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MINIMUM WAGE LEGISLATION.
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Purposes. Impact on labor markets, job training, employability, regional conditions, minorities, unemployment.... More...
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Paper Abstract:
Purposes. Impact on labor markets, job training, employability, regional conditions, minorities, unemployment.

Paper Introduction:
Minimum wages were established on the national level by the Fair Labor Standards Act (FLSA) of 1938, which also set overtime pay requirements for covered workers. Since that time, the effects of a minimum wage on the economy have been hotly debated, with business interests traditionally claiming that minimum wages lead to loss of jobs, and labor interests claiming that without a minimum wage, workers will be unfairly compensated. This research examines the arguments associated with both these claims as well as the general economic effect of minimum wages. In order to evaluate the effect of minimum wage legislation on workers, it is necessary to define which workers are directly affected by such legislation; that is, who are the minimum wage workers? According to the Bureau of Labor Statistics, approximately

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However, as noted earlier in this paper, only 14 percent of minimumwage workers provide the sole source of income to the household. Some state legislators have decided that the risk of unemployment isworth taking and have backed minimum wage legislation that exceeds thefederal minimum wage. Despite thesepossible discrepancies, it is the statistics from the Bureau of LaborStatistics which are most often used when discussing minimum wage workersand legislation. Since companies operating in today's environment must accept minimumwages as a given, they must be prepared to adjust their pay scales toincreases in the minimum wage. Certainly companies cannot give a 27 percent increase to all workersover the course of two years, despite the fact that the lowest-paid workersreceive that increase. James. Concern for business is not the reason we have a minimum wage;rather, it is a concern for the well-being of the lowest-paid workers. For example, first-line supervisors might be given an increasewhich maintains the pay differential between worker and supervisor. Even those who donot favor substantial increases in the minimum wage would likely oppose itsabolition, since their re-elections would be severely in doubt (Evans 117). 4, 1989): 11.Johnson, Dennis. Employers who are exempt from paying minimum wagesinclude small business with, for example, less than five employees ("LaborDepartment Report" 133). Distribution Journal (Sep. The federal poverty line for a family of three was $9,435 in November1989. The actual affect of the minimum wage on business and workers isdifficult to isolate because there are many other factors which affectboth. "Estimating the Number of Minimum Wage Workers." Monthly Labor Review 113 (Jan. Thiswage can be paid to a worker for six months while the employer takes on theburden of training. Opponents of minimum wage legislation use classic supply and demandanalysis to illustrate how an artificially imposed wage rate results indisequilibrium within the market. Evenat the 1991 minimum wage level, a worker brings home only $8,84 per year.Opponents of increasing the minimum wage suggest that the increase wouldnot only be unable to bring workers out of poverty, but would also makethem possibly ineligible for government benefits such as Medicaid.Proponents of minimum wage increases note that inflation eroded purchasingpower by 27 percent during the 198 s, and that the increase in the minimumwage enacted at the end of that decade merely enabled workers to keep pace(Lacayo 36). Proponents of minimum wage legislation also suggest that it actuallydecreases the amount of government assistance paid out. 1988): 91-92.Haugen, Steven E. McDonald's, for example, paid anaverage of $4.65 per hour to its employees, largely part-time workers, in1989, a rate far above the federally mandated minimum wage (Jacob 11). The simplest way to do this is to instituteacross-the-board increases of the same percentage as the increase in theminimum wage. During periods of labor shortages, arelatively high minimum wage incents nonworking individuals to seek work.opponents of this strategy suggest that labor shortages in the latetwentieth century are not because there are not enough workers, but ratherthat the pool of available workers are unskilled. When analyzing minimum wage demographics, itis important to note that most minimum wage workers are supplementing theoverall income of the household, not providing the entire support for thefamily. It can then be arguedthat a higher minimum wage places an increased burden on