By: Maria Pesick
As high schoolers just entering the labor force, we are unlikely to find a job in terms of skilled labor that will compensate us with large paychecks. Most of us would be lucky to earn much more than minimum wage. However, unskilled labors alike are all aware that $7.25 an hour is hard to get by on. Many have called for a minimum wage raise. (Click here for an article about what demographics are in favor of a federal minimum wage raise.) In fact, over 52% of people have favored raising the federal minimum wage to $15.00 (Pew Research Center, 2017). People would like to believe this would solve all our problems. More money should mean more purchasing power, right?Actually, this is not true. If employers were to raise what they paid their employees in any case, unskilled or skilled worker, this could lead to an increase in the price of the products they are producing and selling. This is because employers would require more money in order to compensate their labors. This is known as wage push inflation (Investopedia, 2018). Now in a single firm or even industry, the consequences would not necessarily be inflation as there can be ulterior suppliers (unless the market is an oligopoly or monopoly) and the workers might not buy from the company they work at. However, the federal minimum wage affects many firms and industries, meaning workers’ raised wages will be going toward raised prices. This can nullify the effects of a higher minimum wage or even lower the unskilled labors’ purchasing power.
Another factor leading to the rising wage rate is the extremely low unemployment rate. As of January 2019, the unemployment rate rests at a meager 4.0% (Trading Economics, 2019). This means that there are few people in the labor force that are out of a job. In fact, only “23 percent of companies reported they are not have any trouble hiring, down from 42 percent a year ago” (National Association for Business Economics, 2018). In order to compete against other companies for laborers or possibly entice people back into the labor force, firms will need to raise the wages they offer. This could subsequently lead once more to wage push inflation.
Still, with the resultant inflation, rising wages are not necessarily redundant. The rate is rising, though not as dramatically as some think. Looking at the graph, “the starting point is June 2009 at $334 per week, with the end measured in 2018 at $351. That is a 5.1% increase over nine years, or about 0.57% a year. [So,] it is true that the growth rate for nominal wages is better than it was” (Forbes, 2018). As well, though the media exaggerates the “2.9% wage growth” that we have recently experienced, accounting for inflation, the wage rate has still risen by 1% (Forbes, 2018). Thus, the question then comes down to how much, if any counteractive methods, should be taken against this future possible inflation.
Works Cited
DeSilver, Drew. “5 Facts about the Minimum Wage.” Pew Research Center, Pew Research Center, 4 Jan. 2017, www.pewresearch.org/fact-tank/2017/01/04/5-facts-about-the-minimum-wage/. Accessed 5 Mar. 2019.
Kenton, Will. “Wage Push Inflation.” Investopedia, Investopedia, 13 Dec. 2018, www.investopedia.com/terms/w/wage-push-inflation.asp. Accessed 5 Mar. 2019.
Long, Heather. “U.S. Wage Growth Is Getting Wiped out by Inflation.” Los Angeles Times, Los Angeles Times, 10 Aug. 2018, www.latimes.com/business/la-fi-wages-inflation-20180810-story.html. Accessed 5 Mar. 2019.
Long, Heather. “U. S. Workers See Fastest Wage Growth in a Decade, but Inflation Takes a Toll.” The Washington Post, WP Company, 31 Oct. 2018, www.washingtonpost.com/business/economy/us-workers-see-fastest-wage-increase-in-a-decade/2018/10/31/3c2e7894-dc85-11e8-85df-7a6b4d25cfbb_story.html?utm_term=.c1b98d531154. Accessed 5 Mar. 2019.
Sherman, Erik. “That 2.9% Wage Growth Is 1% After Inflation: What The News Doesn't Tell You.” Forbes, Forbes Magazine, 10 Sept. 2018, www.forbes.com/sites/eriksherman/2018/09/09/as-some-cheer-wage-growth-rate-median-income-is-only-up-by-5-1-since-2006/#310075a65dce. Accessed 5 Mar. 2019.
“United States Unemployment Rate.” Kenya Government Debt to GDP | 1998-2018 | Data | Chart | Calendar, TRADING ECONOMICS, Jan. 2019, tradingeconomics.com/united-states/unemployment-rate. Accessed 5 Mar. 2019.
I agree, it is absurd some people think that raising federal minimum wage to over double what it is currently is going to be effective. It is true however that living off of $7.25 is difficult, and someone working full time on a minimum wage would not be able to really scrape by. As you said though, a significant increase in price would ultimately make the cost of goods for the consumer increase, making the worker who is a consumer "lose" still with wage push inflation. An interesting factor to this debate of if the wage should be increased is that the companies may be forced to increase it because of the lack of workers. Again, this may seem like it would benefit individual workers, but it is just to attract people against competitors and in result it will likely show through their prices of goods and services. In turn, I think the wage should increase slightly to give those workers enough money to live off of, but not to $15 as that would significantly cause prices to increase.
