Thursday, March 31, 2005

Don't Raise The Minimum Wage (a paper for ENG-118)

A debate rears its ugly head every few years over the minimum wage workers can receive for hourly compensation. Recently, Democrats in Lansing have once again brought this issue to the forefront. Many times a politician will bring this issue up to try and make the community feel bad for unskilled laborers that make minimum wage. The main question is whether raising the minimum wage helps or hurts people. A bill to raise the minimum wage in Michigan is “feel-good” legislation and will, in the long run, hurt Michigan workers far more than it helps.

Minimum wage laws got their start in 1921, in Australia and New Zealand. The idea spread to America in 1930, when the federal government enacted the first law, and the minimum wage was set at $0.25 per hour. Since then, the amount of compensation has been periodically raised to its current rate of $5.15 per hour. Throughout the history of minimum wage, the Democratic Party has shown themselves to be one of minimum wage’s biggest advocates. According to the U.S. Department of Labor, as Bailey (2005) states, only about three percent of Americans earn minimum wage. This translates to about 88,000 people in the state of Michigan, and of these 88,000 people, approximately half are in the age group of 16–24 years (paragraph 10).

Democrats in the Michigan House of Representatives, according to Bailey (2005), have recently proposed a bill that would systematically raise minimum wage from its current rate of $5.15 an hour, to $7.15 per hour over the next two years. The Democrat’s plan is to increase minimum wage by $0.75 in July 2005, and by the same amount again in January 2006. Finally, they propose a $0.50 raise in minimum wage in January 2007, bringing the minimum wage amount to $7.15. After the initial raise to $7.15, the Democrat’s plan is to link minimum wage to the inflationary rates, so legislation will not be needed for future hikes (paragraphs 1, 2 and 3). One of the reasons for this proposed legislation is stated by Michigan State Senate Democratic leader Bob Emerson, “In today’s market, hard working men and women in our state are struggling to make ends meet because their earnings have failed to keep up with inflation,” as is stated in House, Senate (2005).

The federal government currently sets the minimum wage. Proponents of legislation to raise minimum wages cite fifteen other states that have raised wages, over that of what the federal government requires. House Democratic leader, Dianne Byrum, said recently in House, Senate (2005), “We need to do the right thing in Michigan for working families.” She went on to say in the article, “We need to stand up for them by demanding a fair wage for a hard days work so they can support their families” (paragraph 2). According to the Michigan Democratic Caucus’s website, Michigan’s minimum wage has failed to keep up with inflation since the 1960’s, as stated in Raise the wage (2005). The Democratic Caucus has also stated that in today’s dollars, the minimum amount received for hourly wages is not enough to survive on with today’s cost of living (paragraph 1). They believe that today’s amounts would only be enough to survive if the worker was living in the year 1950, according to DeFrank (2005). Democratic leaders believe that this issue is a fairness issue, as House, Senate (2005) states, “. . . and unless someone speaks up for the little guy, the little guy will not be able to survive” (paragraph 2).

With every political issue there are two sides, and the minimum wage issue is no exception. Opponents of raising the minimum wage are just as vocal as the proponents. Those advocating raising the minimum wage mainly claim to side with the people receiving the low pay – the workers. Opponents of this issue tend to side with businesses, and believe that raising minimum wage would do more harm to the state’s economy than good. Opponents also believe that their position also helps the workers, because by helping businesses lower costs, it will in turn allow the business to hire more employees. Therefore, when more people are earning an income and prices are lowered, everyone benefits.

The Michigan Chamber of Commerce, which represents more than 65,000 employers, trade associations, and local chambers of commerce, recently stated in Michigan Chamber (2005) that, “Raising the state’s minimum wage will increase the cost of doing business in Michigan and reduce low skill, low paying jobs” (paragraph 1). The Michigan Chamber of Commerce is not the only Chamber of Commerce that opposes raising the minimum wage in Michigan. Detroit Regional (2004) states that according to a recent Detroit Regional Chamber of Commerce survey, most small businesses in Detroit already pay over the federally mandated minimum wage amount. The survey also shows that the region’s small businesses are planning to expand employment over the next six to twelve months. The CEO of the Detroit Regional Chamber of Commerce, Richard E. Blouse, says, “An increase in the minimum wage rates will hit small businesses disproportionately. ” He also says that, “This will limit, if not eliminate their ability to expand.” Mr. Blouse is also concerned that if this legislation were to be passed, it would increase the number of people seeking unemployment benefits (paragraphs 1, 2 and 3).