businesses who notonly must pay the individual a higher wage directly, but who must alsoinvest in training to develop the skills necessary to perform the job.Recognizing this, the federal minimum wage law has a training wage includedin it which is substantially lower than the prevailing minimum wage. 13, 1989): 36.Levitan, Sar A. As stated previously in this paper, business uses classic supply anddemand theory to oppose minimum wage legislation. Businesses oppose minimum wages because they find that their laborcosts are significantly increased as a result of such legislation (Brennan91). Of course, it is not necessary for businesses to use either of theabove methods to adjust their pay scales, although these are the methodsmost often cited in arguments against the minimum wage (Johnson 5).Instead, organizations can implement pay increases of greatest magnitude tothe minimum wage workers, then decrease the level of increase as the payrate rises. According to the Bureau of LaborStatistics, 36 percent of those receiving minimum wages in 1988 wereteenagers; an additional 22 percent were between the ages of 2 and 24.Women accounted for 65 percent of minimum wage workers, and two-thirds ofthose who received minimum wages worked part-time. This research examines the arguments associated withboth these claims as well as the general economic effect of minimum wages. Minimum wages often provide the base pay level for salary structureswithin an organization. Salaried and othernonhourly paid workers may in fact have pay rates at or below the minimumwage level if their pay were translated to hourly rates. Those who support minimum wage increasessuggest that all workers are entitled to a fair wage for their work(Levitan 55). Theremainder are contributing members, meaning that the income is supplementedby another, higher paid member. Workers generally exempted from the minimumwage include administrative and professional employees and employees whowork seasonally. Such an increase in costsmay result in fewer jobs being offered by the company, or in higher pricespassed onto consumers. Opponents of minimumwage legislation suggest that this figure overstates the true number ofapplicable workers because it does not take into account tips andcommissions which would increase individual workers' total pay. This represents a13.4 percent increase for 199 , and a 11.8 percent increase in 1991, with atotal increase of 27 percent. and Earl F. Workers who would beunable to find work at jobs covered by minimum wage may be able to findwork at jobs not so covered. This approachmitigates the impact somewhat. "Increasing the Minimum Wage." Personnel Journal 66 (Jul. "Minimum Wage: Minimum Deal." Fortune 12 (Dec. Layoffs and salary cuts occur without any change in theminimum wage, and businesses often find themselves paying in excess of theminimum wage in order to attract workers. According to the Bureau of Labor Statistics, approximately sevenpercent of all hourly workers were paid at or below the prevailing federalminimum wage rate in 1988 (Haugen and Mellor 7 ). only 14 percent of those working at the minimum wagewere the sole provider of income in their household (Haugen and Mellor 7 ). "Increasing Minimum Wages Without Maximum Cost." Personnel Journal 67 (Aug. A relatively high minimum wage wouldmake it profitable for these individuals to work, and thus the governmentburden is shifted to private industry (Hawkins 12). Since minimum wage workers comprise sevenpercent of all hourly workers, and since only 14 percent of those who makeminimum wage provide the sole support for their families, less than onepercent of all hourly workers make minimum wage and provide the solesupport for their households. 1987): 12-13.Jacob, Rahul. Business argues that minimum wage legislation forces them to increasetheir payroll costs, by whatever increment, to accommodate this relativelysmall population ("Wages" 11). 1988): 1- 11.----------------------- 9 For example, the federal minimum wage increased from $3.35to $3.8 in 199 , and to $4.25 in 1991 ("Wages" 11). In California and Connecticut,the minimum wage was $4.25, compared to the federal minimum of $3.35 (Jacob11). Other demographic information is available regarding the type ofindividuals who receive minimum wages. Minimum wages canbe engineered in such a way that supplemental assistance (such as Medicaid)is no longer needed by the minimum wage worker. "Bread and Dignity." Across the Board 25 (Sep. Thequestion that remains then, is whether minimum wages benefit workers. Just as businesses are subject to economic factors outside theminimum wage, so are workers. Minimum wages can be used during periods of labor shortages toalleviate the burden on business. Therefore, someadjustment must take place at the first-line supervisor level. 