The Effect of Minimum Wage in Unemployment Rate
By KING NING ALFRED LAM
Minimum wage is the lowest hourly wage that employers can legally pay to workers. The policy makers claim that the purpose of the minimum wage law is to increase the standard of living of workers and reduces poverty. However, there are critics about minimum wage would increases poverty by increasing unemployment rate. This topic has been debated for over 6 decades, there are significant numbers of studies of the minimum wage on employment in the United States have been published. Most of the studies approached by the employment-to population rate of teenagers with relative level of the minimum wage, hence in this paper, I am attempting to examine the effect of minimum wage on unemployment rate with a new approach by using different control variables, consumer price index (CPI) and treasury constant maturities to create a fixed-effect panel data regression. Demand & Supply Theory 
My hypothesis is that minimum wage affects unemployment rate in a positive way. In other words, when minimum wage increases by a positive amount, one should expect that unemployment rate will also increase. This is based on the basic theory of demand and supply, business owners often make decisions based it. When the demand for certain product increases, companies must increase their production output to meet the demand. Increasing supply usually requires additional labor. When the wages of the employees increased, the employer’s demand of hiring employees will decrease. Minimum wage is creating a price floor; the demand and supply will no longer be equilibrium. As the price floor goes up, there will be more surplus. Therefore, the unemployment rate will increase when the minimum wage increased. [See Figure 1]
FIGURE 1.THE EXPLAINATION OF MINIMUM WAGE IN UNEMPLOYMENT RATE IN DEMAND AND SUPPLY THEORY FROM WIKIPEDIA
Goal of this Study
This research topic is an important one, especially using a different approach. Because it could start a new movement of the study of minimum wage on unemployment rate by provide a new prospective to the scholars who are also studying in this topic. There will be more new ideas and thoughts. The ultimate goal is to have more statistical evidence and studies to assist the policy makers to adjust, modify and improve the current policies, in order to increase the standard of living of the workers and reduce poverty in a more efficient approach.
II. Literature Review
In this part, there are literature reviews of the economic concepts of the three main articles. Minimum Wages and Employment: A Case Study of the Fast-Food Industry in New Jersey and Pennsylvania: Reply Card and Krueger (2000) develop a case study of the fast-food industry in New Jersey and Pennsylvania. Their main assumptions are that the increase in New Jersey’s minimum wage in April 1992 probably had no effect on total employment in the state, and possibly had a small positive effect, although there may have been individual restaurants where employment rose or fell in response to the higher minimum wage; Using a dataset from the Bureau of Labor Statistics’s (BLS’s) employer-reported ES-202 data file to examine employment growth of fast-food restaurants in a set of major chains in New Jersey and nearby counties of Pennsylvania, their empirical findings are that representative samples show statistically insignificant and small differences in employment growth between New Jersey and eastern Pennsylvania, which is a complete opposite of my assumption. Card and Krueger (2000) mentioned at the end of the article that hours grew more at restaurant in the lowest wage areas of the state, where the minimum-wage increase is a binding constraint to counter the view that total hours declined in response to the New Jersey minimum wage increase. I am skeptical about this finding, because by the demand and supply theory , the employment rate or total hours of...
October 6 2013
News article: http://nytimes.com/2013/02/13/us/politics/obama-pushes-for-increase-in-federal-minimum-wage.html?pagewanted=all&_r=0
American workers will have a 1.75$ increase in their hourly wage by the end of 2015, as President Barack Obama recently called to raise the federal minimumwage from $7.25 an hour $9.00 an hour. This increase in the minimumwage of American citizen aims to help people with a low annual wage: cooks, employees of the janitorial industry and many others working these necessary menial occupations are set to benefit. The white house estimates that this measure will boost the wage of approximately 15 millions low-income workers.
Raising the minimumwage, according to the White House press, will have some positive effect for low-income families; however, many companies are opposed to raising the minimumwage. A higher wage will have a direct impact on the cost of business. Some economists argue that higher minimumwage will result in an increased unemployment percentage. Although minimumwage laws can fix hourly pay, they cannot guarantee jobs. Employers are not willing to pay a worker more than the value of the additional product...
A minimumwage is the minimum amount of compensation an employee must receive for performing labour. In economic term, minimumwages is the price floor of the pay of the labour that set by the government. The minimumwagesrate normally was fixed by legal authority as such, it is illegal to pay an employee less than theminimumwage. Our economic transformation goal is to make Malaysia a high-income nation by 2020, with a per capita income of US$15,000 a year, however there are still around 30% of the people in Malaysia are still living below the poverty line. The general purpose for the implementation of the minimumwages is to ensure that the wages of a labour is able to meet the basic standard of live which is be at or above the poverty line so that they can survive with their salary. In Malaysia, The Prime Minister YAB Datuk Seri Najib Abdul Razak announced the rates of national minimumwages in Peninsular will be RM 900 while Sabah, Sarawak and Labuan will be RM800. This implementation of minimumwages in Malaysia was the decision under the National MinimumWages Consultative Act 2011. The national minimumwage is the...
Should We Raise the MinimumWage to the Average Pay Rate?
University of Phoenix
September 30, 2013
“Should We Raise MinimumWage to the Federal Average Pay Rate?”
