POVERTY, INCOME INEQUALITY AND THE
MINNIMUM WAGE
By Jake Montgomery
INTRODUCTION
Poverty, unemployment, and income
inequality are substantial issues that have
grown in severity since the financial crisis of
2008 and that Congress cannot continue to
neglect. The official poverty rate in the United
States is approximately 16% as of November
2012 and about 43.6 million Americans
currently live in poverty. The poverty
threshold, determined in separate measures by
both the U.S. Census Bureau and the U.S.
Department of Health and Human Services
(HHS), measures the number of people living
below a benchmark level of income that
researchers deem necessary for individuals and
families to maintain a decent standard of
living.
People living under the poverty line do not
make enough money to pay for what the
federal government considers to be necessary
expenditures on food, housing, healthcare, and
education. With so many Americans not
earning enough money to pay for basic
services, which most people take for granted,
Congress must attempt to reduce the level of
poverty through legislation.
Most economists agree that employment is
crucial for individuals to bring themselves and
their families out of poverty. When more
people who want to work are unable to find
jobs, the unemployment rate rises and the
number of people living in poverty grows. The
unemployment rate has declined in recent
years, from its height of 10.1% in October
2009 down to 7.6% in June 2013. The
unemployment rate only measures those who
are actively looking for and unable to find
employment, not those who have been
discouraged from seeking employment. There
is therefore a debate over whether the
declining unemployment rate actually signifies
an economic recovery, or whether people have
simply given up on looking for jobs. What’s
more, today’s unemployment rate is still much
higher than it was in the mid-2000s, with lows
of 4.4% in both 2006 and 2007.
As many Americans struggle to find jobs
and live above the poverty line, the disparity in
income and wealth between the poorest and
richest Americans has been rapidly increasing.
According to the Center on Budget and Policy
Priorities, the gap between the rich and the
poor began to grow in the 1970s (Stone, Tresi,
Sherma). This trend continued into the 2000s,
and the gap between the highest and lowest
wage-earners today is at its widest since the
1920s. Wealth is also highly concentrated at
the top. In light of persistently disturbing
levels of poverty, some people question the
fairness of a system that leads to such a
profound income disparity. The issue of the
minimum wage together: unemployment, and
income and wealth inequality. Other policy
proposals attempting to reduce poverty and
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strengthen the economy may be proposed, but
the priority of the committee should be to
determine what the best minimum wage policy
is in the midst of a recovering economy with
many people struggling.
The federal minimum wage was devised as
a baseline, and employers must pay their
employees a wage equal to or exceeding this
hourly wage. Congress has the power to pass
such a provision as the result of its
Constitutional powers to regulate interstate
commerce. The federal minimum wage, last
revised in 2009, is currently $7.25 per hour.
This hourly wage results in a yearly income of
about $14,500, well below the HHS poverty
threshold for a family of even two ($15,130
per year). Therefore a single parent earning the
minimum wage will, along with her children,
automatically be living below the poverty line
according to HHS figures. States are allowed
to have their own minimum wage laws
(permitting it exceeds the national baseline),
and nineteen states have minimum wages
above the Federal standard. This leaves 28
states that use the Federal minimum wage
mandated through the Fair Labor and
Standards Act.
The question of what to do regarding the
minimum wage is a complicated economic,
moral, and political question. Economists
disagree on whether or raising the minimum
wage helps or hurts the poor and whether it
strengthens or weakens the economy as a
whole. Some people believe that markets
should determine all wages while others
believe that all people should earn at or above
some kind of living wage—the wage needed
for basic necessities. On top of these
considerations, Congress must consider the
opinions of their constituents, their party’s
historical and current platforms, and the
viability and implementation procedures of
their policies. While all members of Congress
might share the goal of reaching an economy
in which more Americans are working and
enjoying higher standards of living, they
disagree on how to achieve it. It is up to you as
delegates to this committee to pass legislation
that will help the American people.
EXPLANATION OF THE PROBLEM
Historical Background
Following the Great Depression, President
Franklin Delano Roosevelt and the United
States Congress wanted to address the
unprecedented level of financial distress by
expanding federal regulatory organizations and
creating a financial security net in the form of
the Social Security Administration. In 1938
Congress passed the Fair Labor Standards Act
(FLSA), which set a federal minimum wage of
25 cents per hour, established a 40-hour
workweek, and set rules against child labor.
