Minimum wage is a difficult number to decide on because it affects different income earning citizens in different ways. According to Principles of Microeconomics, by N. Gregory Mankiw, minimum wage is a law that establishes the lowest price for labor that and employer may pay (Mankiw 6-1b). Currently, the minimum wage in the United States is $7.25 per hour. For many years politicians and citizens have argued on what should be the minimum wage that would benefit the economy and society in general. A minimum wage was first established in 1938 to increase the standard of living of lower class workers. To discuss what is better for the country and its citizens, people have to understand what is a minimum wage and what are its effects.
In the 2013 State of the Union, President Obama proposed raising the minimum wage from the current $7.25 to $9.00 by 2015. This has caused arguments between the rich, small businesses, minimum wage workers, and the unemployed because it affects each of them differently. Obama’s plan is to bind the minimum wage to the cost of living, which ensures that minimum wage goes up with inflation. In general, this benefits minimum wage workers by improving their standard of living.
Minimum wage workers are enthusiastic about Obama’s plan, but small businesses and the unemployed are not so happy about it. This proposal however is a binding price floor, which is a price minimum, in this case, established by the government. This will incentivize more people to search for work while disencouraging firms to hire new workers or even maintain their current ones. This is an example of a surplus. A surplus is “A situation in which quantity supplied is greater than quantity demanded” (Mankiw 7-1c). In this case, quantity supplied is the increase of the amount of people searching for jobs and quantity demanded is the decrease of the amount of workers employers are willing or able to hire, causing unemployment to increase.
Small businesses are negatively affected by the minimum wage because after the increase some may not be able afford to pay the new minimum wage to the workers. This also causes the businesses to dismiss current employees, which decreases their production and they may eventually run out of business. Currently unemployed citizens are also negatively affected by the increase in the minimum wage because since the wage is higher, firms will hire fewer workers than they did before the minimum wage increase.
There has been a significant amount of discussion regarding the value Obama wants to raise the minimum wage to. Some argue that increasing the minimum wage will eventually cause more spending by the minimum wage workers, which will lead to an increase in economic stimulus. Opposing viewers think that this will cause the rate of unemployment to increase and small firms to collapse because of lack of labor that they can no longer afford. Also, if inflation rises the current minimum wage contributes to the already...