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Introduction of Minimum Wage in New York

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Introduction of Minimum Wage in New York

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The article "The Case for a Higher Minimum Wage" discusses minimum wage with the proposal by democrats to raise the hourly wage from $7.25 to $10.10.

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The minimum wage is specifically intended to take aim at the inherent imbalance in power between employers and low-wage workers that can push wages down to poverty levels. An appropriate wage floor set by Congress effectively substitutes for the bargaining power that low-wage workers lack. When low-end wages rise, poverty and inequality are reduced. But that doesn't mean the minimum wage is a government program to provide welfare, as critics sometimes imply in an attempt to link it to unpopular policies. An hourly minimum of $10.10, for example, as Democrats have proposed, would reduce the number of people living in poverty by 4.6 million, according to widely accepted research, without requiring the government to tax, borrow or spend.

If the Minimum Wage

Had Kept Pace With ...

PROJ.

In 2013 it would have been $18.28

AVG. WAGE OF PRODUCTION WORKERS

In 2013 it would have been $10.63

Demo-

cratic

plan,

2016:

$9.54

The actual minimum wage,

adjusted for inflation: $7.25 in 2013

All figures in 2013 dollars

IS THERE AN ALTERNATIVE? No. Other programs, including food stamps, Medicaid and the earned-income tax credit, also increase the meager resources of low-wage workers, but they do not provide bargaining power to claim a better wage. In fact, they can drive wages down, because employers who pay poorly factor the government assistance into their wage scales. This is especially true of the earned-income tax credit, a taxpayer-provided wage subsidy that helps lift the income of working families above the poverty line.

Conservatives often call for increases to the E.I.T.C. instead of a higher minimum wage, saying that a higher minimum acts as an unfair and unwise tax on low-wage employers. That's a stretch, especially in light of rising corporate profits even as pay has dwindled. It also ignores how the tax credit increases the supply of low-wage labor by encouraging more people to work, holding down the cost of labor for employers. By one estimate, increasing the tax credit by 10 percent reduces the wages of high-school educated workers by 2 percent.

There are good reasons to expand the tax credit for childless workers, as President Obama recently proposed. It is a successful antipoverty program and a capstone in the conservative agenda to emphasize work over welfare. But an expanded E.I.T.C. is no reason to stint on raising the minimum wage - just the opposite. A higher minimum wage could help offset the wage-depressing effect of a bolstered E.I.T.C., and would ensure that both taxpayers and employers do their part to make work pay.

HOW HIGH SHOULD IT BE? There's no perfect way to set the minimum wage, but the most important benchmarks - purchasing power, wage growth and productivity growth - demonstrate that the current $7.25 an hour is far too low. They also show that the proposed increase to $10.10 by 2016 is too modest.

The peak year for the minimum wage was 1968, when its purchasing power was nearly $9.40 in 2013 dollars, as shown in the accompanying chart. Since then, the erosion caused by inflation has obviously overwhelmed the increases by Congress. Even a boost to $10.10 an hour by 2016 (also adjusted to 2013 dollars) would lift the minimum to just above its real value in 1968. So while it is better than no increase, it is hardly a raise.

The situation is worse when the minimum wage is compared with the average wages of typical American workers, the ones with production and nonsupervisory jobs in the private sector. From the mid-1960s to the early 1980s, when one full-time, full-year minimum wage job could keep a family of two above the poverty line, the minimum equaled about half of the average wage. Today, it has fallen to one-third; to restore it to half would require nearly $11 an hour, a better goal than $10.10.

The problem is that the average wage, recently $20.39 an hour, has also stagnated over the past several decades, despite higher overall education levels for typical workers and despite big increases in labor productivity. People are working harder and churning out more goods and services, but there's no sign of that in their paychecks. If the average wage had kept pace with those productivity gains, it would be about $36 an hour today, and the minimum wage, at half the average, would be about $18.

That is not to suggest that the hourly minimum wage could be catapulted from $7.25 to $18. A minimum of $18 would be untenable with the average hovering in the low $20s. But it does confirm that impersonal market forces are not the only, or even the primary, reason for widespread wage stagnation. Flawed policies and changing corporate norms are also to blame, because they have allowed the benefits of productivity gains to flow increasingly to profits, shareholder returns and executive pay, instead of workers' wages.

DOES IT KILL JOBS? The minimum wage is one of the most thoroughly researched issues in economics. Studies in the last 20 years have been especially informative, as economists have been able to compare states that raised the wage above the federal level with those that did not.

The weight of the evidence shows that increases in the minimum wage have lifted pay without hurting employment, a point that was driven home in a recent letter to Mr. Obama and congressional leaders, signed by more than 600 economists, among them Nobel laureates and past presidents of the American Economic Association.

That economic conclusion dovetails with a recent comprehensive study, which found that minimum wage increases resulted in "strong earnings effects" - that is, higher pay - "and no employment effects" - that is, zero job loss.

Evidence, however, does not stop conservatives from making the argument that by raising the cost of labor, a higher minimum wage will hurt businesses, leading them to cut jobs and harming the low-wage workers it is intended to help. Alternatively, they argue it will hurt consumers by pushing up prices precipitously. Those arguments are simplistic. Research and experience show that employers do not automatically cope with a higher minimum wage by laying off workers or not hiring new ones. Instead, they pay up out of savings from reduced labor turnover, by slower wage increases higher up the scale, modest price increases or other adjustments.