The creation of a federal minimum wage was
an example both of regulation of the economy
by the federal government and the novel
notion of fiscal protection for America’s
lowest-paid workers. The idea behind the
minimum wage was to reduce the poor’s
reliance on welfare and give them the power to
lift themselves out of poverty through working
and receiving a decent wage.
Since its establishment, the federal
minimum wage has been raised twenty-two
times, expanding to cover more types of jobs
and protect more workers. In 1961 the FLSA
was amended to include workers in the retail
sector, and in 1978 it was expanded to include
all workers (with some exceptions, such as
workers who earn tips). In the 1980s the
minimum wage fell, and poverty and income
inequality rose, but recessions in 1979 and the
early 80s make it difficult to prove a causal
link between the two. In 2005, the Federal
minimum wage was increased to $5.85 per
hour and in 2007 it was raised again to $7.25,
the level at which it remains today.
The level of income and wealth inequality
that persists today has caused some economists
and policymakers to propose raising the
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minimum wage once again. According to
Congressional Research Services (CRS), in
1989, the top one percent possessed 30% while
the bottom fifty percent possessed 3% of the
wealth. By contrast, today, the top one percent
of Americans possesses 34.5% of all wealth in
the country, while the bottom 50% possesses
just 1.1% of the wealth. Thus, the poorest
Americans today possess a substantially
smaller portion of the nation’s wealth than
they did in the past.
In addition to wealth inequality, Americans
have also recently experienced a widening gap
in income inequality. According the Stanford
Center on Poverty and Inequality, the top one
percent of wage earners control about 25% of
all the country’s income, the highest share
controlled by this group since 1928. These
figures have resulted in about 16% of
Americans living in poverty today, the highest
poverty rate since 1993. 22% of all American
children, and in particular 38% of black
children live in poverty. While traditional
poverty rate statistics measured by the Census
Bureau may be flawed due to the exclusion of
social service programs such as food stamps
and housing subsidies, it is nonetheless evident
that the number of Americans, and especially
Americans in the racial minority living in
poverty has increased in recent years.
Positive and Normative Arguments Against
Raising the Minimum Wage
The main arguments against raising the
minimum wage stem from neoclassical
economic theory, which is based on the idea
that a free market is more efficient than a
regulated market. In free markets, consumers
buy goods from producers and the market
price is set based on the willingness of
consumers to buy and producers to sell. If
there is a high demand for a certain good, its
price will go up, because it is desirable and
producers only produce a limited quantity of it.
If there is a high supply of a good, the price
will fall, because consumers have many
different options when buying the good. This
describes the process by which supply and
demand are used in markets to determine a
market price.
In the labor market, workers make up the
supply side of the market and employers make
up the demand side. Employers demand labor,
and the workers supply the labor. Based on the
willingness of workers to supply their labor
and the willingness of employers to
“consume” or hire labor, a market price is set,
and this price is the wage of labor, the salary
that the employers pay to their employees.
Companies in similar industries will have
similar wages for their employees.
When the government introduces a
minimum wage, suddenly the price in the labor
market, the wage for workers, is no longer set
by market factors but rather artificially
determined. This artificial wage only affects
employers who had been paying a wage below
the minimum wage, mainly low-skill jobs such
as fast-food restaurants. Thus, some employers
have more expenses to pay in the form of
higher wages when the minimum wage rises.
Neo-classical economic theory holds that
because employers have to pay a higher wage,
they elect to simply hire fewer workers to limit
costs. This means that increasing the minimum
wage actually hurts the poor workers that the
policy is trying to help, because there are then
fewer jobs available.
Rationally, with forced higher wages, more
people will want to work—possibly high
school dropouts or people who are enticed by a
higher wage—but less people will be able to
work as employers hire less workers. Thus, the
supply of labor—the workers—rises while the
demand for labor—the employers—falls, and
we have what is called a surplus of labor. This
means that there are more people who want to
work than are able to, because employers are
not hiring. A surplus of labor increases the
unemployment rate, which measures the
number of people who want to work but
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cannot find a job. Thus, neo-classical
economic theory, holds that increasing the
minimum wage hurts low-wage workers, leads
to fewer jobs, and increases the unemployment
rate.
