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Name 1 Name Class Professor Date Raising the Minimum Wage Despite Modern Misconceptions

The classic argument against raising minimum wage is a competitive economic model, the basic economic model that misconstrues the important and detrimental aspects of the modern economy and the greed that is employed by large corporations and their prime investors. The perversion of the model funnels many that are less informed on how economics and ethics work into holding on to the false belief that minimum wage is an elitist motive disguised as a liberal and humanitarian idea that actually destroys the opportunities of the less accredited, mostly citing detriments to the polar extremes of the labor market, the young and the elderly demographics, who would supposedly be willing to work for less cash than employers are willing to pay them with a minimum wage standard as they will lose too much profit from employing and buying their unskilled services. This is a false assumption. There are many complicated factors that contribute to any change in base and required pay. While there may be some adverse effect to small business owners, when appropriate measures such as wage increase that is modest and adjusted to fluctuate with inflation, "wage compression" or decrease in wage of higher earners, and small price increases are taken, raising the minimum wage causes zero or statistically insignificant fluctuations in the job market when applied to corporate monopolies like McDonalds. The basic competitive model of the potentially adverse effect of minimum wage is displayed on the left (Wilson). The independent

Name 2 variable is represented with Employment, and the dependent variable is the Wage Rate. Line DD is the Market Demand curve. When wages are higher, the demand for the labor at those costs decrease, and when the wage is low, the employer will happily hire more employees at a slavish expense, which creates a negative correlation in this model. SS is the Market Supply curve. When the wage is low, there will not be many people willing to pimp their labors out for such nominal prices. As wage increases, there is much more competition for the position to be filled, thus producing a positive correlation in the graph. Wc is the competitive wage and Ec is the competitive employment, where the demand for labor and supply of workers in terms of wages creates an equilibrium. When minimum wage is theoretically increased to Wm in this model of interpretation and market prediction, the employment at point A is lowered, represented by line Em where the new demand and supply cross on the Market Demand curve, and also causes an excess supply of laborers (BC) that is larger than the demand for laborers represented by line AC. The excess supply of laborers supposedly decreases the number of hours available to work and the number of jobs offered (AB). This type of study and critique or the economic effect of raising minimum wage is what influenced Neumark and Wascher's research to presume that "...the preponderance of evidence supports the view that minimum wages reduce the employment of low-wage workers" (104). Since this study, economist have been at a bipartisan divide between whether or not minimum wage truly effects employment, though it seems that recent research supports the position that there is no adverse effects of minimum wage increase under controlled circumstances. Paul Wolfson and Dale Belman conducted a meta-

Name 3 analysis (left) of publications from economists on the debate since 2000, rating different studies by their variations in rigorous methodologies, concluding that, "The largest in magnitude are... positive [and] statistically significant... Several are economically irrelevant though statistically significant and several others [are] slightly larger but...statistically insignificant" (10) in term of employment. How could it be that the abundance of recent studies all show zero to statistically irrelevant changes in employment, when the competitive model tends to argue otherwise? According to John Schmitt, If the only channel of adjustment available is employment, the competitive model implies that binding minimum wages will reduce employment. But, the existence of other possible channels of adjustment means that minimum wages could have little or no effect on employment, even within a standard competitive vision of the labor market, such as minor adjustments to pricings, minimal enough to not discourage the consumer, possible slashes or reductions to non-wage benefits, shifts in the composition of employment and minor wage equalization to those who make above the minimum (Schmitt 12). The antiquarian competition model fails to predict trends outside of its simplistic economic standards. Productivity and value of increased will to provide higher quality labor has the potential to rise dramatically when employees are offered a wage that they can support themselves on in a modern age. In a data brief in July 2012 by the National Employment Law Project, Big Business, Corporate Profit, and the Minimum Wage, the current wage of $7.25 in terms of purchasing power, has a value that is 30 percent lower today than it was in 1968 (1), while large corporations are reporting record profits in 2011 at a combined $1.97 trillion (Reilly). If the minimum wage were increased, big businesses like McDonalds could see employees efficacy rise to reorganize and restructure work environments to produce higher performance

