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.

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.

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

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.

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.

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.

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

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.

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..