Pena 1

University of Michigan-Flint

Raising the Minimum Wage:

An Oversold Idea

April 23, 2015

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An Oversold Idea
Money rules everything in our modern society, everything has a value. Money can make
or break a person, feed people, and is used to exchange goods. People work hard for their money,
some people make a lot of money for little work, but some people who are at the bottom of the
totem pole are entry level workers. These entry level workers wages are paid using a standard
minimum wage rate their state has in place. Minimum wage is determined at a federal level
which is currently at $7.25 an hour, then the states set their own minimum wage rate at or above
this level. Exception to this law are the U.S territories who have special rates, and the two states
of Georgia and Wyoming, who has lower rate than the federal minimum wage rate. In our state
of Michigan, the current rate is at $8.15 an hour (Wage).When talking about the minimum
wage and increasing it, this is a topic that is difficult to disagree with. After all who would not
want to make more money handed to them for their work? So in this case, when people ask the
question of raising the minimum wage, most people would agree into doing so. But is this
actually a good idea? According to the Federalist, a minimum-wage hike would seem to be
popular policy. That does not make it a prudent policy.(Quinn) Politicians have used terms such
as poverty, unemployment, and inflation when talking about the minimum wage question. These
terms keep getting thrown around left and right as if we were all economists, and know all the
principles of economics. As a regular citizen, do we actually know what the effects of raising the
minimum wage is and how much it impacts us in the long run?, or are we blinded by the appeal
of more money handed to us, that we fail to look at the silver lining?. Raising the minimum wage
is an oversold proposal and a bad idea with negative consequences. Doing so would hurt our
economy, impact the labor market, and looking at Seattle we can see its effects and look for
alternatives.

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As I mention earlier, not all of us are economist who could understand all the terms of
economics, and how exactly raising the minimum wage would affect this. When looking at this
subject, one should take themselves out of the picture and not be biased. What is best for the
whole and not the individual person should be thought of. Also not everything is equal, and there
will be collateral damage. After all not everyone can have what they want, and majority of
people benefiting from one policy is better than a few benefiting from it and more suffering.
There biggest ammunition of pro-minimum wage raise position is that it will get people out of
poverty. This is a broad statement as where statistics show that only 2.7 percent of people in the
United States who work full-time in a minimum wage job, are actually in poverty (Quinn). If we
put a number on this, this would make up about 2.7 million of people in America out of the 318.9
million population. This seems like a lot of people, that we should raise the minimum wage to
help them out of poverty. But there is a cost. Raising the minimum wage would affect the
unemployment numbers in the united states, as of right now the unemployment rate is 5.6
percent which is 17.85 million people. Raising the minimum wage would take away
opportunities for the unemployed to get a job. This would discourage employers from hiring less
to keep up with the wage rate of the higher wages they have to pay. Like I mentioned above
earlier, there is always collateral damage. Is it fair or sensible to give the 2.7 percent of people
working minimum wage a raise, at the cost of taking away 5.7 percent of peoples opportunity to
get a job?(Dunkelberg) Also, Michigans minimum wage rate is $8.15 an hour. If a single person
worked full time in the whole year which is about 2000 hours, he would make about $16,300 that
whole year. Making this amount of money at the current minimum wage, actually places that
person well above the poverty line, since for a single person in Michigan to be considered in
poverty, that person would have to make less than $11,770(2015 Poverty Guidelines)

