Doubling-Down on Minimum Wage

By: Denny Tang

President Obama has proposed an increase in federal minimum wage to $9.00, which has naturally sparked controversy between proponents and opponents of the plan for all of its pros and cons.[1] Of more controversy are the proposal by capitalist and the like to raise the minimum wage to $15.[2] This proposal is of course one that is strongly endorsed by low-income employees.[3] Such a demand is currently being sought after by fast-food employees who have recently went on strike in the New York Tri-State area.[4]

Proponents of such a plan have mainly validated their position due to increases in cost-of-living, especially in expensive cities such as Manhattan.[5][6] Employees complain that due to such low minimum wage and standard of living, they struggle to pay rent and it financially prohibiting to raise a family.[7] To put it into context, the current minimum wage totals to $15,080 yearly, before taxes, while the average yearly cost of a four-year not-for-profit college cost approximately $35,000.[8] Additionally, proponents argue that raising the minimum wage to $15 would be economically sustainable since, historically, it would only match that of wages paid in the late 1960s, when inflation is accounted for.[9]

Conversely, however, while proponents of such drastic social changes may seem valid and morally righteous, many of their points seem to overgeneralize the statistics. While the minimum wage is $7.25, fast-food companies, such as McDonald, pay only a small percentage of their employee that low of a wage and is primarily reserved for young part-time employees who are usually students.[10] In practice, the median income for fast-food employees is $8.94 which practically matches that of the proposed increase by President Obama in minimum wage.[11]

Additionally, proponents are not taking into account the effects of such a volatile jump in minimum wage. For instances, the effect it would have on all levels of employment. Logically, non-lower-income employees would also demand for increases in wages as well. If middle-income employees can earn the same income while doing lesser, albeit less prideful, work why wouldn’t they? Therefore, middle-income and eventually upper-income employees would also demand increases in wages. Though the percentage in the increase will not be equal, this universal increase in cost for human resources will drastically increase the cost of living by increasing production costs for companies.[12] Although studies of more subtle increase in minimum wage, such as to $9.00 per hour, have shown that business will eventually increase from higher minimum wage due to increase in spending, nothing suggests the same effect for a substantial jump in minimum wage.[13]

Moreover, such a drastic increase would hurt small business the most, especially those struggling to compete with large corporations already. Financially stronger companies can wait out the smaller companies or out-compete them with more or better service.[14] Even if smaller companies can offer better pricing, many customer would probably gladly spend a little more money for better service, especially if their hourly income now starts at $15.


[1] Annie Lowrey, Raising Minimum Wage Would Ease Income Gap but Carries Political Risks, N.Y. Times, February 13, 2013, available at http://www.nytimes.com/2013/02/13/us/politics/obama-pushes-for-increase-in-federal-minimum-wage.html?pagewanted=all&_r=0.

[2] Nick Hanauer, The Capitalist’s Case for a $15 Minimum Wage, Bloomberg, June 19, 2013 available at http://www.bloomberg.com/news/2013-06-19/the-capitalist-s-case-for-a-15-minimum-wage.html.

[3] Sreeja Vn, Fast-Food Workers To Stage nationwide Strikes for $15/Hour Minimum Wage, Right to Organize, International Business Times, August 29, 2013, available at http://www.ibtimes.com/fast-food-workers-stage-nationwide-strikes-15hour-minimum-wage-right-organize-1401469.

[4] Id.

[5] Sharon Bernstein, California to raise minimum wage to $10 an hour by 2016, Chicago Tribune, September 25, 2013, available at http://www.chicagotribune.com/news/sns-rt-us-usa-california-minimumwage-20130925,0,6259416.story.

[6] Ginger Adams Otis, New York City has highest cost of living in U.S. for families: report, New York Daily News, July 4, 2013, available at http://www.nydailynews.com/new-york/nyc-tops-new-living-expenses-article-1.1390134.

[7] Hanauer, supra.

[8] U.S. News Staff, The Average Cost of a U.S. College Education, U.S. News, August 24, 2010, available at http://www.usnews.com/opinion/articles/2010/08/24/the-average-cost-of-a-us-college-education.

[9] Lowrey, supra.

[10] Vn, supra.

[11] Id.

[12] Richard Moran, Trickle-Down Was a Flop, So Try Trickle-Up : Raise the minimum wage and give the working poor buying power to boost the economy, L.A. Times, March 28, 1995, available at http://articles.latimes.com/1995-03-28/local/me-47841_1_minimum-wage.

[13] Id.

[14] John Doekott, Governor Renews Push To Raise Minimum Wage, KAAL-TV, September 25, 2013, available at http://www.kaaltv.com/article/stories/s3172226.shtml?cat=10151.

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