ReplyDeleteElizabeth Laning
I think if we have the minimum wage rate increase to 15 dollars an hour that will encourage more people to want to work because they then know they would be earning a decent amount of money. Some people may think working for only 7.25 an hour really isn’t worth their time so then they decide to not get a job at all and that causes for the unemployment rate to keep on increasing when we want it to decrease. Unemployment is one of the economic goals and I think by increasing the minimum wage it will make more people want to work because then they know they are getting paid the right amount for what they do. On the other hand some people may think it's not fair to raise it because of the fact that some people wouldn’t necessarily be skilled enough to earn 15 dollars an hour but if every starts at that rate then it would be fair to everyone. This could also cause more people to stop laying around and get out their so then they don’t start living in poverty and so then the unemployment rate would decrease and more people would start working because now they would be getting paid a higher rate. Overall, I think increasing the minimum wage will allow for more people to want to work because then they will think they are getting paid a fair amount for the work that they do.
ReplyDeleteYes! This article is exactly what most American citizens do not understand. More money may seem better but inflation, inflation, inflation! It basically cancels out the raise people are getting by forcing businesses to increase their prices and lower their employment so the marginal benefit is still high enough for a good profit. It is very difficult to work off of only $7.25 an hour but these jobs are meant for teenagers not middle aged adults. This is an attempt to push people towards college and gaining a higher education. The only thing that government could do to benefit kids going to college would be increasing taxes to lower the cost of college, so it would be affordable. The hope is to push kids to be more innovative and creative when trying to make money. Learning how to save money at a young age can be very beneficial especially with many teens only having minimum wage jobs.
ReplyDeleteYou're exactly right and have presented a very well-written analysis! The idea that significantly increasing the minimum wage will impact only those working minimum wage jobs is simply false. Instead, it has a detrimental domino effect on the entire economy. Not only would it force employers to increase the prices of their goods and services, but it may also lead them to offer less jobs as a whole. This problem is not just isolated within these companies with minimum wage workers either. Instead, it also negatively impacts consumers, now forced to pay higher prices for the goods and services they use every day. Say goodbye to the dollar menu. The data you present is really supplemental to your article, and it's great that you always considered inflation when pulling information from your sources.
ReplyDeleteI agree that raising the minimum wage would cause more problems than it is solving. Any high school student looking hard enough can find a job for $10 an hour or more. This is not to set a wage for the people that are living off of it, but more for unskilled workers such as high school students. Most adults should have no problem making at least $15 an hour if they have some desirable working traits.
ReplyDeleteI completely agree that raising minimum wage drastically is not the best economic decision; not only due to the push inflation caused by unskilled workers receiving a higher wage, but the fact that it would also cause skilled workers (already receiving $15/hr) to demand a raise as well. All of these increases in costs for companies will simply result in an increase in prices for consumers and will therefore not solve the problem of the limited purchasing power of unskilled workers. Or as you said, if there is not significant inflation, there will likely be many job cuts; therefore, the government has to weigh if it's better to have more people paid less, or fewer people paid more. Even though I do not necessarily believe in raising the minimum wage, I do think it is absolutely critical to provide aid to those living below the poverty line in the U.S.; this can be done through programs like Food Stamps or other welfare programs.
ReplyDeleteI agree that raising the minimum wage would increase the cost of production for firms. And then in theory they would raise their prices. I don't think this is a reason to not raise wages. The money is already there, it's just a matter of who has it.We are not printing more money so the value of the dollar would stay relatively stable. In 1980 their was an increase in the minimum wage from $2.90 to $3.10 and inflation actually decreased during that year. And in the 1981-82 the minimum wage was increased again and then inflation dropped even further. My point is not to say that raising the minimum wage would decrease inflation. I am just saying there is not a strong correlation between the two. There are several times where the minimum wage increases and inflation stays the same or decreases. In practice there is no strong correlation of wages increases causing inflation to increase.
ReplyDeleteI agree that raising the minimum wage too much is a bad idea because it will only temporarily fix the problem and make a higher level of inflation in the future. I do feel the wage should be more than $7.25. It's challenging to live in today's society with only $7.25 an hour, however, increasing the minimum wage too much will lead to inflation and business hiring fewer workers because they do not have the money to pay more workers.
ReplyDeleteNear the end, you describe how even competing companies will cause wage push inflation by trying to entice employees. However, if one company raises the price of their goods in order to compensate for raised wages, then consumers will simply buy the good from their competitor that didn't raise wages. This means that little to no inflation would take affect. However, outside of this, I thought that your usage of quotes was effective, even when the quotes were long. You used them well in supporting your arguments, and even when not using quotes, you reliably cited your sources. Additionally, you did a good job of explaining the statistics you brought up throughout the post, even if the last paragraph had a more data than explanation.
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