According to Harvard economist N.
Gregory Mankiw, an increase in the minimum
wage particularly hurts teenagers, who often
seek low-skill minimum wage jobs. Many
other economists who oppose the minimum
wage echo this argument. They say that a
higher minimum wage can be especially
harmful when young people cannot obtain
low-skill jobs and begin on the track to
holding a steady full-time job that pays
decently. Economist David Neumark writes
that raising the minimum wage does in fact
increase poverty and that low wages do not
actually contribute to the poverty rate. He
argues that raising the minimum wage distorts
the incentives of low-wage earners and pushes
them away from the things that will allow
them to earn higher wages—more education
and job training—while also increasing the
level of unemployment.
Richard Vedder and Lowell Galloway,
Senior Fellows at the National Center for
Policy Analysis (NCPA) agree with Mankiw
and point out that only 6.5% of minimum
wage earners are single parents. They argue
that unless labor policies increase the number
of jobs available to the poor, they will do
nothing to decrease poverty and may even
increase poverty by reducing employers’
ability to hire more workers. In addition to
teenagers, Vedder and Galloway note that
blacks are strongly and negatively affected by
such an increase. In the early 1990s an
increase in the minimum wage coincided with
an increase in nonwhite unemployment.
According to the Cato institute, the current
unemployment rate for teenagers is about 25%
and the unemployment rate for minority
teenagers is about 28%. With such a high
unemployment rate for teenagers and minority
teenagers in particular, it may not be an ideal
time to raise the minimum wage. It is clear
from the neo-classical standpoint that entrylevel workers would be hurt by an increase in
the minimum wage and, therefore, those who
advocate for an increase in the wage are
supporting a policy that will actually hurt the
people they are trying to help.
It is also important to think of the
minimum wage in terms of the larger
economy, which is still recovering from the
financial crisis and housing bubble of 2008.
The unemployment rate could increase to
recession-levels, growth could slow, and the
economy could sink into another recession
with bad policies. Raising the minimum wage
could also hurt small business and the most
vulnerable Americans, so it carries some risk
and may be a misguided policy. The NCPA
argues that the current minimum wage may
actually be too high and that Congress should
consider reducing the wage in order to spur job
growth.
Positive and Normative Arguments in Favor
Raising the Minimum Wage
Some contemporary economists have
rejected the basic principles of neo-classical
economics regarding the minimum wage. They
say that an increase in the minimum wage does
not in fact cause a labor surplus and an
increase in unemployment. In 1992,
economists David Card and Alan B. Krueger
conducted a case study analyzing the effects of
an increase in the minimum wage on fast-food
restaurants in New Jersey. Fast food
restaurants are typically affected by a change
in the minimum wage, because they generally
hire minimum-wage employees.
Card and Kreuger attempted to specifically
test the standard neo-classical economic
principle that an increase in the minimum
wage causes an increase in unemployment.
However, their experiment found the opposite;
an increase in New Jersey’s minimum wage
from $4.25 to $5.05 did not result in a
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decrease in employment, and in fact,
employment actually increased for lowincome jobs in fast-food restaurants. Prices
rose, indicating that the cost of the increase
wages was passed on to consumers. Many
economists argue that rather than firing
workers when the minimum wage rises,
employers actually just raise prices or accept
decreased profits. An increase in the minimum
wage also helps businesses as a result of
consumers’ increased purchasing power. With
more
people
earning
more
money,
consumption will rise as the standard of living
for the lowest-wage workers rises.
Once the dogma of the neo-classical model
is put aside, these economists turn to the
reasons why increasing the minimum wage for
poor, low-skill workers is important.
Economist David S. Lee analyzes the increase
in wage inequality in the 1980s and ties this
trend to a declining minimum wage. His
research proves the common sense notion that
as the minimum wage falls, the disparity
between the highest and lowest earners rises.
