According to Neumark, Salas, and Wascher (1), “debates about the economic effects and the merits of the minimum wage date back at least as far as the establishment of the Department of Labor as a cabinet-level agency in 1913.” The authors describe the neoclassical school argument that “wage levels were determined by workers’ productivity and that minimum wages would reduce employment among low-skilled workers.” In other words, under free market conditions, the wages perceived by any given worker would reflect the productivity of that worker’s labor. The setting up of a minimum wage would upset the workings of the labor market: employers would not be willing to trade a minimum wage payment for work which productivity is lesser than that expected of the minimum wage. An alternative view is offered by the “progressives” (Neumark, Salas, and Wascher 1), which claim that “minimum wages were necessary to prevent the widespread exploitation of lower-skilled workers by employers with greater bargaining power over wages.” The enactment of a minimum wage would have the effects of boosting consumers’ purchasing power and raising aggregate demand.
Naturally, the academic discussion from the above paragraph refers to a time or situation where there was no established minimum wage. One can infer from the same academic debate that the effects of an increase of $15 in the Federal Minimum Wage (FMW) would be similar. From a neoclassical standpoint, one would expect employers unwilling to hire those workers of lower productivity (i.e., increased unemployment). On the other hand, from a progressive perspective, one would expect an increase in aggregate demand.
Baskaya and Rubinstein (28) point out that “a large body of empirical studies report conflicting evidence regarding the disemployment effects of increases in minimum wages.” Referring to the FMW, the authors indicate that “we find notable wage effects and corresponding disemployment effects when we use the differential impacts of adjustments in federal minimum wages as the external source of variation in state effective minimum wages floors.” Such result corroborates the neoclassical expectations.
A similar result is found by Neumark, Salas, and Wascher (36), which concludes after an extensive article that “we continue to believe that the empirical evidence indicates that minimum wages pose a tradeoff of higher wages for some against job losses for others, and that policymakers need to bear this tradeoff in mind when making decisions about increasing the minimum wage.”
Such recent articles confirm the conclusion of older literature, such as (Brown, Gilroy, and Kohen 520) which declared that “estimates of the minimum wage effect of a 10 percent increase on teenage unemployment rates range from zero to over three percent, but estimates from 0 to .75 percentage points are more plausible.”
Based on the literature review above, we expect that a $15 increase in the FMW would cause an increase in unemployment, particularly of teenagers, while the effects on aggregate demand are uncertain.
Works Cited
Baskaya, Yusuf Soner, and Yona Rubinstein. "Using federal minimum wages to identify the
impact of minimum wages on employment and earnings across the US states."
Brown, Charles, Curtis Gilroy, and Andrew Kohen. "The effect of the minimum wage on
employment and unemployment." Journal of Economic Literature 20.2 (1982): 487-
528.
Neumark, David, JM Ian Salas, and William Wascher. "Revisiting the Minimum Wage—
Employment Debate: Throwing Out the Baby with the Bathwater?." Industrial &
Labor Relations Review 67.3 suppl (2014): 608-648.
