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Louie Meeks
Dr. Kelly Williams
English-AP
3-13-16

Minimum Wage

According to the Bureau of Labor and Statistics, in 2014, among those paid by the
hour, 1.3 million people earned exactly the prevailing federal minimum wage of $7.25
per hour (bls.gov). This staggering number of minimum wage earners is the reason for
the incredibly heated debate about what a fair minimum wage is and should be. Some
argue that everyone should make $15 an hour, more than doubling the current federal
minimum, while others argue we dont even need a minimum wage to begin with because
the market will determine what it should be. Both of these positions fail to recognize that
there are differences in the power of a dollar based on location in the U.S. An hourly
minimum wage serves a genuine purpose of ensuring a, fair, livable wage. However, it
should not be a standardized figure. Due to the differing economic realities of geographic
regions throughout the country, the imposition of a flexible minimum wage addresses the
issues of fairness without potentially compromising jobs.
Highly regarded blogger for forbes.com, Yaron Brook, recently provided his stance
on minimum wage. Brook gave a personal anecdote about the first time he was looking
for a job when he was 17 years old. Brook argues that, had the minimum wage been two
dollars above the $5.35 wage he was given, he wouldnt have gotten the job at the theater.

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Brook argues that his wage being raised, despite his productivity remaining the same,
would make him a poor hire and thus "unemployable" (n.pag.). Brook illustrates an
interesting point. However, Brook fails to address an important aspect of the argument.
Brook is assuming the theater would be unable to afford the cost jump in minimum wage.
What Brook is missing is the fact the theater was in need of an employee and wouldnt be
able to function the same way without that employee. Often times, this means that even if
the minimum wage were a dollar or two higher, that wouldnt change the fact that the
movie theater needed someone to scoop popcorn. This is why a minimum wage is
absolutely necessary.
If there is unemployment without a minimum wage there becomes a social "divide."
Businesses would have "little incentive to pay wages high enough to live on." The reason
behind this is: companies, in general, will pay the bare minimum to employees as they
are in business for the purpose of maximizing profit. This reality creates a higher profit
margin for companies. With unemployment, companies know that they can pay people a
very small wage because there are others willing to fill that same job. The workers
become caught between a rock and a hard place. They can either work for an unlivable
wage, or they can remain unemployed (n.pag.). This notion of the employer having an
incredible amount of leverage is much more common among low skilled jobs, just like
the movie theater job that Brook was referring to. Many people have the ability to work
the job at the movie theater that Brook was applying for. Had there been no minimum
wage, the theater company would have the incentive to offer Brook one dollar per hour
knowing that if he turned it down, the next person in line would likely accept the job.
Had the next person not accepted the job the company would have the ability to slowly

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raise its offer to a point where it will be accepted by a single person and that is as high as
the company needs to offer. Often times, the wage that is accepted by that one person is
substantially lower than a comfortable living wage. Not only does this reality hurt
individuals and their lifestyle, but it also hurts the economy. As wages drop lower and
lower, the profit margins for employers grow. The result of this is a wage gap. The
owners are able to make more money while selling the same amount of goods or services,
while the working class is making less money for working the same amount of time. This
demonstrates how the absence of a minimum wage may be detrimental to the economy as
a whole.
To fix this wage gap and lifestyle issue, many have proposed a $15 minimum wage.
Alyssa Lieberman, writer for Pittnews.com, gave her opinion on the issue, We need a
minimum wage of $15 an hour. The proposed increase to $10.10 per hour President
Obama made in his 2014 State of the Union address which was followed by an
Executive Order is far too low and would still leave too many workers in poverty. And
workers in poverty is bad for all of us taxpayers pay for their Medicaid and food
stamps. Corporations need to take better care of their workers so taxpayers dont have
to. (n.pag.)
Lieberman makes a good argument; the idea that full time workers should receive a
wage to afford them a comfortable life is a valid one. However, Lieberman fails to
recognize that in many communities, $10.10 is a comfortable wage for an individual
without children. For example, according to MIT, if you are a single adult living in
Dougherty County, Georgia, the living wage is $10.02. Once you have a child to support
the living wage jumps to $20.21. This statistic poses the question of what is the purpose

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of the minimum wage? If the minimum wage is intended for single parents,
livingwage.mit.edu suggests it should be two times higher than if it is intended for nonparental adults. If we are to assume it is for non-parental adults then a $10.10 minimum
wage is acceptable and livable, in Dougherty County, Georgia.
However, according to livingwage.mit.edu, the living wage in San Francisco
County, California is $14.37. This is 44% more than in Dougherty County. Not only does
livingwage.mit.edu data show the difference in price to live in these areas, but
money.cnn.com, which uses data from C2ER, states that making $25,000 annually in
Dougherty County, Georgia, is equivalent to making $48,260 in San Francisco. This
reality begs the question, how can we have the same minimum wage in both areas, and
why is it fair for small companies in both areas to have to spend the same amount on
entry-level employees? Given that the cost of living is significantly lower in Georgia, the
minimum wage should also be significantly lower.
If the minimum wage is the same in both San Francisco and Dougherty County at
$15 dollars an hour, the economy in both will feel negative affects that will seriously
hamper their respective economies. Models have been created to illustrate these effects.
The most common, and most widely accepted model, is known as the labor leisure
model. The model illustrates when unemployment will be achieved. It demonstrates that
when the minimum wage is high, the need for workers by companies decreases and the
number of employees looking for jobs increases. This gap between the numbers of
workers the businesses want to hire and the number of people who are looking for jobs is
the level of unemployment.
The same principle applies to the opposite scenario. When the minimum wage is

