Minimum Wage Debate

During 2014’s annual State of the Union address, President Obama aggressively addressed the age-old debate of raising the minimum wage. The President has urged legislators to raise the federal minimum wage to $10.10 per hour to fight the ongoing battle of class inequality. Subsequently, Massachusetts legislators proposed a bill that would incrementally raise the state minimum wage to $10.50 over the next two years just weeks after the President’s address. The prospects of this proposed legislation have left workers and liberals alike in Massachusetts rejoicing while employers and conservatives (all five of them) have balked at the bill. The following paper looks to examine this proposed bill and accompanying arguments for and against raising
Unlike the proposed federal legislation, however, the new minimum wage in Massachusetts would not be tied to future increases in inflation. The bill entails an increase in wages to $9 in July of 2014, followed by an increase to $10 in 2015, and ultimately, an increase to $10.50 by mid-2016. This proposal, however, is not a new concept in Massachusetts by any means. In November of 2013, the state Senate passed a bill that would raise the minimum wage to $11, but the bill collapsed after it was left unaddressed in the state House of Representatives. Despite recent setbacks, Massachusetts legislators are confident that this new proposal will be passed into law this time around. The most recent proposed legislation regarding minimum wage has accompanying reforms that aim to offset the associated costs of raising the minimum wage for employers. These reforms include reducing the tax burden employers bear through reforming the state’s unemployment insurance and shielding employers from short-term fluctuations in employment trends. Despite these reforms, business leaders and conservatives still have exhibited opposition to the bill. Opponents to the proposed bill believe that there are major disparities in attempting to balance unemployment reform and minimum wage (Miller, 2014). The next
Therefore, in practice, an efficient minimum wage that can increase both employment and efficiency should be set between the monopsony wage and the employees’ marginal revenue product of labor, similar to the implications of economic price theory (This is based off the assumption that firms are profit-maximizers). In reality, however, price theory differs from labor economic theory; therefore, this ideal minimum wage is rarely used in the real-world. Princeton economist Thomas Leonard concluded that raising minimum wages has minimal effects in poverty reduction or progressive income redistribution (i.e. closing the gap between the wealthy and the poor), thus failing to meet the primary objectives of a higher minimum wage. Leonard does, however, suggest three ways that the goals of minimum wage can be attained. First, to offset the costs associated with a raise in minimum wages, employers can reduce non-monetary compensation, such as health benefits, resulting in no effects of unemployment. Additionally, employers can reduce the hours the hours of their employees rather than employment levels to combat the associated costs of raising the minimum wage. Lastly, Leonard observed that the affected workers of a raised minimum wage already have significantly volatile employment patterns;