1988): 55- 56."Wages Far Surpass Minimum." U.S. For example, a 45 cent per hour increase represents a4.6 percent increase to someone earning $2 , per year, but only a 1.8percent increase to someone making $52, per year. The same problem of escalatingpayroll costs is encountered as when the percentage increase is used, buton a smaller scale. There is a basic premise on which many businesses operate: Managementjobs are more responsible and more valuable than unskilled labor jobs;therefore, supervisors should earn more than those they manage (Brennan92). However, variances ininterest rates and changes in the tax structure also directly affect anorganization's strategies, as do changes in the local and internationalmarketplace. In fact, the minimum wage in the United States is fundamentally apolitical issue as well as an economic and social one. As thelevel of responsibility increases, less of a pay hike is necessary.Certainly pay maximums should not exceed those for the position within thatgeographic area. Of course, the minimum wage remains ineffect regardless of whether the labor supply eventually expands to createa glut on the labor market. In the years since it was introduced, minimum wage legislation hasprovoked sharp debate, contradictory studies, and political jostling. In the case of the 199 -1991 increase, this would mean adding$.45 per hour to each person's rate of pay. Works CitedBrennan, E. At a wage rateof $3.55, aggregate demand might be 1,1 workers, and aggregate supply mayalso be 1,1 workers, resulting in equilibrium and so-called fullemployment. Those at higher levels within an organization may also beeligible for bonus or profit sharing plans which would alleviate the needto compensate them for an increase in the minimum wage. In many cases, labor uses the minimum wage to establish abargaining position when negotiating new labor contracts ("Wages FarSurpass Minimum" 11). In December 1989, 12 states had state-mandatedminimum wages that exceeded the federal. At thesame time, proponents of minimum wage legislation suggest that the figureunderstates the number of minimum wage workers because it is based only onthose workers who are paid on an hourly basis. The danger, according to opponents of minimum wages, is thatthe minimum wage will be artificially high and business will be unwillingto supply as many jobs as there are workers (the first example above)(Johnson 4). Since that time, the effects of aminimum wage on the economy have been hotly debated, with businessinterests traditionally claiming that minimum wages lead to loss of jobs,and labor interests claiming that without a minimum wage, workers will beunfairly compensated. Theonly certainty associated with the issue is that the controversysurrounding it will continue. Would-be workers are morelikely to remain on government assistance than accept employment if theywill actually make less by working. All other grades of pay can be based on thisminimum. 199 ): 7 -74.Hawkins, Augustus. Minimum wage statistics often omit tips and commissions, and do notinclude salaried employees. perhour, aggregate demand for labor might be 1, workers and aggregatesupply might be 1,2 workers, resulting in unemployment. Any increase in the minimum wage paid to workers ata company can thus lead to an increase of labor costs across the company asa whole, not just among minimum wage workers. In order to evaluate the effect of minimum wage legislation onworkers, it is necessary to define which workers are directly affected bysuch legislation; that is, who are the minimum wage workers? For example, at a wage rate of $4. In order to avoid this situation, minimum wage legislation oftenexcludes specific types of workers or employers. 1989): 1-5."Labor Department Report." Congressional Digest (May 1989): 133-134.Lacayo, Richard. Another way to adjust wages to accommodate an increase in the minimumwage is to adjust all salaries by the dollar amount of the minimum wageincrease. "A Pay Hike for the Poor." Time 134 (Nov. At the prevailing wage rate, a full-time (2, 8 hours per year)minimum wage worker would make $6,968, a level substantially below thepoverty line assuming the worker was the sole provider in the family. "The Economics of the Minimum Wage." South Dakota Business Review 48 (Sep. If workers receive a 27 percent increase in their pay, it is possiblethat their supervisors will no longer earn more than their workers, or thatthe differential will not be perceived as significant. Mellor. Businesses are subject not only to minimumwage increases, but also to union contracts, interest rate fluctuations andconsumer demand. Minimum wages were established on the national level by the FairLabor Standards Act (FLSA) of 1938, which also set overtime payrequirements for covered workers. Unmarried householdmembers (not the household's primary breadwinner) made up 67 percent ofminimum wage workers.

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