Therefore, an increase in the minimum wage
may lessen both the level of poverty and that
of income inequality. Lee’s findings were
especially true for poor women, the group who
generally benefit the most from an increase in
the minimum wage. According to the Census
Bureau, approximately 60% of workers who
benefit from a higher minimum wage are
women. Approximately 20% are teenagers
earning 46% of their families’ total wages in
2011, suggesting that raising the minimum
could directly benefit families and children
who may be currently struggling, lacking basic
necessities such as food, clothing, and
healthcare.
Those who support an increase in the
minimum wage often point to the fact that the
wage has not kept up with inflation—the yearto-year rise in economy-wide prices. When all
prices increase (rather than just the price of
one good) inflation increases, and dollar buys
less than it used to. Economists describe this
change in spending power of a dollar as the
real value of a dollar, which declines as
inflation increases. At one time, it was
possible to buy a meal for 50 cents. Today,
that would be unheard of—50 cents buys a lot
less than it did in the past. Using similar logic,
if the minimum wage was $7.25 per hour in
2007 and it has remained at this mark through
2013, but prices have risen between 2% and
3% per year during this period, the real value
of the money earned by minimum wage
earners has declined. A full-time worker
earning the minimum wage earns $14,500 per
year, but $14,500 could buy more in 2007 than
it does now, because prices across the entire
economy were lower in 2007 than they are
now. This means that every single year the
minimum wage stays the same, its real value
declines or erodes. Thus, people earning the
same minimum wage from year to year are
growing poorer and poorer.
The Economic Policy Institute argues that
as the real value of their wages has eroded,
minimum wage earners’ productivity has
increased. This means that these people are
better workers but are essentially getting paid
less than minimum wage workers of ten or
forty years ago. Average hourly productivity
has increased by 112% since 1968, the year of
the highest minimum wage (in real terms).
However, the real value of the minimum wage
declined steadily in the early 1980s. During
this same period, income inequality increased;
the 90/10 ratio, which compares the income of
the 90th percentile of wage earners to the 10th
percentile rose from about 3.5 to 4.5. This
ratio is currently 4.7, and the real value of the
minimum wage has fallen by about two dollars
from the early 1980s to today. Indeed, not only
has the minimum wage not kept up with
inflation (rising prices), but it also has not
stayed on track with the average wage of all
workers in the economy.
The EPI has developed a “basic family
budget” which takes into account the expenses
of all of a family of one parent and two
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children. Such a family needs about $40, 273
per year, a figure about three times the
earnings of a full-time worker earning the
minimum wage. Thus, some argue that the
minimum wage is currently unable to reduce
poverty in the way that it may have been
meant to.
Recent Developments
The last time the minimum wage was
increased was in 2007 through a bill proposed
by George Miller (D-CA) in the House. The
bill was supported by 82 Republican
representatives and signed into law by
Republican president George W. Bush. It
passed the Senate only after tax cuts for small
businesses were included to curb any negative
affects a higher wage might have on
employers. The bill raised the minimum to
$7.25 per hour.
Increasing the minimum wage has also
been found to be popular among the American
populace. According to a 2013 Gallup Poll,
71% of Americans support raising the Federal
minimum wage to $9 per hour. The poll found
that 91% of Democrats and 94% of liberals
supported raising the minimum while 50% of
Republicans and 54% of Conservatives
supported the measure.
Congressional Action
On issues of poverty, Congress has been
unable to take substantial action in the past
few years, which is why the current moment
demands some kind of compromise in which
Congress passes a bill that attempts to attack
this growing problem. In 2013, Democrats in
the House attempted to pass the Fair Minimum
Wage Act of 2013, which would have raised
the minimum wage to $10.10 and tied future
changes in the minimum wage to inflation.
However, the bill lacked Republican support
in the House, and did not pass in that chamber.
FOCUS OF THE DEBATE
Conservative View
For the most part, Conservatives oppose
the minimum wage on the grounds that it
represents
unnecessary
government
intervention into the economy and that it can
have negative consequences for the people it is
seeks to help. Increasing the price of
employment makes hiring workers less
attractive for employers, and therefore,
unemployment rises with the minimum wage.
Speaker of the House of Representatives
John Boehner says that an increase in the
minimum wage would make hiring more
workers especially difficult for small
businesses. Small businesses are important in
the American economy as job creators, and
making it difficult for them to crate more jobs
will severely hurt the economy.
