In the United States today, many people are arguing they
deserve to be paid above minimum wage pay.
This amount of course varies from state to state unless an individual is
a federal employee of some type. For
instance, here in Virginia, the minimum wage is $7.25 an hour. When looking at a state such as New Jersey,
where I grew up, the minimum wage is $8.44 an hour. Individuals who work minimum wage jobs are
the ones who would like to see the minimum wage in their area raised. What these people don’t seem to realize is
how increasing the minimum wage to say $13.00 an hour, as Seattle, Washington
has done, will negatively affect the equilibrium of the supply and demand of
jobs. Springer (2017) explains, “the
working poor are making more per hour but taking home less pay” (para. 2). With an increase in minimum wage pay, firms
are not able to hire as many employees or have the money to pay their employees
for the number of hours they would have normally worked before the pay
Here are some of the objectives to this research paper. The first objective is to give definitions to
some of the terms and theories that will be used throughout this paper. For example, the law of supply and demand,
the definition of equilibrium, price ceiling, and price floor to name a
few. A second objective will be to
explain why it is important for both the employer and employee to ensure the
minimum wage is equal to the equilibrium of the supply and demand of jobs
offered. Graphical representations will
be used to give a visual example of how raising and lowering the minimum wage influences
the amount of jobs offered. Lastly,
examples will be given of where the minimum wage has been raised and what
effects it has had on the job market and how it has impacted the people that
live in that area.
There will be terms used throughout this paper that need to
have their definitions explained before moving further. Firstly, we have the law of demand. Arnold (2016) defines this term as, when the
price of an item goes up the demand for the item tends to fall and just the
opposite happens when the price of the item drops the demand for the item
increases, ceteris paribus (p.
66). Next is the law of supply which is
defined by Arnold (2016) as, when the price of an item goes up the amount
produced of the item rises and the amount of the item being produced falls when
the price of the item falls, ceteris
paribus” (p. 78). A term within
these two definitions that also needs to be defined is ceteris paribus. This means
nothing changes or things remaining constant.
Regarding the two laws, it says that the laws act the way that they do if
things remain constant. Another definition that mast be defined is surplus or
excess supply. Surplus is explained as where
the amount of an item supplied or produced is larger than the amount that is
demanded. Lastly, we must define a price
floor. A price floor is the same as a
price ceiling except it deals with the minimum price below as opposed to the
maximum price above.
The population that will be used in this research paper will
be the population of the city of Seattle, Washington. This is due to the fact the city has raised
its minimum wage to $13.00. This is also
due to the fact there is data to show what the impact has been on the job
market in the city since the raise in wages.
One variable will be the amount the minimum wage was
increased to, which is $13.00 an hour. The
second variable will be the number of current jobs and whether that number
increases or decreases due to the
increase in minimum wage.
The data will be collected from a variety of news websites
with articles citing how the job market has been influenced since the change in
As of the summer of 2017, the minimum wage in Seattle,
Washington has risen to $13.00 an hour and is expected to be $15.00 an hour by
January 1, 2018. The public had thought
this was a great idea so those with minimum wage jobs can sustain a decent
lifestyle as compared to when they were being paid less. The public did not realize how this raise in
pay was going to negatively affect the job market in their area. Dube (2017) explains the impact, “there was a
large reduction in employment (total hours of work) among those who had been
earning below $13, and an increase in employment between $13 and $19, though
the “spike” at the new minimum wage was rather small” (para. 6). In other words, with the raise in minimum
wage, the amount of lower paying jobs was less.
This is due to firms not being able to pay as many workers at the newly
established minimum wage price. A
graphical representation of this is as follows:
1. Supply and demand graphic showing
minimum wage and unemployment. Mitchell (2015).
Figure 1 shows a typical supply and demand curve. Where these two curves meet is the
equilibrium wage which is designated at W0 and L0. This is the point where the supply and
pay for a job is equal to the demand for jobs.
With Seattle raising its minimum wage from WO to W1
it is creating a price floor. This price
floor is creating a surplus between the supply and demand curves which is
represented between points L2 and L1. This surplus is a representation of the
unemployment rate. A firm is only
willing to pay for jobs at the price of W1 where it meets with L2. Where as the public of Seattle, represented
by the demand curve, want the pay and amount of jobs located between points W1
and L1. Since these two do
not equal each other, there are less jobs available than there were before the
increase in minimum wage. There may be some positives to the individual
at first with raising the minimum wage. This
of course would include better morale at work and more income. The long-term effects, may not be as
positive. An example of a negative
effect in the state of Maryland is, “there would be offsetting costs and they
could be substantial: a loss of almost 47,000 jobs and $396.5 million in total
income by 2022, due to workers’ being priced out of the job market by the
higher minimum wage” (“Sobering,” 2017).
In other words, with the increasing costs to the firm for paying the
higher minimum wage to its workers, the firm would not be able to sustain this
new cost over the long term. This in
turn would require the firms to cut jobs to sustain production of their
In conclusion, all though it may at first glance make sense
to the individual to raise the minimum wage to increase their income, over the
long run it will not benefit the individual.
Minimum wage jobs are meant as a stepping stone for those in or just
leaving high school to get an understanding of how the job market works and to
have money to pay for necessities. These
jobs are not meant as a long-term investment.
The firms should be the ones determining what the minimum wage for their
jobs are, not the public nor the government for that matter. The public and government do not have the
firms interest in mind and do not think about how what they are asking for is
going to impact not just one firm but all firms in their area.