Should There Be a Minimum Wage?

Economics can be a tricky subject to grasp without prior knowledge, so please watch this link that highlights the basic points of my argument.

Before economics class, I believed that the minimum wage was beneficial to the welfare of society. People got paid more and that was the point I focused on. However, after a few weeks of class, I learned about price floors and ceilings.

This is an example of a price floor. Basically, the x-axis represents the quantity of, in this case, workers and the y-axis represents the wage given to them. The blue line is supply and the red line is demand. The green line is the price floor. A price floor is the minimum price that an employer can pay his workers (aka minimum wage). Normally (the dashed black line), the price paid to the workers is medium and the number of workers employed is also in the middle. However, with the price floor, the quantity of workers demanded by employers (dashed red line) goes down and is less than normal. The amount of employers available to work for that price goes up (dashed blue line). This means that more people are willing to work, but there are less spaces available – this is unemployment (or a surplus of workers). (See price floors video)

In the short-term, minimum wage is good for the people who are receiving payment – they get more money. In the long-run, the entire market is negatively affected as explained by the video. Less people are employed and the company has to limit production (because they have less workers).

If the minimum was was to be removed, business production would spiral upwards. If the cost of production (wage) goes down, the cost of the products made can also go down. When the cost of a product goes down, the demand goes up and total revenue goes up for the employer. Now, the employer has more money and can hire more people to fill his demand. More people are now employed. This cycle repeats itself. More employees means more products made and more of these products are sold (because of their low costs) and total revenue goes up.

The major demographic of people working for minimum wage is teenagers. I know that more money is good, but I also acknowledge that I do not need the money. I could take the bus instead of driving to school. I do not have to go to the movies every month. If teenagers were to receive less money, they would not be endangered. Teenagers do not have great financial burdens because the money is usually spent on luxury. With no minimum wage, wages would still be reasonable (if no one is willing to work for five cents an hour, employers will have to raise the wage). The people who depend on higher minimum wage for financial stability are a grand minority and it would be neither efficient or equitable to limit economic growth because of them.

I wrote this because I used to strongly believe in the opposite. Learning economics has shown me that even my own opinion can be changed completely. I want the reader to see the other side, despite their prior beliefs. The argument about minimum wage was foreign to me before economics class, I want others to know about it.

 

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