The biggest problem with some minimum
wage proposals for conservatives is the costof-living adjustment stipulations, which
removes control of the minimum wage from
the hands of lawmakers, tying changes in the
minimum wage to changes in inflation. Some
conservatives may be willing to compromise
on a one-time increase in the minimum wage,
but most are opposed to any type of cost-ofliving adjustment program.
Philosophically, conservatives promote a
policy of less government regulation of the
economy, and the minimum wage is a
regulation of wages. Conservatives generally
believe in neo-classical economic principles
that advise a hands-off approach and a free
market that sets its own prices based on supply
and demand. Therefore, many Conservatives
may be opposed to increasing the minimum
wage on both economic and philosophical
grounds.
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Liberal View
Interest Group Perspectives
Liberals believe that the minimum wage
should be raised and possibly indexed to
inflation. Many have suggested increasing it to
$9, with some advocating for an even higher
$10.10. Despite the failure of the Fair
Minimum Wage Act of 2013 in the House,
Democrats plan to keep the increasing of the
minimum wage a key piece of the party
platform. According to House Minority Leader
Nancy Pelosi, increasing the minimum wage
and tying it to inflation will be a key part of
the Democratic Party platform in the
upcoming midterm elections of 2014.
Liberals believe that income disparity is so
detrimental to the welfare of the American
people and the health of the economy that its
benefits outweigh any adverse consequences.
Moreover, they believe that opponents of the
minimum wage fail to recognize both the
workers’ cost of living and their higher
productivity over time. They argue that the
Federal government has the responsibility of
ensuring that the poorest, lowest-skilled
workers receive a fair wage. Liberals see
increasing the minimum wage both as a moral
and fiscal imperative, with the added bonus of
being one that is politically popular.
Presidential View
President Barack Obama has often voiced
his strong support for raising the minimum
wage to $9, including this proposal in his 2013
State of the Union Address to Congress. He
has advocated raising the minimum wage to $9
by 2015 and afterwards indexing the minimum
wage to inflation. The president hopes this
plan will reduce both poverty and income
inequality and strengthen the weakened
American middle class. According to the
president, this plan will help poor families and
ensure that fewer children are forced to grow
up in poverty.
The Center for American Progress
The Center for American Progress (CAP),
a progressive think tank, supports raising the
minimum wage to $9 per hour. The minimum
wage mainly affects poor, single mothers and
people of color, who are among the most
vulnerable groups in America.
In addition, CAP argues that raising the
minimum wage will not stunt job growth,
because businesses can slightly reduce their
profits or raise prices in order to absorb the
costs of having to pay a higher wage. Raising
the minimum wage will increase the salaries of
21 million people. These workers’ current
incomes made up about only 1.6% of the
economy’s total income in 2011. Therefore,
raising the minimum wage changes peoples’
lives for the better without having large
ramifications for the rest of the economy. In
addition, CAP believes that businesses would
enjoy gains from a higher minimum wage in
the form of higher worker productivity, less
labor turnover, and higher consumer
purchasing power.
The Cato Institute
The Cato Institute, a libertarian think tank,
believes that a high minimum wage distorts
the labor market in a way that hurts the same
unskilled laborers it is trying to help. It argues
that the minimum wage prevents employers
from paying workers the market value of their
labor. In the face of additional market
distortion, they argue that businesses will
choose to hire fewer workers and to reduce
labor hours.
Cato believes that the groups most
adversely affected by an increase in the
minimum wage are low-skilled workers,
minorities, and young people. These groups
also happen to be the groups with relatively
higher levels of poverty, so Cato holds that
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raising the minimum wage does nothing to
reduce and may actually increase rates of
poverty.
Instead, Cato supports policies that create
rather than reduce jobs for low-skilled
workers. Policies that aid employers in hiring
more workers, such as tax cuts for businesses,
would allow companies and small business in
particular to hire more workers and pay more
people a wage that will allow them to pull
themselves out of poverty. According to Cato,
entry-level workers usually earn higher wages
after a short period of time, so people are
rarely stuck at the minimum wage for a long
period of time. With a lower minimum wage
and more jobs, it believes that people could
start with a low wage but work up to a higher
wage and better standard of living rather,
rather than having difficulty finding a job to
begin with.
