nine times in the past thirty years rising from $1.30 per hour in the mid 1960’s to $4.25 per hour as of July 1996. The increase has been less than the rate of inflation during this period.

The vast majority of the 22,000 members of the American Economic Association agree that increasing the minimum wage will increase unemployment among young, unskilled workers. This 35% hike in the minimum wage paid by the business will be one of the biggest increases in California history. And, it will hit just when the state is recovering from a long recession. Approximately 2 million of California’s nearly 13 million workers earn less than $5.75 per hour. Most of these workers would be directly affected by this increase. Roughly one-forth of those earning less than the proposed $5.75 minimum wage are teenagers, while the remaining three-fourths are adults age 20 and over. Industries employing significant numbers of these workers include retail stores, child care facilities, restaurants, and fast food franchise. Much of the fiscal impacts of this measure would be related to its various effects on the economy, including changes in employment, prices and profits. For example, most employees earning less than the proposed minimum wage would earn more. They would also spend more on goods and services, thereby generating certain increases in economic activities. At the same time, however, employers would face higher wage costs, which they would either absorb in the form of lower profits or attempt to offset through a variety of means. For instance, they may attempt to shift or pass along the cost of higher wages to the consumer by rasing prices of the goods and services they sell. Alternatively, some employers may offset the cost of the increase in wages by automating, hiring fewer employees, reducing the hours, or limiting fringe benefits. Some businesses that are not able to shift the effects of the higher minimum wage may reduce economic activity in California. This would most likely occur in industries that have a large share of expenses for low-wage workers or that are subject to competition from other states and other countries.

In my view, an increase in the minimum wage would result in some decline in employment and business activity in California relative to what would otherwise have occurred. This increase would have varying effect on state and local revenues. For instance, a reduction in business activity, employment, and income in California would result in lower income tax revenues. These declines could be offset, however, by increased spending on goods subject to the sales tax. Higher sales tax would occur if business raised prices of taxed goods in response to the increase in the minimum wage, and this increase is not offset by reducing quantities of goods sold. Sales tax could also increase if those receiving the higher minimum wage spent a relatively high portion of their new earnings on goods subject to the sales tax.

How the minimum wage should be changed, in California minimum wages increases have usually occurred in one of two ways. The first is a change in the federal minimum wage, which results in an increase in California minimum wage to the new higher federal level. The second is a state administrative process. Under this process, the California Industrial Welfare Commission can, by a majority vote of its members, issue wage orders to raise the state minimum wage for workers in any occupation, trade, or industry. The commission considers information from business, labor, and the public through a series of hearings. This process was last used by the commission in 1988, when it increased the minimum wage from $3.35 per hour to $4.25 per hour. This measure would require the Industrial Welfare Commission to issue minimum wage orders consistent with the proposed minimum wage increase.

This increase in wages was to steep of an increase nobody is really benefiting from this, although it makes the employees earning the higher wage feel better. I think a slow increase over time would have been better for the employee because you would actually see your increase of money staying in your pocket. Right now with your wages rising, your cost of living is also rising so in actuality you are spending more.