On the United States Department of Labor website it states that in 1938 it was decided that a federalminimumwage should be set. When it was set, it was set for the amount of $0.25 an hour. Now as of 2013 it is $7.25 an hour. (Grossman 1978. Washington’s minimumwage is the highest at $9.19 an hour, it joins its 18 other states with a higher wage. Almost half the states agree with the minimumwage; five have wage lower and another five do not even have a minimumwage. There is clearly a divide on the thoughts of raising minimumwage to make things more even. What our group wants to question here today is the raise of minimumwage to the federal average pay rate. In the United States after researching 426,448,460 people in more than a thousand occupations the average pay rate would be $20.60. (United States Department of Labor 2013) Thomas Sowell says it best,
October 9th, 2013
Paper on Contemporary Labor Issue
MinimumWageRate and Unemployment Levels - a Direct Relationship
In any labor market, free or regulated, there is friction and rigidity that result in labor issues. With 11 million people unemployed, and millions more discouraged or underemployed, there is justification to believe that these high population levels represent a glitch in the American labor market (1). These basic statistics, coupled with the elementary economic theory of supply and demand, demonstrate that minimumwage regulation has not only proven to be unsuccessful, but should be eliminated immediately.
Although compulsory wage levels may be problematic in our contemporary labor market, the theory supporting a minimumwage dates back to over three centuries ago. The earliest evidence of a mandatory minimumwage could be found in New Zealand when in 1894 there was an effort to extinguish sweatshop labor. Also during this time, Australia made amendments to the Factories Act which created a wage price floor in six industries that were considered to have low paying wages. Although this amendment began as an experiment, within a few years additional amendments were created to expand minimumwage to over 150 different industries (2)....
...nation’s high unemploymentrate is a result of a severe drop in demand for goods and services. It’s not a reflection of longer-term structural changes in the economy but rather cyclical changes in the economy. The demand for goods has been limited because of tight credit, decreases in government budgets, suppression of demand by consumers and foreign markets, and the inability by the fed lower interest rates. Even with the low level of interestrates the Fed is currently practicing a tight monetary policy. The current 9.7 percent unemploymentrate is because of cyclical forces rather than structural ones. Obama is currently trying to administer a program of active intervention to stimulate demand. This involves increasing aid to states, extending unemployment insurance benefits, stimulating small business lending and increasing energy-efficiency measures.
Even though a recession can lead to permanently higher unemployment the number one priority is preventing the currently high rate of cyclical unemployment from becoming structural. Right now our current situation makes it impossible to completely stop the increase in unemployment. The Fed is focusing on keeping unemployment at a cyclical level, an increase in unemployment that occurs during recession or depression, and making sure it doesn't...
...Australian MinimumWageRates and Their Affects on Youth
Stakeholder: Fair Work Comission
The national minimumwage is the minimum amount an employee can make that is not covered by an award or an agreement. Different countries set their minimumwagerates to be the minimum amount a person can make in order to survive in however that country’s economy allows. This paper will analyse the ways in which the minimumwagerates in Australia do not benefit today’s youth. It will show how the minimumwagerates contribute to older people missing out on jobs, less of a skill set among young people, and youth homelessness. It will be argued that minimumwagerates should be set at the same rate for people once they have reached the age of adulthood. Young people between the ages of 14 to 17 should also receive an increase in minimumwagerates, so that they may become more financially stable.
In the country of Australia there is a system called “Junior Rates”, which is defined as a proportion of adult minimumwage, that increases every year until the “junior worker” is considered an adult at age 21. (Lewis et al....
November 5, 2013
Argument Rough Draft
Do minimumwage workers deserve a better paying wage? Perhaps a wage that they are believed to be able to live off of? Will raising the minimumwage help those it really intends to? With unemployment pushing 8% nationwide and costs rising, nationwide people are pushing for minimumwage to be increased. Theminimumwage was established by Franklin Roosevelt as part of the New Deal in the 1930’s. The Fair Labor Standards Act of 1938, as stated by Jonathan Grossman on dol.gov, is what ultimately established the minimumwage nationwide for all workers. The minimumwage guarantees workers a wage that is fair for all workers. It is the lowest possible amount that an employer can pay their workers.Though it is believed that the minimumwage will help the lower class, raising it will not actually help those it intends to, but in fact raise living costs and many other expenses when the minimumwage is raised.
The problem with minimumwage is that it is not kept up with yearly. As inflation across our country increases yearly, minimumwage stays the same. With unemployment at...
...Minimumwage is defined as the lowest possible income that an employer can legally pay an employee. This ensures that all people are fairly paid and not defrauded by companies or businesses. Minimumwage is now a staple in 90 percent of countries in the world (Minimum). Even with these minimums, a person’s lifestyle is hard to maintain. Sustainability, in my opinion, is the ability to keep or maintain a certain amount of physical or mental property. In this light of sustainability, minimumwage is not a sustainable amount of money in which to survive with a basic quality of life. There are many supporters and objectors to the minimumwage debate. Supporters say that increasing minimumwage increases the workers earning power and wages. Objectors say that increasing minimumwage only leads to unemployment due to small companies’ inability to pay workers. Also the increased inflation rate of goods only hurts the economy, which leads to many jobs being lost, mainly the jobs held by minimumwage patrons. Although this is a heated debate there is one thing to which both sides agree; something needs to be implemented so that workers are not exploited by businesses. Economists are exploring the viability of...