Pena 4
When we talk about inflation, it is the rise of prices to keep up with economy of a certain point
of time. A good example is from Forbes Magazine (Dunkelberg). If you think about a pizza
parlor selling 100 pizza a day for 360 days at $10 each. Total revenue of this place for that 360
days would be $360,000. Let us say that this pizza place has 10 employees earning minimum
wage at $7 an hour, working 2000 a year where it is about 8.3 hours in a 5-day work week, a
usual work week. This places the worker at $14,000 a year income, which is still not considered
in poverty, if he was single. This would put the pizza place costing them at about $140,000 a
year. Let us say that this pizza place has an expense of about $170,000 a year, this would cover
rent, utilities, equipment, supplies, depreciation, insurance, licenses, and food costs. If you add
this all up, this would leave a profit for the pizza place at $50,000 a year. Let us say, we raise the
minimum wage by $1 an hour for all the employees. This would add an additional $20,000 for
the same amount of labor to the labor costs. Leaving the company at a reduced profit of $30,000.
Which would actually place the owner of the pizza place in a poverty line if he was in a family of
6 (2015 Poverty Guidelines). Even if he did not have 6 people in his family, and did not end up
in the poverty line. He still would have had to lose that income from raising the minimum wage
that couldve been used to hire more workers. The impact to the inflation in this story, if all these
other factors aside; If we say he did not fired workers to cut cost, moved to a smaller and cheaper
facility, and lower quality of supplies. With these factors out of the way, this leaves the owner
with two options, to either close shop or raise the prices of his pizza to get back to his old profits.
This would raise prices to about $10.56 a pizza to get back to his old profits. An extra $0.56
Does not seem a lot, but if you do the math this would cost the rest of the population about
$20,000 a year in order to get 10 people out of poverty when they were not in poverty in the
first place.

Pena 5
A market is often described as a place or the act of exchanging of goods or services.
According to Tim Worstall of Forbes, Labor or Labor market is the same as any other good or
service. You raise the price of product, and less buyers are going to purchase it. And in this case
the minimum wage being the price, and the employer being the buyer. This not only, affects the
buyer (employer) from buying the good or service (worker), it also affects how they go about
into buying buy it. A minimum wage job is considered to be an entry-level position. These jobs
are open to people without much skill in the certain jobs, and even to minors that are of legal
working age. It is not supposed to be a career job. If the minimum wage is raised this would only
close opportunities from younger unskilled worker entering the job market. This occurs, because
as I mentioned, the price goes up the buyer changes the way it buy things. An employer would be
detracted from hiring someone unskilled trying to gain experience, when they can hire somebody
else with more experience for the same amount of money. If you think of it, if you are at a store
staring at a cheap grade chocolate bar compared to a Ferrero Rocher candy for the same price,
wouldnt you pick the better quality Ferrero Rocher? Same could be said about employers. When
it comes to the unskilled worker trying to get experience, these group of people get affected a lot
when it comes to the job market. Most people in minimum wage jobs are younger people
entering the job market, lessening the chances of them getting a job, takes away the job
experience they need. Most of this younger people are also students in school who rely on this
supplemental income. A study from the Cato Institute on minimum wage reveals the negative
effects on this younger generation (De Rugy). Some of these effects is that if minimum wage is
raised that it would take away the appeal of a student to continue on to school since they are
already getting paid more, with this it stops them from wanting to progress and want a career
above an entry-level position. This starts a domino effect, for it stops them from getting an

Pena 6
education to get a better job, which in turn closing opportunities for the next generation of
younger workers to take over those jobs one day. The study also shows that it have, and will
actually increase teenage crime rates due to higher unemployment. In an employer aspect of the
job market, the effects of raising the minimum wage could be catastrophic to both employer and
worker. Besides the job cuts, legal workers can be replaced with illegal immigrants. Although
illegal, this is a possibility and it is cheaper for them since they would not have to follow
standard wage practices and not have to offer benefits that are available for legal workers (De
Rugy). Replacing hired labor with alternatives is also a possibility. They can cut out having a
worker in general and replacing it with a machine to do the same job or even better. Imagine
going to McDonalds, and ordering into a touch screen instead of talking on a speaker box to
place your order. In the end you still get the same result for the same service. Someone might
argue, well how about when you have to pay for your order?, well this is already happening to
several industries including majority of supermarkets and shopping centers who implements selfcheckout isles in their store. Raising the minimum wage would only encourage this more. Money
is the biggest factor into the minimum wage debate. Besides the 2 biggest ways they can cut cost;
job cuts, and raising product prices, an employer could reduce and even take away employee
benefits they offer. Training that is given to employees could be reduced to cut costs, and in turn
affects a business service quality. For full-time employees, they can have significant loss of
hours they work and even get taken off full-time status and be placed on part time status. Next
time you think about the job market, you not only need to think about the employees who we
think need the extra pay, you need to think about how raising the minimum wage can affect a
whole system of supply and demand.