Economic Policy Institute
The Economic Policy Institute (EPI)
advocates indexing the minimum wage to the
average wage. While the average wage is
different from inflation, it tends to rise as
inflation rises. EPI points out that as inflation
brings the average wage up with it, the
minimum wage falls behind. Therefore, the
real value of the minimum wage is eroded, and
more people earning the minimum wage fall
into poverty each year. EPI’s plan would
reverse this phenomenon.
The Institute supports keeping the
minimum wage pegged at 50% of the average
wage, a standard that has not been met since
the 1960s. During the 1960s, the economy
experienced robust growth, and wealth was
spread more evenly across income groups than
it is today. In the 2000s, the minimum wage
averaged about 34% of average wages, and the
economy has been weak as in income and
wealth disparity have grown to new heights.
EPI believes these trends are not coincidental
and that the only way to help the economy
recover while reducing poverty and protecting
American workers is to index the minimum
wage to average wage.
POSSIBLE SOLUTIONS
With many economic, political, and moral
arguments surrounding the issues of the
minimum wage, poverty, unemployment, and
income inequality, lawmakers should look for
solutions that balance various priorities and
promote the best policy possible. Three
potential options are presented here, but
lawmakers are encouraged to come up with
their own solutions as well for discussion and
debate.
Raise the Minimum Wage
Congress can pass legislation that raises
the minimum wage one time and does nothing
more. In the past, some proposals have
included a minimum wage of $9 or $10.10 per
hour. However, these measures have not been
popular among conservatives, which is largely
why such a measure has not been successful in
Congress recently. Politicians should seek a
compromise, such as the signed into law by
Republican President George W. Bush in
2007. In exchange for increasing the minimum
wage, President Bush and Republicans in the
Senate demanded that the bill include a tax
break for small businesses to help them
withstand the higher wages they would have to
pay their employees. When Democrats agreed,
the bill was signed into the law and the
minimum wage was raised from $5.85 to
$7.25 per hour. If any sort of minimum wage
increase is to pass in Congress today, it will
most likely have to be accompanied by some
kind of concession to conservative lawmakers.
In addition, it may be wise to keep
economists’ worries about a higher minimum
wage close to heart, especially in light of the
shaky recovery from the 2008 financial crisis.
It is important that recent positive tends in the
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labor, housing, and stock markets are not
reversed by poor economic policymaking in
Congress. Potential negative consequences of
any change in economic policy should be
properly considered before a minimum wage is
enacted.
Raise the Minimum Wage and Tie it to
an Economic Indicator
Policymakers, primarily liberals, have
proposed raising the minimum wage and
indexing future changes in the wage to either
changes in inflation or changes in the average
wage, which changes with inflation. This
policy would remove the politics from
minimum wage policy so that politicians
wouldn’t be able to prevent increases in the
minimum wage when inflation increases. It
would also be a much more efficient means of
continually increasing the minimum wage in
keeping with its real value. Proponents of such
a plan argue that as prices rise and the
minimum wage stays constant, its real value
declines. This causes minimum wage workers
to become poorer every year that prices rise.
Indexing the minimum wage to inflation or the
average wage would allow these people to
keep earning the same amount of money in
real terms regardless of whether politicians
could reach political compromises year after
year.
However, many lawmakers are wary of
this idea, as they are concerned that the
minimum wage would become too high and
hurt the people it is trying to help. If the
minimum wage becomes too high, employers
could, as conservatives fear, start hiring fewer
workers and cutting workers’ hours. It could
even potentially force some companies who
cannot keep up with the ever-increasing wages
out of business and eliminate jobs in the
process. Many opponents of this plan would
like to retain firmer control over changes in the
minimum wage than this policy would allow.
Do Not Raise the Minimum Wage
(Or Lower It)
Many economists and lawmakers oppose
the idea of increasing the minimum wage on
the grounds that it is not sound economic
policy. These people may even advocate for
lowering the minimum wage to encourage
employers to hire more workers, reducing
unemployment. If the surplus of labor is
decreased, more people should be employed
and fewer people who want to work will be
unable to find it. However, if neo-classical
theory does not hold, the consequences could
be adverse, as minimum wage earners could
potentially earn even less than they currently
do, pushing more people into poverty.
