TITLE:
Analyzing the Socio-Economic Impacts of the US Federal Minimum Wage
AUTHORS:
Zhaolu Wang
KEYWORDS:
Minimum Wage, Federal Minimum Wage, Unemployment, Poverty, Inflation, Real Wages, Income Inequality, Freedom of Contract, Trade Unions, Workers’ Rights
JOURNAL NAME:
Modern Economy,
Vol.13 No.10,
October
31,
2022
ABSTRACT: With United States president Joe Biden announcing plans to raise the
federal minimum wage to $15 an hour,
conversations surrounding minimum wage laws
have resurfaced yet again as businesses and policymakers look to get ahead of its effects on the economy. This
paper will analyze the economic and social impacts of the US federal minimum
wage by drawing on economic models and
empirical data from sources such as the Congressional Budget Office and
Bureau of Labor Statistics. Various studies have shown that raising the minimum
wage would result in large-scale unemployment effects, severely hurting the economy in the midst of the COVID-19
recession. Firstly, minimum wage policies fail to combat poverty and
instead induce cost-push
inflation, reducing real wages. Secondly, many contract and self-employed
workers are not covered by minimum wage regulations at all. Thirdly, by
directing those at the lowest end of the wage spectrum into the ranks of the
unemployed, minimum wage laws have an unfairly disproportionate effect on the
impoverished, thereby exacerbating income inequality. Finally, from a social
perspective, minimum wage policies violate workers’ freedom of contract by interfering with their employment seeking
process, and the existence of minimum
wages can weaken workers’ negotiation power in wage bargaining. This weakness is especially evident when considering
that there are many other alternatives in safeguarding workers’ rights such as
workplace safety laws and trade unions. In light of these negative impacts,
this essay warns policymakers to not be too optimistic towards the minimum wage
and encourages governments to seek other alternatives to protect workers’
rights and secure higher wages. By analyzing the potential drawbacks of the minimum wage, this paper
addresses a gap in the existing literature, which mainly focuses on the
benefits of the policy. Therefore, not only will this paper contribute to
existing work in the field of labor economics, it also provides a more
holistic, well-rounded perspective of the federal minimum wage.