Minimum Wage

Topics: Minimum wage, Economics, Employment Pages: 5 (1680 words) Published: April 21, 2014
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 the minimum wage. The Massachusetts Minimum Wage

On March 13 of this year, House Speaker Robert DeLeo proposed a bill to incrementally raise the current state minimum wage in Massachusetts from $8 to $10.50 by the middle of 2016. 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 section will examine the applicable economic implications of adjusting the minimum wage.

The Economics of Minimum Wage
The topic of minimum wages and its subsequent effects has been a widely debated topics in economics for centuries. Neoclassical theory suggests that when a mandated minimum wage increase is greater than the market-clearing wage, firms will reduce the quantity of labor demand, resulting in a reluctance to fill job vacancies, accompanied with a change in employment levels and subsequent increases in unemployment. This change in the quantity of labor demanded is contingent upon the magnitude of wage increases and the wage elasticity of demand within a specific industry. Ultimately, there will be workers who benefit from wage increases and consequently, workers that are negatively affected via the loss of employment. The latter workers are those whose marginal revenue product of labor no longer exceed their marginal expense of labor. In other words, wage gains of those who keep their jobs is offset by the wage losses of those who lose their jobs (Leonard).

As economic theory would state, in monopsonistic industry, firms tend to exercise their market power and pay employees a wage that is less than their marginal revenue product of labor. 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...

References: (APA Format)
Hassett, K. (2013, March 13). Why we shouldn 't raise the minimum wage. Los Angeles Times . Retrieved from
Leonard, T. (n.d.). The very idea of applying economics: The modern minimum-wage controversy and its antecedents. Informally published manuscript, Princeton Department of Economics, Princeton University, Princeton, NJ, Retrieved from
Linksey, A., & Hunter, K. (2014, March 17). Chance of wage rise so remote lobbyists pay little heed.Bloomberg. Retrieved from
Miller, J. (2014, March 13). Deleo proposes raising minimum wage to $10.50, brightening prospects of a boost. The Boston Globe. Retrieved from
Shumlin, P., & Malloy, D. (2014, March 5). No brainer: Three reasons why a $10.10 minimum wage is good for america. CNN News. Retrieved from
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