There are, however, many other economic
policies that lawmakers who do not favor an
increase in the minimum wage can choose to
pursue. Tax breaks to job creators (such as
small businesses) is one potential option.
Adjustments to unemployment benefits are
another option, as some economists believe
that decreasing unemployment benefits would
incentivize those without jobs to find work.
Delegates who are firmly opposed to changes
in the minimum wage should be creative in
designing other policy proposals to decrease
poverty,
income
inequality,
and
unemployment.
QUESTIONS FOR POLICYMAKERS
Policymakers face a myriad of economic,
political, and moral questions as they consider
the issues of poverty, unemployment, income
inequality, and the minimum wage. Should we
retain the status quo? If not, then there are a
variety of positive and normative questions
that should be considered.
Positive questions include: do we believe
that raising the minimum wage reduces
poverty? Or does it actually increase
unemployment and poverty through a labor
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HARVARD MODEL CONGRESS SAN FRANCISCO 2014
surplus? Do businesses reduce profits and
increase prices when they have to pay a higher
wage or do they reduce the number of
employees? Are the lowest-skilled, lowestpaid workers hurt the most when the minimum
wage increases or do they benefit from a
higher salary? Does a free market allocate
resources and wages efficiently or are their
inefficiencies in the labor market? Does
increasing the minimum wage reduce income
inequality? Different economists have
different answers to each of these positive
questions, making the task of finding concrete
answers seemingly impossible for lawmakers.
Contemporary studies by respected economists
show conflicting results, and delegates must
sort through these studies to find the evidence
and the argument they find most convincing.
Lawmakers
should
also
consider
significant normative questions such as:
should the federal government intervene in the
labor market? Should markets be left to sort
themselves out and set their own prices, or
does the government sometimes have to
intervene to protect people? Should the lowestskilled,
lowest-paid
workers
receive
government protection in the form of a livable
minimum wage? Should the minimum wage
be higher than a livable wage and should it be
used to lift people out of poverty? Delegates
must analyze these questions carefully when
preparing for the conference.
CONCLUSION
Congress has a very important task before
it today: finding a way to help the 16% of
Americans, the 43.6 million people, more than
16 million of them children, out of poverty,
into employment, and on the path toward a
better life. One policy option that Congress
must consider is increasing the minimum
wage, the lowest wage that employers are
allowed to pay their employees. A higher
minimum wage will most likely decrease the
growing gap between the wealthiest and
poorest Americans. Currently the wages of the
wealthy are growing while the wages of the
poor remain stagnant and lose real value every
single year because of inflation. Lawmakers
are allowing the wages earned by America’s
poorest workers to erode every single year,
and they must carefully consider whether this
is a path down which they wish to continue. If
they want the minimum wage to retain its real
value from year to year then they should peg
the minimum wage to inflation.
Yet our members of Congress must also be
aware of the dangers of a continually
increasing minimum wage, especially in light
of the delicate economic recovery that is still
in progress. There are a multitude of positive
and normative questions that delegates must
ask themselves during their research leading
up to the conference, and the must consider the
various political, economic, and moral
questions that all politicians must ask
themselves once they are in office. We all
want to reduce poverty and provide a great
standard of living for all Americans, but how
do we do it?
GUIDE TO FURTHER RESEARCH
Delegates should come prepared to discuss
minimum wage policy and therefore must have
a basic understanding of the different theories
of the affects of an increase in the minimum
wage. Delegates should research basic microeconomic theories about the minimum wage
and email any questions on the subject to the
committee chairs before the conference. Some
of the economic concepts involved in
minimum wage policy are difficult to
understand, so questions are encouraged. We
will also take time to go over the economic
theory behind these issues if need be during
the committee.
Delegates
should
also
familiarize
themselves with information about current
levels of poverty, income inequality, and
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HARVARD MODEL CONGRESS SAN FRANCISCO 2014
unemployment and observe how these
measures change between the time that this
briefing was written and the conference.
Delegates are encouraged to pay attention to
any news on minimum wage policy, the
poverty rate, and the unemployment rate.