Michigan Republicans side with local Chambers of Commerce in opposing the new minimum wage hike proposal. According to Bailey (2005), the Republican House Speaker, Craig Deroche, is concerned that the proposal will destroy any chance of additional jobs being created in Michigan. According to the Associated Press article entitled, “Dems Want To Raise Hourly Minimum Wage to $7.15 Over Two Years,” Mr. Deroche said in a written statement that, “Raising the minimum wage, especially during a job crisis makes it harder to pay workers and even harder to hire new workers.” Later in his statement he wrote, “We already have the second highest unemployment rate in America, and we can’t be No. 1” (paragraphs 7 and 8).

With all of the controversy over raising the minimum wage in Michigan, who is right? The truth is something that has been alluded to by both sides, but not accurately portrayed. The subject of a mandatory minimum wage has been studied and debated by experts ever since its inception. The truth is, in West Michigan the average worker, according to the U.S. Department of Labor, as set forth in Crawford (2005), receives an hourly wage of $12.26, and a blue-collar worker does slightly better, earning an average of $15.83 per hour. Most of the workers earning minimum wage are under 24 years of age, and working in entry-level positions or part-time jobs to help offset the cost of their education (paragraphs 8 and 9). Massanori Hashimoto, Professor and Chairman of the Department of Economics at Ohio State University, estimates that for every 28% increase (which the proposed $2.00 per hour hike in the minimum wage would amount to), 2.7 to 15% of on-the-job training decreases, as stated in Gorman (n.d.). This decrease hinders all entry-level personnel from moving up in a company. Hashimoto also estimates that for every ten percent increase in the minimum wage, businesses lower their teenage employment by one to three percent (paragraphs 9 and 10). This hurts those part-time employees who are trying to offset rising costs of education.

Another truth, as stated in Gorman (n.d.), is that Hashimoto has found that only eight percent of those earning minimum wage in Michigan, are trying to support a family. With the U.S. Department of Labor’s estimate of 88,000 people earning minimum wage in Michigan, the total number of people attempting to support their family while earning minimum wage is only approximately 7,040 people. Proponents believe these 7,040 people would be helped with an increase in minimum wage, but the truth is that the help would only be short-lived. According to Alesse and Guilbualt (2004), Michigan State University found that when wages are increased, more teenagers leave school, displacing lower-skilled workers, making it harder for them to earn enough money to raise a family (paragraph 6).

Yet another truth, according to Henderson (1998), is that Fortune Magazine cited a study published by the National Bureau of Economic Research in Cambridge, Massachusetts, finding that the more the minimum wage is increased, a higher the number of people sink below the poverty line. In this study, it was found that, on average, each time minimum wage was increased, 4.5% more people fall beneath the poverty line (paragraph 4).

Perhaps the most important truth is that when minimum wages are increased, businesses suffer in a multitude of ways. Workers Compensation insurance, unemployment insurance and social security taxes are just some cost increases that are linked to the amount of money each employee makes. It is stated in Alesse and Guilbualt (2004), that for a small business with ten employees, it is estimated that a wage increase of $1.60 per hour will cost the company approximately $30,000 per year. With most small businesses running close margins of profit to stay competitive, this money has to come from somewhere. History has shown that this money comes from three major areas: first, fewer benefits can be paid such as vacations, overtime pay and health insurance; second, the money can come from employee layoffs or less hiring; and third - the solution most commonly used by small businesses - is they can raise the price of the goods they produce (paragraph 8).

The battle about minimum wage hikes will continue, especially among politicians. What must be remembered is that just because something feels good, or evokes an emotion, does not necessarily make it the right thing to do. Politicians, and the people who vote for them, need to remember that feel-good legislation, such as raising the minimum wage, might help initially; however, it will hurt far more people in the long run. If this were not true, the Federal government could set the minimum wage at $10 or even $100 per hour! This would certainly look good in the worker’s first paycheck, but when they arrived at the supermarket, that paycheck would not pay for any more than it did before, perhaps even less.


At 31 March, 2005 14:51, Blogger Howard said...

Many, many minimum wage jobs are available simply because no us citizen can live on what they offer..Illegals can live on this salary because they qualify for additional free services from state and federal governments. I'll not try to name them as many people would not believe it anyway..congress brought most of this about by allowing businesses to shortchange workers on hours to make them enelgible for benefits (if you are a US citizen) Iget tired of hearing that the illegals take the jobs that our own citizens won't do when in reality they cannot afford to..

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