Essay on The Minimum Wage Should Be Increased

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Congress enacted the federal minimum wage in 1938, during the Great Depression. Congress had two goals; keeping workers away from poverty and boosting consumer spending for economic recovery. Today, there is a debate, whether we should increase the minimum wage again. Increasing the minimum wage is useful for several reasons. First, the current minimum wage has failed to keep up with inflation. Second, a higher income level reduces employee turnover and increases efficiency and ultimately, raising the minimum wage does not reduce employment. Even with high unemployment rates, the minimum wage is useful for the economy.

Today "the federal minimum wage" is $7.25 per hour since July 24, 2009. It has failed to keep up with inflation. The
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Economists explain this connection with efficiency wage theory. The theory implies that higher wages motivate workers to work harder and increase their incomes to enable them to eat well and become healthier. Increasing the minimum wage thus will increase productivity and demand for labor. A recent study by Andreas Georgiadis (2008) supported this view. In the study, Georgiadis states “estimation results suggest that higher wage costs were more than offset by lower monitoring costs, and thus the overall evidence implies that the national minimum wage may have operated as an Efficiency Wage.”

These policies also encourage employers to increase training investments. Economists Daron Acemoglu and Jörn‐Steffen Pischke showed in their study (1999) that compression in the structure of wages can cause firm-sponsored training. They concluded “When the wage structure is distorted away from the competitive benchmark and in favor of less skilled workers, firms may want to invest in the general skills of their employees” In their research, in 2001, they also state “In noncompetitive labor markets, minimum wages tend to increase training of affected workers because they induce firms to train their unskilled employees.”

Opponents to minimum wage raise claim that the minimum wage costs jobs by pricing low-wage workers out of the labor market. However, when we review academic studies that examine the effects of minimum wage increases on

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