Information about the poverty rate can be
found on the U.S Census Bureau’s website,
and monthly updates on the unemployment
rate can be found on the U.S. Bureau of Labor
Statistics website.
Delegates should also examine at least two
different economic policy research papers
about the minimum wage. It is likely that
delegates will find conflicting information for
and against raising the minimum wage. Thus,
delegates should prepare to both argue for
their side of the issue and respond to the
arguments of the other side. Delegates have
some freedom to make creative arguments and
think of their own ideas as long as they are
grounded in current economic research. Again,
delegates are always encouraged to email the
committee chairs with questions about the
topic, or the conference in general.
Real Value – Prices are kept constant so
inflation does not factor into a good’s value.
Therefore, the value of a good can be
measured, accounting for price fluctuations
Labor Turnover- The rate at which workers
change jobs
BIBLIOGRAPHY
Lowrie, Anne, “Raising Minimum Wage
Would Ease Income Gap but Carries Political
Risks”,
The
New
York
Times,
http://www.nytimes.com/2013/02/13/us/politic
s/obama-pushes-for-increase-in-federalminimum-wage.html?pagewanted=all.
Febraury 13, 2013.
de Rugy Veronique, “Raising the Minimum
Wage: A Tired, Bad Proposal”, National
Review
Online.
http://www.nationalreview.com/corner/340644
/raising-minimum-wage-tired-bad-proposalveronique-de-rugy,
February 13, 2013.
GLOSSARY
Positive Statement– A positive statement is a
statement of what is rather than what should
be, of fact rather than opinion.
Normative Statement – A normative statement
is a statement of what should be rather than
what is, of opinion rather than fact.
Indexation – Tying one value to another. Thus
when inflation rises, so too does the minimum
wage by some percentage determined by
economists.
Inflation – An increase in the price level;
rather than just the price of one good rising,
the prices of all goods in the economy rise (or
fall) from year to year
Saad, Lydia, “In U.S., 71% Back Raising
Minimum
Wage”,
Gallup,
http://www.gallup.com/poll/160913/backraising-minimum-wage.aspx, March 6, 2013.
Fact Sheet: The President’s Plan to Reward
Work by Raising the Minimum Wage,
http://www.whitehouse.gov/the-pressoffice/2013/02/13/fact-sheet-president-s-planreward-work-raising-minimum-wage,
February 13, 2013.
Mcmahon, Tim, “Average Annual Inflation
Rates
by
Decade”,
http://inflationdata.com/Inflation/Inflation/Dec
adeInflation.asp, November 5, 2012.
POVERTY, INCOME INEQUALITY AND THE MINIMUM WAGE – 11
HARVARD MODEL CONGRESS SAN FRANCISCO 2014
Stone, Chad; Trisi, Danilo; Sherman, Arloc,
“A Guide to Statistics on Historical Trends in
Income Inequality”
http://www.cbpp.org/cms/?fa=view&id=3629,
October 23, 2012.
Deere, Donald R., Don’t Raise the Minimum
Wage—the Bar is Already Too High, National
Center
for
Policy
Analysis,
http://www.ncpa.org/pub/ba270, June 9, 1998.
Levine, Linda, “An Analysis of the
Distribution of Wealth Across Households,
1989-2010”, Congressional Research Service,
http://www.fas.org/sgp/crs/misc/RL33433.pdf,
July 17, 2012.
Lee, David S., “Wage Inequality in the United
States in the 1980s: Rising Dispersion or
Falling
Minimum
Wage?”
http://piketty.pse.ens.fr/fichiers/enseig/ecoineg
/articl/Lee1999.pdf
Card, David; Krueger, Alan B., “Minimum
Wages and Employment: A Case Study of the
Fast-food Industry in New Jersey and
Pennsylvania,” The American Review, Volume
84, Issue 4 (Sep., 1994), 772-793
http://web.uvic.ca/~hschuetz/econ370/CardKr
uMW.pdf
Shierholz, Heidi, Fix It and Forget It, Index
the Minimum Wage to Growth in Average
Wages, EPI Briefing Paper, Briefing Paper #
251, http://www.epi.org/page/-/pdf/bp251.pdf,
December 17, 2009.
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