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low, lots of companies will want to hire but the model suggests that, not as many people
will want to work because they feel the amount of time they work is not worth the
amount that they will be paid. This first scenario model is demonstrated by a study done
in the state of Wyoming that was published on doe.state.wy.us. The data shows that the
number of fast food employees increased for three straight years. In these years, the
minimum wage is at a net decrease. On the fourth year, there is a 6.1% minimum wage
increase. After this year, there is a loss of 2.6% in the number of employees from the
prior year. This result supports the labor leisure model that is applied to the job market.
The labor leisure model that is displayed in Wyoming is the reason the minimum wage
should not be the same across the country.
Imposing a minimum wage too high for an economy can cause serious
consequences. One of the largest issues resulting from a minimum wage too high for an
economy to handle is a loss of jobs. Many studies have been done to study the effects of
the wage increase philosophy. One of the stances that these studies take is to look at the
"effect of state minimum wage increase on poverty rates, (Card and Krueger (1995) and
Burkhauser and Sabia (2007). These studies both show no impact on poverty by raising
the minimum wage. Another way of examining the effects of these changes is to "match
CPS data and examine family income changes caused by minimum wage increases,
(Neumark and Wascher 2002; Neumark, Schweitzer, and Wascher 2004, 2005). The
results are consistent with those of the first concept. The study shows that raising the
minimum wage does in fact pull some low-skilled workers and poor families incomes
upward, as expected. However, other individuals in the low-skilled community
experienced a significant decrease in their hours or were even fired altogether. The

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studies turned up no "net-gain" in terms of moving the number of people beyond poverty
(n.pag.).
This data demonstrates that when an economy has a minimum wage above one that
can be absorbed, jobs are eliminated. One method in determining if an economy can
handle a minimum wage is by measuring its RPP. RPP stands for regional price
parities. A well-respected research center, known as the Pew Research Center, discussed
RPPs of different cities. The RPPs, developed by the federal Bureau of Economic
Analysis, measure the difference in local price levels of goods and services across the
country, relative to the overall national price level (set equal to 100). On average, prices
in the New York metro area, which has an RPP of 122.3, are 22.3% higher than the
nationwide average, while in Macon, Georgia, (RPP of 87.8) prices are 12.2% below
average (n.pag.). This data gives us a way to quantify the power of a dollar in each city.
The minimum wage should be set so that with an RPP of 100, a single, non-parental,
adult is making a livable wage. With this model, we should be able to quantify the
differences in each economy and the power of the dollar. With this data, it is our duty to
assure any single, non-parental, full time worker earns a comfortable wage.
The fact that the dollar has more power in different geographic regions is why
Lieberman is incorrect in her assumption. With a minimum wage of $15 an hour in an
area that cannot support such wages, marginally profitable companies will likely not
survive. For example, take a 20 person, growing company and assume it pays minimum
wage. If we assume the typical full time worker works 2,080 hours a year and is being
paid a minimum wage of $10.10, the company would have an annual cost of $420,160 for
its employees. If the minimum wage were increased to $15, this company would shell out

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$624,000 in yearly salaries. For a small business in a low RPP region, this $200,000 is
the difference between staying in business or closing, resulting in the loss of 20 jobs.
To afford these costs, the company must cut back on other expenses. One of the
first things to typically go when these situations occur are worker benefits. According to
http://find.galegroup.com/, such benefits can include health insurance or other types of
compensation. Often times, when a company isnt as profitable as it had been, benefits
typically cut from the budget is health insurance or other forms of non-mandatory worker
compensation. Another method that companies use to reduce expenses when forced to cut
their budget is "on-the-job training." This also serves as a negative for the very
employees who are intended to be helped by raising the minimum wage (n.pag.). This
demonstrates the impact and negative effect on workers when setting a minimum wage
above the threshold that can be afforded by employers.
Another reason that a fair minimum wage is important revolves around the notion
of small companies competing with large companies. Often times, large companies have
better profit margins due to buying in bulk and more money spent on making their
processes efficient. Small companies often times don't have these luxuries. If the
minimum wage is unreasonable, small companies will have no choice but to raise prices
in order to keep their profit margins steady. The affect on a large corporation is much less
noticeable. Lets take a small coffee shop in Ann Arbor, for example. If the minimum
wage is raised by 20%, in order to keep profit margins steady, the coffee shop would need
to raise their costs by 20%. However, the Starbucks down the street would have little
trouble sacrificing the 20% jump in the cost of paying their employees. This would leave
many customers with an easy decision when trying to decide where to buy their coffee.

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A flexible economy is necessary to ensuring fairness and success to employees as
well as employers. As a country, it is our duty to ensure that workers are making a livable
wage. Without a flexible minimum wage, minimum wage earners in expensive areas,
such as San Francisco, will be forced into living conditions that are not deserved or
desired. We must ensure that the workers who drive our economy are treated fairly.
Without a fair minimum wage that reflects each individual region, we cannot meet this
goal.

Discuss capitalism and how different wages go with different jobs. Capitalism gives us
no way to differentiate based on family size.

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