What would happen to your business if the minimum wage were drastically increased? Could you afford it? What impact would it have on those making more than minimum wage? The questions have been debated for sometime, but recently the debate has intensified because President Obama made a proposal to raise the minimum wage to $9 from its current status of $7.25. Bustamante’s article “$9 minimum wage sounds good but it would be bad public policy” focuses on the negative affects implementing a policy to raise the price floor on minimum wage would have on the United States. There are three key principles of economics that Bustamante touches on in the article, the first is people respond to incentives, the second is people face trade-offs, and finally a country’s standard of living depends on its ability to produce goods and services (Mankiw, 2012). After summarizing the article the goal is to identify the impact this policy will have on supply and demand, discuss the changes, and draw the supply and demand graph to detail the change.
Bustamante argues, that in theory, raising the minimum wage seems like a fantastic idea, because businesses will have to pay workers more. In turn, this should provide workers more of an incentive to work, which would improve unemployment and the supply in the job market (para. 2). Providing higher minimum wage puts a greater amount of money in the workers pocket and allows them to spend more, which should be a positive for business as well. The increase in price for the same amount of skill and service diminishes the profit margin the business was able to make. This imposes a problem for business because they will have a harder time affording to pay workers this amount, which brings us to the next principle of people face trade-offs. “Instead of paying higher wages, employers are forced to get by with fewer workers decreasing employment opportunities for young people” (Bustamante, 2013, para. 7). So, in this particular case you have people that already have jobs benefiting by increasing their pay, but in turn the people without jobs now have a harder to finding jobs, and companies have to let workers go because of the cost, causing unemployment to go through the roof. When this happens we see a decrease in the standard of living, and the opposite result that the implementation of the higher minimum wage was intended.
If raising the minimum wage will have a negative impact how do we improve the...