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Minimum wage
Background
• It was introduced in 1938 during great depression
under president Franklin Delano Roosevelt.
• Started with $0.25 per hour and it has been
increased by congress 22 times.
• Most recent was in 2009 from $6.55 to $7.25.
• 29 states and D.C. have a minimum wage higher
than the federal minimum wage.
• 2,561,000 workers earn the federal minimum
wage.
Pros of Raising Minimum Wage
• Reduce Poverty
– Person who makes $7.25 per hour earns $15,080
in a year, which is 20% higher than the 2015
federal poverty of $12,331.
– Increasing a minimum wage to $9 would lift
300,000 people out of the poverty and increasing
to $10.10 would lift to 900,000 people out of
poverty.
• Reduce Government welfare spending
– By raising the minimum wage people will make
more money and they will be able to afford the
daily spending.
– The center for American progress reported in
2014 that raising the federal minimum wage by
6% to $10.10 would reduce spending on SNAP by
6% or 4.6B.
• Improvement in productivity and low Training
cost
– By raising minimum wage people will be happy at
their job and will have increased in productivity.
– By paying more than the minimum wage workers
will not leave the company and stay and move
within the company. This will decrease the
training cost of new workers.
– For an Example: Wegmans
• They are known for paying their employee more than
minimum wage. They also pay more than the other
competitor. This saves them tons of money form hiring
and training new people.
• Reduce income inequality
– In 2012 the richest 1% of the US population
earned 22.83% of the nation’s total pretax income
resulting the biggest gap between poor and rich.
• Healthier population and prevent premature
deaths
– Study found that California minimum wage to $13
an hour by 2017 would significantly benefit health
and well being.
– Those who earn higher than the minimum wage
would have enough to eat, be more likely to go to
exercise, less likely to smoke, suffer from fewer
emotional and psychological problems and will
prevent 389 premature deaths.
• Increase in school attendance and decrease
school drop out rates
– Study found that raising California wage would
increase the income of 7.5 million families. That
means fewer will live in poverty.
– Teens who lives in poverty more likely to miss
school that means we will have less teens missing
school.
• Reduce federal deficit
– By lowering spending on public assistance
programs and increasing tax revenue.
– Because of payroll and income tax revenues would
rise as a results of an increase in the minimum
wage federal deficit would come down.
• Reduce crime
– Higher wages for low income individual reduce
crime by providing liable and sustainable
employment.
– Raising the minimum wage to $12 by 2020 would
result in a 3 to 5 percent crime decrease.
Supply, Demand, and Policies of
Government
 Price controls
Use of the power of the state to establish prices different from the
equilibrium prices
 Price ceiling
Legal maximum price
 Price floor
Legal minimum price
A price floor set below the equilibrium
price has no impact on the market
A price floor set above the equilibrium
price is a surplus
The cons of raising minimum wage for
employers
Raising the minimum wage would cause
employers to:
• Hire fewer workers
• Unemployment rate will go up
• Close their companies
• Raising the minimum wage would encourage
companies to move where the cost is lower
• It would increase the price of consumer goods
A pizza shop hired 6 people with a
minimum wage of $5 per hour
That is $30 for these 6 people.
If the minimum wage increases to $10 per hour,
they would have to pay them 60$ which is $30
more than what the shop usually takes out of their
budget.
They would have three choices:
- They can either lay off 3 employees and
- Keep on paying $30,
- they can increase pizza prices and
The impact of raising minimum wage
on society
• People without experience, skills or education
will not get into the labor force
• Increase drop-out rates
• Increase crimes
• Increase poverty
Who would it affect in New England?
• About 1 in 3 workers in New England earns
less than $15 per hour.
• More than 1 in 5 children have a parent that
makes less than $15 per hour.
• The people that make more than $15 are
people with a bachelor’s degree
• The majority of Black and Latino workers in
some states have hourly wages below $15.
Basic Income
Andrew Zucco
What is it?
• Guaranteed Basic Income = free gov’t funded
salary for everyone, replacing safety net
programs
• “No one would have to be a workaholic only
out of fear that they’d have nothing to fall
back on if they stopped”—Natalie Foster
(Institute for the Future and New America
California)
Basic Income Around the World
• Finland: planning experiment to give 100,000
citizens nearly $1,000/month
• Netherlands: 4 cities to start trial programs
• Canada: Ontario preparing for
trial/considering national test
• France: parliament discussing Basic Income
• Switzerland: referendum in June to give
$2,500/month, only got 23% of the vote
Basic Income in the U.S.
• Silicon Valley/San Francisco Bay Area
– Y-Combinator (tech incubator) planning to run a
Basic Income experiment in an unnamed
American community, with an additional pilot
program in Oakland, CA
Why Basic Income?
--Automation and Artificial Intelligence displacing
jobs, and America has a lot of poor people
--7.4 million unemployed, 6 million working parttime because they can’t find full-time jobs, millions
have given up looking, and possibly tens of millions
have settled for jobs with low wages, poor
benefits/working conditions
Why Not?
• Expensive: could add $2 Trillion to U.S. budget
annually
• Possible side effect of disconnecting large portion of
population from positive aspects of working for a
living
• “The idea of a basic income is a good one in a world
where robots do most of the work, but we probably
won’t be there for another 30-50 years”—Erik
Brynjolfsson (studies digital economy at MIT’s Sloan
School of Management)
Why Not? (continued)
• Could be argued that Basic Income is a means
of “buying off” lower income people rather
than developing education and training
programs that could help fix income
inequality, etc.
• “At a time when the tech economy is
generating huge amounts of wealth, is the
Silicon Valley just attempting to appease those
left behind?”—David H. Freedman
Questioning Basic Income
Wouldn’t free, unearned income decrease
money’s value and increase inflation?
• If we already add 100k+ jobs/month, why aren’t
we fixing the skills gap instead of the wage gap?
• Would recipients of Basic Income spend the
money wisely, or would they spend it recklessly
and stay poor and “need” more money to live?
• If everyone, rich or poor, gets Basic Income, how
would social status change at all if everyone is
getting the additional money?
Alternative Solutions
• Expand/Reform current programs
• Implement a training program/training wage
to fill skilled job surpluses
• Limit/Restrict Automation