Recently, the City of Los Angeles has made the news as a result of its decision to raise the minimum wage to $15/hour by the year 2020.
The present sample essay will consist of a critical discussion of this policy initiative and its potential implications.
- The essay will begin with a brief overview of the history of the minimum wage within the United States.
- Then, it will proceed to a discussion of the situation within Los Angeles itself.
- Next, the essay will consider the potential implications of the decision in Los Angeles from a theoretical and evidence-based perspective.
- Finally, the essay will reflect on what should perhaps be done in order to optimize the positive effects of the decision reached by Los Angeles while minimizing the negative ones.
History of the minimum wage
To start with, then, it is important to understand that it is impossible to determine the actual significance of the minimum wage at a given time without taking inflation into account. The federal minimum wage within the United States is currently $8.25. In simple unadjusted terms, it could be said that this is the highest the minimum wage has ever been: the minimum wage was a mere quarter ($0.25) in the 1930s, and it has steadily increased ever since, all the way up to the present day.
As DeSilver has indicated, however:
“Adjusted for inflation, the federal minimum wage peaked in 1968 at $8.54 (in 2014 dollars). Since it was last raised in 2009, to the current $7.25 per hour, the federal minimum wage has lost about 8.1% of its purchasing power to inflation” (paragraph 4).
It is only when the numbers are adjusted for inflation that the actual meaning of earned income, in terms of quality of everyday life, can be properly understood. And within this context, it is quite clear that the minimum wage, relative to the cost of living, has actually decreased over the last several decades.
In this context, the project of raising the minimum wage could be understood as one important facet of the broader program of middle-class economics, as outlined in President Obama’s recent State of the Union address. The idea is that given the minimum wage as it stands, it would be very difficult for a given person to support himself and a family even when working full time at a job that pays the minimum wage.
In other words, the minimum wage is not a living wage. The implication of the decision that has recently been reached in Los Angeles is that the city perceived that $15/hour would be a reasonable living wage within the context of present economic circumstances, and that it was thus morally incumbent upon the city itself to take action to close the gap between the minimum wage and the living wage, in the absence of any broader federal action to address this matter in as significant a way.
The situation in Los Angeles
Jamison, Zahniser, and Walton wrote the following on the 19th of May, 2015:
“The Los Angeles City Council on Tuesday backed a plan to raise the city’s minimum wage to $15 per hour, joining a trend sweeping cities across the country as elected leaders seek to boost stagnating pay for workers on the lowest rungs of the socio-economic ladder” (paragraph 1).
This would go into effect by the year 2020, and it is a full $6 up from the current minimum wage of $9/hour.
The line about a trend sweeping the nation is a reference to the fact that similar actions have been taken by other major cities within the nation as well, including Chicago and Seattle. Los Angeles, though, is the biggest city thus far to have adopted such an initiative; and the results in Los Angeles could be understood as potentially having implications for the direction that the rest of the nation may or may not likely to take regarding this matter.
One of the main concerns that have emerged regarding the minimum wage rise within Los Angeles is the fact that the areas immediately surrounding Los Angeles will not be participating in the policy initiative. This raises the potential risk that employers who could easily relocate from within Los Angeles to outside the city limits may take this opportunity to skate social responsibility, so that they will be able to avoid the costs that would be associated with actually raising the minimum wage for all of their employees.
Essentially, if it is assumed that stakeholders within an economic situation are rational actors seeking to maximize their own self-interest, then if a company could just as easily operate in a place with a lower minimum wage than a place with a higher minimum wage, then that company could surely be expected to operate in the place with the lower minimum wage. This would result in a deterioration of the economy within Los Angeles and a spike in the unemployment rate; and this would mean that the raising of the minimum wage would paradoxically end up hurting the people of Los Angeles themselves.
Another issue that has recently emerged is that the very labor unions that were key advocates of the raise in the minimum wage are now seeking to exempt themselves from its mandates (see Medina). As Weissman has put it:
“Predictably, the move has led to some charges of hypocrisy from conservatives, as well as pure bafflement among others. In Los Angeles, the Chamber of Commerce is arguing that labor groups want the change so that business owners will simply let workers organize instead of paying the new minimum, which would plump up union rolls” (paragraph 3).
It would seem, then, that the unions are engaged in an opportunistic move to present business owners with a choice between the lesser of two evils—with actually raising the minimum wage to $15 being the greater evil. It is difficult to read this turn of events in a way that casts the unions in a morally favorable light. At best, it can be suggested that this move confuses the issue at hand, insofar as the whole point of the very concept of the minimum wage is that it is supposed to be non-negotiable.
Theoretical and evidence-based analysis
One of the main arguments that have historically been presented against the practice of raising the minimum wage is that it would result in an increase in unemployment. This is due to the simple economic laws of supply and demand. These laws state, among other things, that if the price of a commodity goes up, then consumers will be less inclined to purchase that commodity.
An increase in the minimum wage essentially means that, speaking from the perspective of potential employers, the price of labor goes up. Therefore, it could easily be predicted on the basis of the relevant theoretical concepts that a raise in the minimum wage would cause a decline in the demand for labor; that is, it would cause an increase in the unemployment rate. This would clearly hurt the people who are making the current minimum wage (see Neumark and Wascher). Therefore, the conclusion that follows is that a raise in the minimum wage would actually cause harm and not good to the people who are actually making the minimum wage.