Name 4 standards from the increased motivation from employees due to the want to keep their jobs or the reciprocity of the increased pay, and greater work intensity as well (Schmitt, 12). The competitive model also assumes that the workplace is operating at its greatest efficiency with perfection, having no room for improvement because it is too costly to implement new strategies and maintain practices that continually maximize efficiency (Kaufman 3). Another important factor in the increase of the minimum wage is that it gives more spending power to the low wage workers, increasing the economic stimuli and potentially offsetting the wage increase, though not entirely. As big companies like McDonalds increase their base pay, economists generally recognize that low-wage workers are more likely than any other income group to spend any extra earnings immediately on previously unaffordable basic needs or services (Hall, 7), increasing their profit in the industry through a direct correlation with the increase in wage. When looking at the statistics of how previous wage increases have affected companies, we find a very minimal increase to the overall increase in how much a large corporation would spend in the actual increase of the percentage that a bill passes. In 2009, the minimum wage was increased to $7.25, a 10.7% increase from 2008s $6.55 minimum wage. The bill for the wage increase was 1.9 billion dollars a year through a pool of roughly 2,407,638 people, with the total sum being 34.5 billion, only a 0.03% increase in the total wage bill for all companies affected by the bill. According to Schmitt, relative to the total wage costs in the economy (that is including the wages of all employees, not just those earning the minimum wage), the wages costs of recent minimum-wage increases are very small (15). The offset in the wage bill that raising the minimum wage would create can be dealt with through multiple facets, and is not that incredibly complex. There are many regulations that can be established to ensure financial security that have been thoroughly tested and proven effective.

Name 5 Of these many possible channels, it is likely that a couple may be implemented, but the benefit of raising the wage seems to outweigh the costs greatly. Since raising the minimum wage does not increase the cost of hiring new workers, and instead raises the costs per hour of work, many managers would opt to decrease the number of hours worked by low-wage employees, instead of decreasing the amount of workers on payroll (Michl 4). Even in a competitive framework market, the standard of living may increase for minimum wage employees even with decreased hours. If minimum wage were increased 20% and an employer decreased the number of hours worked by 10%, an employee who was working 20 hours a week, now works 18 yet experiences an 8% increase in his pay. Even if the hourly cut was so large as to exactly offset the increase in wage, their standard of living would not decrease until their hours were cut steeper than their rise in wage, and in the evidence deduced by Dube, Lester, and Reich, the fall in hours is unlikely to be large" (956). Employers may also respond to an increase in minimum wage by cutting or reducing nonwage benefits. In relation to a company like McDonalds, there was usually no cut in the most common nonwage benefits offered, such as free or low priced meals (Card and Krueger 10). Raising the minimum wage usually has no effects on nonwage benefits, with Simon and Kaestner reporting that minimum wage has had no discernible effect on fringe benefits (specifically, on the receipt of health insurance, on whether the employer paid the whole premium cost, on whether family health insurance was provided, and on receipt of employer pensions)" (67), though it is a possible response to the wage bill increase. Upgrading the level of skill required for the job with a new minimum wage would allow employers to receive more skilled laborers to increase the yield of productivity from the same job offered at a lower wage, which would seemingly be at a disadvantage to the youth, the

Name 6 uneducated, and minorities, unfortunately. Allagretto, Dube, and Reich conducted their own study covering the employment effect of wage increase on white, black, and Hispanic teens from 1999 through 2007, however, finding that through three recessions and three minimum wage increases, there was no statistically significant effect on employment for teens or any of the three ethnic groups separately (228). Using a similar methodology, Dube, Lester and Reich also concluded in 2012 that there was no evidence to support a change in the restaurant sectors composition in terms of gender or age makeup due to increased minimum wage. In a purely competitive model, economic theory predicts that at least a portion of the increased wage will be passed on to the consumers, resulting in a price increase for merchandise. Sara Lemos reviewed more than 30 academic papers on the price effects of minimum wage, and found that a 10% US minimum wage increase raises food prices by no more than 4% and overall prices by no more than 0.4%" (208), effectively increasing the wage of employees and the price of products without a bid impact on the job market or inflation. The pricings of the food industries with a high share of low-wage workers such as McDonalds would be likely to experience prices that increase only slightly, and Lemos, Aaronson, French, and MacDonald confirm in their studies that a 10 percent increase in the minimum wage increases prices by roughly 0.7 percent" (542). Wage compression would be a huge catalyst for the increase in pay for minimum wage earners in a business like McDonalds, as the top executive makes $4.1 million a year in compensation alone, $6 billion in dividends and share buybacks, and about $2,000 an hour in compensation (NELP). In the wake of a federally mandated minimum wage increase, the unequivocally and inequitably rich executives could distribute even a fraction of their wealth to help diminish the gap in profit. Corporations can delay or limit pay raise and bonuses for the

