Waging War: Minimum vs. Maximum

November 13, 2013

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One of the key takeaways in last week’s election results, (other then Chris Christie’s weight and the presidency) was the minimum wage increase in New Jersey. The state voted to raise its hourly minimum wage from $7.25 to $8.25. Not to be outdone by this, in Washington, residents voted on a ballot measure to raise the minimum wage to…get this…$15, the highest minimum wage in the country. This might seem like a good thing, and it is for the most part, but as with anything else in life, there are two sides to every story. So let’s take a moment to look at what both those sides are.

The Upsideimpact on minimum wage workers

A recent poll by Gallup showed that 76 percent of Americans would support a law to increase the minimum wage to $9. Twenty-two percent of respondents said they would vote against such a measure. Last Thursday, Democrats met to consider a proposal that would raise the federal minimum wage to as much as $10.10 an hour. The Senate is poised to consider the measure as soon as next week. Senate Majority Whip Dick Durbin said that the chamber is trying to get on the same page with President Barack Obama, who called for $9 per hour during the State of the Union address. “We’re all kind of in the $10 range, virtually all of us,” Durbin said. “The explanation here suggested that [Obama] would be very supportive of $10.”

Then there’s this to consider: if the minimum wage were raised to $10 per hour (which would actually still put it below the minimum wage in 1968), this would release at least $60 billion over two years into the economy. Additionally, an increased minimum wage may also lead to an increase in the hourly pay of other low-wage workers that make slightly more than the federal rate. And you know what that translates to? Increased purchasing power across the board, which in turn helps stimulate the economy and ultimately benefits small businesses, who were hit the hardest by the recession. That being said, an increase in minimum wage is not all wine and roses (or beer and pizza). Primarily because there is…

paycheck increase minimum wageThe Downside

Here’s a popular scenario to consider. Let’s say a businessman owns a restaurant and employs three workers. The first employee is very hard working and gets it done. The second employee is “okay,”,while the third is still learning and isn’t quite there yet. He or she is clearly lagging. If they are all earning minimum wage (and then that rate is increased) it is the business owner that gets dropped with a huge burden. And if the owner is struggling to get by – as many small business owners are – they will then have to let go of one or several of their employees. Given this scenario, it’s easy to see how the third employee is the one most likely to lose their job. This is why, though higher wages may sound good in theory, the reality is workers could be laid off while those retained will be expected to make up for the lost output by working more hours or even cutting benefits. And young people could especially be hurt by this as employers may look for more experienced or specialized workers with specific skill sets. So the argument works both ways.

The momentum is there for an increase to the federal rate, but just be sure to read up on the pros and cons before the measure becomes law. Receiving more pay for your hard work is a good thing, but just be aware of the potential pitfalls that can come with it. Someday you might go from employee to employer, so be prepared. Perspective is everything.

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