Essay The Effects of a Change in the Minimum Wage

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The Effects of a Change in the Minimum Wage


In 1938, the Fair Labor Standards Act was passed and ever since, the United States has required that all firms that do at least $500,000 worth of business per year pay their workers a minimum wage (“Handy” n.pag.). Because it affects so many workers in so many different aspects of the economy, the minimum wage plays a big part in the cost of labor and how firms deal with those costs. A change in the minimum wage, which would seemingly affect only workers, can actually be felt sometimes all the way down to the consumer, who might end up paying for it in the end—unless the firm finds another way to pay for the mandatory raise for all its workers, such as a decrease in its workforce or a
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Restaurant employment, however, felt no significant minimum wage effects, even though it is generally low-wage in nature. “A possible explanation for this outcome is the credit given to tipped employees that effectively reduces their minimum wage” (Partridge and Partridge n.pag.). So the anit-poverty effect of minimum wage is felt depending on what side you are on. If you lose your job you could fall deeper into poverty, but if you get to keep your job a rising minimum wage could help pull you out of poverty.

Going along with that, it cannot be ignored that some states nearly always set their minimum wages above the federal level, and by the late 1980s, over one quarter of the states had a minimum wage higher than the federal mandate (Neumark and Wascher n.pag.). This almost makes changing the minimum wage a political issue rather than an economic one. Mark and Jamie Partridge explain how policy makers would have to consider the long-term effects of such a change:

...when state policymakers consider raising their minimum wage, they should be aware of the possibility that both firms and households can migrate to other states. Thus, state employment may suffer more as a result of a state minimum wage hike than for a federal minimum wage hike. These results, however, do not…

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