Which brings the debate over raising the minimum wage full circle. The real argument against it is political, not economic. Republican opposition will likely keep any future increase in the minimum wage below a level that would constitute a firm wage floor, though an increase to $10.10 an hour would help tens of millions of workers. It also would help the economy by supporting consumer spending that in turn supports job growth. It is not a cure-all; it is not bold or innovative. But it is on the legislative agenda, and it deserves to pass.

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Opinion | The Case for a Higher Minimum Wage

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The minimum wage is specifically intended to take aim at the inherent imbalance in power between employers and low-wage workers that can push wages down to poverty levels. An appropriate wage floor set by Congress effectively substitutes for the bargaining power that low-wage workers lack. When low-end wages rise, poverty and inequality are reduced.

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Key stakeholders that would be impacted by an increase in minimum wage are workers (particularly low-wage and unskilled workers), businesses (notably small businesses), consumers, and the government. Effects of this wage increase may include:

Increased prices of goods/services for consumers

Increased labor expenses for businesses

Reduced job opportunities for those with limited experience

Increased income tax revenue for the government

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According to the Fair Labor Standards Act of 1938, minimum wage is a labor standard that was developed to protect workers.

No perfect way to set a minimum wage level exists

Research has shown that increases in minimum wage have been able to increase pay without hurting employment

Additionally it has been proven that employers to not automatically compensate with increased wage costs by laying or workings or reducing hiring

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Example of Elasticity and Minimum Wage (LibreTexts Social Sciences)

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Price Floor: Minimum wage is a price floor within the labor market. If set above the equilibrium wage a surplus of labor will be created.

Supply and Demand: To analyze the effects of an increased minimum wage it is important to look at how the labor supply, labor demand, and the equilibrium change.

Elasticity: The elasticity of the demand and supply for labor may change how an increase in wages affect people. As an example, if there is an inelastic demand for labor, there may be a smaller impact on employment.

Cost-Benefit Principle: When considering a policy surrounding minimum wage policymakers must use the cost-benefit principle to assist in guiding their decisions. For example they may consider the benefits of assisting low wage workers and the costs of job losses.

Income Inequality: Increasing minimum wage could reduce the gap in wages between different low income workers and high income workers.

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Positive Analysis: Economic models are used to predict the effects of minimum wage increases and the potential unemployment and labor market shifts.

Normative Analysis: Gradual minimum wage increases align with inflation, region specific wages, and supplemental policies like tax credits.

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Incrementally raise minimum wage to align with inflation

Gradually increase wage

Implement regionally dictated living wages, based on cost of living

Monitor effectiveness of policy to allow adjustments overtime

Utilize targeted tax credits to help small businesses

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The proposed policy effectively addresses the economic challenges by consistently raising wages to align with inflation and implementing region-specific living wages based on cost of living. By reducing income inequality, improving worker productivity, and stimulating local economies, the policy offers a working solution.

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Historical Federal Minimum Wage Increases

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Historical Federal Minimum Wage Increases

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In 2009, the U.S. federal minimum wage rose from $6.55 to $7.25 per hour. Many critics predicted widespread job losses, yet research indicated relatively minimal negative employment effects.

Some sectors, like fast-food and retail, experienced slight increases in operational costs but adjusted through small price hikes, improved efficiencies, or slight reductions in work hours rather than large-scale layoffs.

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Do you think increasing minimum wage in New York would be beneficial or harmful?

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Comparing to New York City’s Gradual Increases (2014-2020)

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Comparing to New York City’s Gradual Increases (2014-2020)

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New York City slowly raised its minimum wage, reaching $15 by 2020. Preliminary data suggests minimal net job losses in low-wage industries.

Employers adapted by shifting staffing patterns, investing in worker training, and raising prices modestly. Many low-wage workers reported better financial stability and reduced turnover, which saved employers on recruitment and training costs.

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Potential Market Failures, Unintended Consequences, Externalities, and Information Imperfections

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Potential Market Failures, Unintended Consequences, Externalities, and Information Imperfections

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Market Failure:

Black Markets: An increase in minimum wage may lead to companies turning to an illegal market for cheap labor disrupting the ability eo efficiently distribute goods and services.

Externalities:

Positive Externality: Increased consumer spending may be a unexpected effect of increasing minimum wage as workers may have more disposable income to spend.

Negative Externality: Increased prices may also result as businesses will have a new, higher, cost of labor and may need to compensate through an elevated cost.

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Potential Market Failures, Inefficiencies, Externalities, and Information Imperfections 

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Potential Market Failures, Inefficiencies, Externalities, and Information Imperfections 

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Inefficiencies

Higher Barriers to Entry: An inefficiency that may result from a higher minimum wage is new businesses having a more difficult time in starting up. Starting a business is not easy already, there are many costs, thoughts, and time that go into this. Higher wages to pay could make it even harder for new businesses to get their own start, allowing less companies to enter different markets.

Information Imperfections

Misperceptions of the Public: A lack of information or misinformation given to the public about the impacts of raising minimum wage may lead to difficulty for buyers and sellers to make accurate decisions in these markets..

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1-3 minutes

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Comparative Analysis or Real-World Examples Video

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Comparative Analysis or Real-World Examples Video

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After learning about non-standard factors, how important do you think considering variables like these are when considering implementing a policy?

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Potential Modifications and Challenges of the Standard Equilibrium Model

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Potential Modifications and Challenges of the Standard Equilibrium Model

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The standard equilibrium model does not fully account for the potential complexities of an increase of minimum wage. Some modifications that could be made or that may challenge the model include:

Incorporating non-wage benefits and costs

Productivity gain and losses

Recognizing misleading or lack of information

Short-term and long-term effects

Impact in different regions within the State