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So far, I have mentioned an economic look and a job market view of this issue. All the
information I had so far are from specialist in their field and statistics. But is it actually real or
are their predictions going to happen? I think it is safe to say it has happened and is currently
happening to the city of Seattle, Washington. As I talk about Seattle, and its current events, we
will be able to identify the effects that experts have predicted to what is happening. According to
Fox News, Seattle is passing a new law to raise its minimum wage to $15 an hour. This is done
in stages and this starts as of April 1, 2015 (Springer). By law employers have 7 years to work
their hourly wage up to $15 an hour if it is a business with less than 500 employees and 4 years
for a business with more than 500 employees. The rate of Seattles minimum wage before this
law was passed was at 9.47 an hour, which is higher than the national average. Since the law was
enacted most employers have raised to $11 an hour. One business called Ivars Salmon House
has skipped working their wages up to $15 an hour over time and immediately went to that rate.
The restaurant did not close because of this like a lot of other restaurants has in the area. But they
did raise their prices 21 percent. They even have a sign that says Tipping is no longer
necessarywe have changed the way we pay our employees (Worstall). As a higher end
restaurant their wages were higher than normal as it is. The servers at that place used to make
$27 an hour. To keep them from quitting, Ivars is now sharing their revenue with all workers.
This way the workers and bartenders make the same or more money. While the lower paying
jobs like dishwashers, busboys and cooks get a raise from the minimum wage increase. Of
course, all this is only possible if the business still makes money like it used to be, and customers
does not get discouraged from their new menu prices. Another business affected with this is a
local Subway fast-food franchise. They too have raised their wages to only $11 an hour, this
resulted to price increase of 4 percent. The two businesses I have just mentioned, are good

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examples of inflation due to the raise of minimum wage. Ivars Salmon house which is not even
really a traditional minimum wage job is also affected. It just shows how inflation due to
minimum wage increase affects everything.
A big argument about the Seattle situation, is that the opposition stating, that the rise in
minimum wage has not affected the unemployment rate of the area. It shows that the
unemployment rate has actually gone down. Well, this statement is true to a certain extent. First
off, the national unemployment levels of that time frame fell from 6.6 percent down to 5.6
percent. This national level affected the whole country, so naturally unemployment level in
Seattle was also affected (Worstall). And do note, that the time since the new minimum wage law
was enacted is not a substantial enough time to make or see a difference at these unemployment
rates.
In Seattle, it is not just the regular workers that are getting affected. Students, who are the
future of this country, gets a big impact against them also. According to Fox News, the
University of Washington have 39,000 and out of these are 2,600 student employees (Springer).
Officials have said that they have no funding to pay these 2,600 student workers the $11 an hour
rate that most employers have switched to since April 1, 2015. This not only affected the student
workers income, it has also caused chaos. Since then the student workers have protested, but as
for now has not seen any positive results. As a student I cannot imagine not losing an opportunity
to work for my school and earn money. I also cannot imagine losing services that my school has
to offer to cut down on cost to be able to keep up with the wage hike. The Seattle College
District not knowing how to continue on paying their workers higher wages, has explored other
alternatives. These alternatives include reduction in services, increasing prices/fees (inflation),

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and other programs such as fitness centers. All these events are currently going on in Seattle due
to the raise in their minimum wage.
If putting more money in peoples pocket is the main reasoning for raising the minimum
wage, there are other, safer alternatives. A different way to view giving more money to a worker
is increasing their take home pay (Ponnuru). Instead of giving them more money, politicians can
propose tax breaks or increase in earned income tax credit in order for a worker to have more
actual pay in their pocket. Another thing is employer raising their wages. According to Nola.com,
Wal-Mart has recently spent $1 billion this year in an effort to give their part-time employees a
set $9 an hour wage, and current employees $10 an hour (Alpert). This is set to be done by 2016.
This is a good incentive for employees, because a happy employee, is a more productive
employee. The only downside to this is that only big corporations like Wal-Mart can actually
afford to do something like this. Would this act also change the expectation of that employer and
set them to higher standard? But in the end this is still a healthier alternative than raising the
minimum wage nationally. Workers, would also be driven to seek jobs at their business and they
would in turn have a better pool of employees to pick from.
I have gone over all the aspects of raising the minimum wage. We have seen how it has a
negative impact on the economy by causing things like inflation and rising unemployment.
Poverty, the reason the raised is proposed in the first place is not as much of the population as it
is said. The job market gets affected by this raise in minimum wage; workers and employers
alike. And we saw with Seattle first hand its negative effects. Let us not ruin this country, and
learn from Seattle. Raising the minimum wage is an oversold proposal and a bad idea with
negative consequences.

