Home > A3 > Minimum wage: Raise or Abolish?

Minimum wage: Raise or Abolish?

In the passed months , the Obama administration has fought to raise the federal minimum wage above its current level. There are many people who support this and are extremely curious how much longer it will take until it has passed. What has perplexed my interest is what economists have to say about the minimum wage. In my government and economics course we had a brief period discussing over why price floors are destructive to the efficiency of production.

When the government raises price floors. They are intended to increase the money in workers pocketbooks. This in turn gives them more money to be spent elsewhere. Unfortunately, that is not the case, rather than creating a profitable working class it creates one that struggles to find employment. If the price floor is higher than equilibrium, then we find ourselves and excess in supply. Meaning that employers demand less workers because they are at a higher price. In fact, if the Obama administration gets the minimum wage at $9.40, there will be an estimated of 450,000 jobs lost. This will cause a huge hit to our finally stable employment.

Although it is probably best to keep the minimum wage where it is, there are some who want it gone for good. After all, companies are not just competing for customers, but for employees too. If you are a worker, you will go with the company that offers you the best deal. So in a way, the market also affects wages. Just as I mentioned earlier, if the minimum wage increases, you will most likely see unemployment rise. That is a sign that the market wants labor at a lower price. So naturally workers will accept a lower price so he could be employed. This will push the market back to equilibrium, and have the economy operating at maximum efficiency.

Another way to understand the effect of excess in demand is America’s college situation. We have such a large number of graduates seeking to enroll in college, yet they cannot make it because they are not the most qualified. This has caused ACT and SAT scores to rise astronomically. There are now so many students ready for college that there are not enough students to fill their place. With the standard of admittance rising, the lower income families who cant afford to send their kids to fancier schools so they can get a better chance at admittance. All this happened because there were more students ready for college than spots available.

Our economics course really opened my eyes. I understood the fact that government intervention is best when it is as little as possible, but I never understood why. Perhaps the reason why Obama and most of america wants a higher minimum wage is to give a pat on the back to those who work hard and receive little. But what they don’t understand, is that if they really want to help the workers. They should not raise the minimum wage.

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  1. April 24, 2013 at 2:14 pm

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