Setting a Floor on Earnings: Are Current Efforts Helping or Hurting Minimum Wage Earners?

Setting a Floor on Earnings: Are Current Efforts Helping or Hurting Minimum Wage Earners?

  • Case
  • Teaching Notes

Debates over where to set an adequate mark for pay rates that constitute a livable wage have occupied the political sphere for a long time. The reasons for promoting a governmental mandate to raise the minimum wage emphasize economic and social justice. Wages that stagnate over time demonstrate diminishing purchasing power. If the state fails to impose a minimum wage, employers have a built-in incentive to pay the least possible wage in order to maximize their profit margin. It is inevitable that inflation will leave a constant dollar figure pay rate fighting a losing battle against a rising tide of costs. Successful political movements have managed to capitalize on these issues in forcing employers to pay a more equitable rate for the lowest paid workers.

The present case study asks students to evaluate these upward adjustments to the pay scale on their economic implications rather than on political or ethical grounds. Tracking the repercussions of upward adjustments in the market indicates important gains on several points, such as a lower poverty rate. Alternatively, there are drawbacks to be accounted for, such as greater unemployment and employers rolling back employee benefits. These complicated impacts defy the often-one-sided rhetoric that plays itself out in the politically partisan debate. In arriving at a more nuanced understanding of what raising the minimum wage means, the study will arrange the subject matter according to three axiomatic points of contrast: economists’ opinion for and against; whether raising the pay rate helps or harms the poor; and what employers like versus what they do not like about wage hikes.

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