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Works Cited

"2015 Poverty Guidelines." 2015 Poverty Guidelines. 2015. Web. 23 Apr. 2015.
<http://aspe.hhs.gov/poverty/15poverty.cfm>.
Alpert, Bruce. "Wal-Mart's Increase in Pay Spurs New Debate on Minimum Wage." TimesPicayune. Nola, 19 Feb. 2015. Web. 23 Apr. 2015.
http://www.nola.com/politics/index.ssf/2015/02/walmarts_increase_in_wages_spu.html
Dunkelberg, William. "Why Raising The Minimum Wage Kills Jobs." Forbes. Forbes Magazine,
31 Dec. 2012. Web. 23 Apr. 2015.
<http://www.forbes.com/sites/williamdunkelberg/2012/12/31/why-raising-the-minimumwage-kills-jobs/>.
Ponnuru, Ramesh. "Raising the Minimum Wage Is Still a Bad Idea." BloombergView.com.
Bloomberg, 18 Feb. 2014. Web. 23 Apr. 2015.
<http://www.bloombergview.com/articles/2014-02-18/raising-the-minimum-wage-is-stilla-bad-idea>.
Quinn, Andrew. "The Last Thing We Should Do Right Now Is Raise The Minimum
Wage." The Federalist. Federalist, 28 Oct. 2014. Web. 23 Apr. 2015.
<http://thefederalist.com/2014/10/28/the-last-thing-we-should-do-right-nowis-raise-the-minimum-wage/>..
Springer, Dan. "Seattle Minimum Wage Increase Takes Effect and Eating out Gets
More Expensive." Fox News. FOX News Network, 2 Apr. 2015. Web. 23 Apr.
2015. <http://www.foxnews.com/politics/2015/04/02/seattle-minimum-wageincrease-takes-effect-for-tens-thousands-workers/>.

Pena 11
"Wage and Hour Division (WHD)." Minimum Wage Laws in the States. U.S.
Department of Labor, 2015. Web. 23 Apr. 2015.
<http://www.dol.gov/whd/minwage/america.htm>.

Worstall, Tim. "We Are Seeing The Effects Of Seattle's $15 An Hour Minimum Wage."
Forbes. Forbes Magazine, 16 Mar. 2015. Web. 23 Apr. 2015.
<http://www.forbes.com/sites/timworstall/2015/03/16/we-are-seeing-theeffects-of-seattles-15-an-hour-minimum-wage/>.
De Rugy, Veronique. "Raising the Minimum Wage: A Tired, Bad Proposal." National
Review Online. National Review, 13 Feb. 2013. Web. 23 Apr. 2015.
<http://www.nationalreview.com/corner/340644/raising-minimum-wage-tiredbad-proposal-veronique-de-rugy>.

Pena 12

Outline
Aaron Pena
ENG 112
Professor Monika Ehrlich
April 23, 2015
Raising the Minimum Wage:
An Oversold Idea
Thesis: Raising the minimum wage is an oversold proposal and a bad idea with negative
consequences. Doing so would hurt our economy, impact the labor market, and looking at Seattle
we can see its effects and look for alternatives.
I. How it hurts the economy
a. Economist view
b. Effects on the economy
II. Impact on the labor market
a. Explain concept of labor market
b. Effects on the labor market
III. Seattle as an example and alternatives
a. Current effects on Seattle
b. Alternatives
Conclusion: Restate thesis and summarize key points
Works Cited