Source: Talk Radio News Service
70% of likely voters would support raising the minimum wage, according to a poll released Friday by JZ Analytics. However, some data suggests that raising the minimum wage could stifle job creation and availability.
An increase from the current minimum wage - $7.25/hr to $10.38/hr - would match minimum wage with the inflation rate. Tying minimum wage to inflation would make it easier for individuals to achieve a living wage, or a wage that meets their basic cost of living.
But perhaps not surprisingly, the poll's results show that most younger workers aged 18-to-23 are in strong support of raising the minimum wage. However, raising the minimum wage could inadvertently impact these same individuals' ability to find jobs; particularly in a struggling economy in which policy makers are rallying around the idea of job creation in every piece of legislation that is voted on.
A simple graph that depicts the supply and demand of labor shows that a price floor, such as minimum wage, holds wages at a level above the market determined supply-demand equilibrium. In this scenario, workers are supplying the labor and businesses are demanding the labor.
(Image courtesy of the Wyoming Labor Department : http://doe.state.wy.us/lmi/mw/mwreport.htm)
An artificially high wage rate can only be achieved at the cost of how many jobs can be demanded by businesses (Law of demand: as price increases, demand decreases). When wages increase, each worker becomes more costly to employ while a company's profits remain unchanged, meaning a company will employ less workers. As a result, there will be more workers demanding work than there will be businesses supplying work.
In economics, it seems like all of the world's problems can be solved with an abstract supply and demand graph. This particular concept, however, boils down to a basic math problem.
If a small business has $800 budgeted to spend on wages, and the market determined wage-rate is hypothetically $4/hr, the business can employ five people that work 40 hours a week.
Under the current minimum wage of $7.25/hour, the same company can only afford to employ 2.75 people working 40 hours a week (meaning one person will have to work part-time). Moreover, if the minimum wage is raised to $10.38/hr, the same company can just barely employ two people at 40 hours a week.
The long-term effects of minimum wage are subject to dispute. A potentially beneficial outcome of higher minimum wage is that it will, at least temporarily, increase morale in the labor force, and encourage employees to be more productive. However, many economists would counter this argument with the law of diminishing returns. In English, this means a worker can only take on so many responsibilities before he or she becomes overloaded and less productive.
Additionally, employing fewer people at a higher wage means there is less freedom for division and specialization of labor. In other words, those who have jobs must take on the responsibilities of those their employer cannot afford to employ. Again, this could lead to employees being spread too thin across areas in which they do not have sufficient training, thereby reducing their overall productivity.
It is important to note that young respondents were not the only group that polled favorably in support for raising the minimum wage. 74% of older respondents, ages 30-to-49, supported to some degree, raising the minimum wage. There were, however, slight differences in support between genders, and more striking differences in levels of support among different racial demographics.