Economics for Today 9th Edition by Irvin Tucker

Exercise 8

DOES THE MINIMUM WAGE REALLY HELP THE WORKING POOR?
Applicable Concepts: positive and normative analyses
Minimum wages exist in more than 100 countries. In 1938, Congress enacted the federal Fair Labor Standards Act, commonly known as the "minimum-wage law." Today, a minimum wage worker who works full-time still earns a deplorably low annual income. One approach to help the working poor earn a living wage might be to raise the minimum wage.
The dilemma for Congress is that a higher minimum wage for the employed is enacted at the expense of jobs for unskilled workers. Opponents forecast that the increased labor cost from a large minimum wage hike would jeopardize hundreds of thousands of unskilled jobs. For example, employers may opt to purchase more capital and less expensive labor. Restaurants can use iPads instead of servers to take orders and install robotic burger flippers. The fear of such sizable job losses forces Congress to perform a difficult balancing act to ensure that a minimum wage increase is large enough to help the working poor, but not so large as to threaten their jobs.
Some politicians claim that raising the minimum wage is a way to help the working poor without cost to taxpayers. Others believe the cost is hidden in inflation and lost employment opportunities for marginal workers, such as teenagers, the elderly, and minorities. One study by economists, for example, examined 60 years of data and concluded that minimum wage increases resulted in reduced employment and hours of work for low-skilled workers.
Another problem with raising the minimum wage to aid the working poor is that minimum wage is a blunt weapon for redistributing wealth. Studies show that only a small percentage of minimum wage earners are full-time workers whose family income falls below the poverty line. This means that most increases in the minimum wage go to workers who are not poor. For example, many minimum wage workers are students living at home or workers whose spouse earns a much higher income. To help only the working poor, some economists argue that the government should target only those who need assistance, rather than using the "shotgun" approach of raising the minimum wage.
Supporters of raising the minimum wage are not convinced by these arguments. They say it is outrageous that a worker can work fulltime and still live in poverty. Moreover, people on this side of the debate believe that opponents exaggerate the dangers to the economy from a higher minimum wage. For example, one could argue that a higher minimum wage will force employers to upgrade the skills and productivity of their workers. Increasing the minimum wage may therefore be a win-win proposition rather than a win-lose proposition. Finally, across the United States in recent years, walkouts and protests by fast-food workers demanded a higher minimum wage and collective bargaining rights. Note that we return to this issue in Chapter 4 as an application of supply and demand analysis.
Explain your position on this issue. Identify positive and normative reasons for your decision. Are there alternative ways to aid the working poor? Explain.