Interestingly, however, the empirical evidence seems to suggest that no such thing actually happens in reality. In a meta-study regarding a great deal of the relevant research on this subject that has accumulated over time, Schmitt has concluded the following:
“The weight of evidence points to little or no employment response to modest increase in the minimum wage” (1).
It has also been suggested in the same study that various other factors, some of which are intrinsic to organizations themselves, exercise a far greater influence on employment. One interpretation of these findings is that various contextual factors overshadow the effect on employment of the minimum wage per se. Another though, may be that a raise from $9 to $15 as has been proposed within Los Angeles—a raise of a full 67 percent—could perhaps not reasonably be called “modest”.
In this context, Cassidy is surely correct in summarizing the current situation in Los Angeles by declaring that “a fascinating minimum-wage experiment is about to unfold” (paragraph 1). That is, Los Angeles (and other cities that have implemented similar minimum wage policies) is essentially serving as a real-life laboratory regarding the question of what may happen if a given city substantially increases the minimum wage while surrounding areas keep their minimum wages constant.
If it turns out that the residents of Los Angeles do in fact experience an improvement in their quality of life while the local economic as a whole does not suffer from any drawbacks such as an increase in unemployment, then the traditional argument against raising the minimum wage would essentially be debunked, and other cities within the nation would likely feel far more comfortable with pursuing a similar course of action. It makes a great deal of sense, then, why all eyes may currently be on Los Angeles.
Reflection on the mimimum wage
In principle, it can be suggested that it is in fact morally imperative for not only individual cities within the United States but also the United States as a whole to take efforts to close the gap between the minimum wage and the living wage (see DeSilver). In principle, if a person works full time at any job, he should be able to support himself and his family in an adequate way; this is the meaning of the concept of the living wage.
Given the current minimum wage laws within the nation, this criterion cannot be met. Therefore, insofar as the premise is accepted that every person within a civilized nation ought to be able to earn a living wage from his job, it follows that efforts such as the one taking place within Los Angeles at the present time are very important for the moral status of the American nation as a whole.
The only important reservation that can be made here is that it is perhaps important to somehow guard against the possibility of universal inflation. In other words, if the minimum wage were increased all across the nation at the same time, then it is possible that the cost of everything else—including rent, food, entertainment, and so on—will also increase.
The general result would be a devaluation of the dollar itself; that is, the general result would be inflation. It is clear that such inflation has already consistently happened over the course of the last century within the United States: a quarter in the 1930s was worth what $3.50 is worth today (see DeSilver). In order to genuinely improve the standard of living among workers within the nation, it would be necessary to raise the minimum wage while nevertheless keeping the costs of everything else (except labor) more or less consistent.
This may be relatively feasible when an increase occurs at the local level, assuming that unemployment does not increase as a result. If a wage raise were to occur at a broader societal level, though, systemic economic factors would perhaps need to be given greater consideration.
In summary, this essay has consisted of a discussion of the raise in the minimum wage that in Los Angeles. The essay has discussed the history of the minimum wage, the current situation in Los Angeles, the theoretical and empirical evidence underlying the issue, and potential implications for the future. It has been suggested here that it is highly commendable at the moral level that Los Angeles is seeking to close the gap between the legal minimum wage and the practical living wage.
The only real question that remains is the pragmatic one of whether this effort will in fact be successful at producing its intended effect of concretely improving the standard of living of the people of Los Angeles. The results of this experiment remain to be seen.
Cassidy, John. “A Fascinating Minimum-Wage Experiment Is about to Unfold.” New Yorker. 21 May 2015. Web. 4 Jun. 2015. fascinating-minimum-wage-experiment-is-about-to-unfold>.
DeSliver, Drew. “5 Facts about the Minimum Wage.” Pew Research Center, 20 May 2015. Web. 4 Jun. 2015. .
Jamison, Peter, Zahniser, David, and Alice Walton. “Los Angeles’ Minimum Wage on Track to Go Up to $15 by 2020.” 19 May 2015. Web. 4 Jun. 2015. .
Medina, Jennifer. “Los Angeles Labor Group Backs Minimum Wage Increase, Then Seeks Exemption.” New York Times. 29 May 2015. Web. 4 Jun. 2015. http://www.nytimes.com/2015/05/30/us/los-angeles-minimum-wage-increase-backed-by-federation-of-labor-group-that-now-seeks-exemption.html>.
Neumark, David, and William Wascher. “Minimum Wage and Employment.” IZA Discussion Papers, No. 2570. ECONSTOR. 2007. Web. 4 Jun. 2015.
Schmitt, John. “Why Does the Minimum Wage Have No Discernible Effect on Employment?” Center for Economic and Policy Research, 2013. Web. 4 Jun. 2015.
Weissmann, Jordan. “Los Angeles Unions Fought for a $15 Minimum Wage. Now They Want to Be Exempt from It.” Slate. 27 May 2015. Web. 4 Jun. 2015. _exempt_from_it.html>.