Name 7 more experienced workers who make well above the minimum wage without any detriment to their standard of living. Taking a reduction in profit for a company may also be a minor solution to an increase in minimum wage, but there is curiously a lack of any research on the effects of this medium of adjustment, because it is unlikely to happen. Big companies often only make about 1% in profit, but that profit margin is gigantic. Since the recession of 08, McDonalds has not only recovered from the financial catastrophe, but are now posting record breaking profits. McDonalds employs almost a million low-wage workers, and yet their top executive makes over 4 million a year in compensation alone. If they are comfortable with supporting this elitist agenda for perpetuating classism, I doubt there would be any way they would dive into their profits to give to their struggling employees, sadly. When using a basic competitive model to decode if raising the minimum wage is a benefit to companies or not, the answer seems obvious. But life is never as simple as a small graph. There are many options that employers have when facing federal mandate for increased wages and the financial backlash it may cause. When looking at things statistically though, the increase is rather modest compared to the expenses paid to the upper echelon who still often receive huge bonuses and pay increases with no debate as to their effects on the economy and company as a whole. McDonalds and other huge corporations simply refuse to pay attention to the needs of those who are less fortunate and undereducated, taking advantage of them at even turn possible, and lobby against pay reformation. If the minimum were raised and tacked to vary with inflation, large companies could easily restructure their monetary systems to reach equilibrium with record breaking profits in the hundreds of millions. It may be harder for smaller businesses to make some of these changes, which raises the question of perhaps not making the

Name 8 minimum wage apply to them and perhaps only be applicable to companies that make a certain amount of profit or employ a certain percentage of low-wage employees. At any rate, the standard of living is changing with increased bills, and yet wage remains stagnant. This essay describes only in brief some of the possible ways that large corporate monopolies could easily implement and keep up with a wage increase, but I fear greed may never truly let the seemingly oppressed live in peace.

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Works Cited Daniel Aaronson, Eric French, and James MacDonald, "The Minimum Wage, Restaurant Prices, and Labor Market Structure" Federal Reserve Bank of Chicago, 2004. Web. Nov. 2013. Card, David and Alan Krueger. 1994. "Minimum Wages and Employment: A Case Study of the Fast-Food Industry in New Jersey and Pennsylvania." American Economic Review 48.4 (1994): 772-793. Web. Nov. 2013. David Reilly, U.S. Tax Haul Trails Profit Surge, Wall Street Journal, Jan. 4, 2012. Web. Nov. 2013 Doucouliagos, Hristos and T. D. Stanley. "Publication Selection Bias in Minimum-Wage Research? A Meta-Regression Analysis." British Journal of Industrial Relations 47.2 (2009): 406-428. Nov. 2013 Dube, Arindrajit, T. William Lester, and Michael Reich. "Minimum Wage Effects Across State Borders: Estimates Using Contiguous Counties." Review of Economics and Statistics 92.4 (2010): 945-964. Web. Nov. 2013. Hall, Doug and David Cooper. "How raising the federal minimum wage would help working families and give the economy a boost." Washington, DC: Economic Policy Institute Issue Brief 341. 2012. Web. Nov. 2013. Kaufman, Bruce E. "Institutional Economics and the Minimum Wage: Broadening the Theoretical and Policy Debate." Industrial and Labor Relations Review 63.3 (2010): 427453. Web. Nov. 2013. Lemos, Sara. "A Survey of the Effects of the Minimum Wage on Prices." Journal of Economic Surveys 22.1 (2008): 187-212. Web. Nov. 2013. Michl, Thomas R. "Can Rescheduling Explain the New Jersey Minimum Wage Studies?" Eastern Economic Journal 26.3 (2008): 265-277. Web. Nov. 2013. National Employment Law Project. Big Business, Corporate Profits, and the Minimum Wage. July. 2012. Web. Nov. 2013 Neumark, David and William Wascher. Minimum Wages. Cambridge, MA: The MIT Press, 2008. Web. Nov. 2013. Schmitt, John. Why Does the Minimum Wage Have No Discernible Effect on Employment. Center for Economic and Policy Research. Feb. 2013. Web. Nov. 2013

Name 10 Wilson, Mark. Downsizing Government: The Negative Effect of Minimum Wage Law. Cato Institute, 2013. Web. Nov. 2013 Wolfson, Paul and Dale Belman. What Does the Minimum Wage Do? Upjohn Institute for Employment Research. 2013. Web. Nov. 2013