In: Economics
Consumers, you and your families, power the United States economy. What happens now that the wage gains are starting to drop off?
When the U.S. first set a minimum wage through the 1938 Fair Labor Standards Act, the hourly rate was 25 cents. Previously, people facing up to 25% unemployment were desperate for work during the Great Depression, and employers could take advantage of it and pay very little. Employers will continue to pay less and less without a wage floor, reducing consumer purchasing power that would make less money, Cooper said. Then the minimum wage aims to minimize the power imbalance between employers and low-wage workers.
While cities, unions and activists are calling for a higher minimum wage to reduce poverty, most business leaders are pushing back out of concern that their industries will prosper when it comes to increasing the cost of payroll. Low-wage workers today, compared to their counterparts of decades ago, are more skilled, more productive, the economic footprint has grown tremendously, but these low-wage workers are doing less today than comparable workers have done decades ago.
While some employers cut jobs as a result of an increase in the minimum wage, some consider that a higher wage floor helps them to fill their positions and minimize turnover, which increases wages, even if they eat in their income. The net effect of all this, as found in most minimum wage research over the last quarter century, is that if it is set at a moderate level, the minimum wage has little or no impact on employment.
Of course, business leaders who hope to keep their operating costs low are likely to oppose a minimum wage increase, but Cooper said this is because they don't look at the broader picture of the market. Workers have increased their purchasing power with fatter paychecks, thus benefiting businesses. And with a rise in the federal minimum wage, it affects more than just one business; all other companies with different worker makeups will face similar changes to their payrolls.