THE IMPACT OF THE MINIMUM WAGE
Since January 1993, the American economy has created 21 million new jobs. In the last four years, labor productivity has grown at a 2.9 percent annual rate and GDP has grown at a 4.4 percent annual rate. At the same time, the underlying core inflation rate in 1999 was 1.9 percent-the lowest rate since 1965.Recently, President Clinton and congressional Republicans are signaling a possible tax compromise that would help people pay for long-term health care, save for retirement and give business breaks to absorb a $1 minimum wage increase. It would raise the minimum wage by $1, to $6.15 per hour, over a two-year period. A federal minimum wage of 25 cents per hour ($2.96 in 1999 dollars) was first established as a part of the Fail Labor Standards Act of 1938 (FLSA). Since its inception, the federal minimum wage has been increased 19 times, and the FLSA has been amended numerous times to expand the workers covered by the minimum wage provision. The Figure 1 shows the value of the federal minimum wage from 1938-2000 both in nominal and in inflation-adjusted (1999) dollars. And the State minimum wage laws can also differ with regards to converge and overtime pay. Ten s
Their findings also suggest that these teenagers could be obtaining jobs at the expense of other low-skill workers. Recent Economic Theory on the Impact on EmploymentThe traditional economic theory of supply and demand predicts that an increase in the minimum wage above the market rate would increase the cost faced by employers, causing them to reduce employment. "They tend to spend their money on local goods and services, not BMWs. Thus, overall the evidence suggests that neither businesses nor consumers would be made appreciably worse off by a modest increase in the minimum wage. However, for our company, which has a large concentration of minimum wage workers, the impact of increasing minimum wage will be negative, although not much, as long we are in the strong economy. So, once again the evidence is not conclusive. Thus increasing the minimum wage redistributes income from employers and consumers to low-wage workers. After experiencing very low levels of inflation for several years, restaurant prices did rise in 1997 and, to a less extent in 1998. In general, restaurant operators undertook a number of actions as a result of the minimum-wage increases of 1996 and 1997. On the other hand, increasing the minimum wage may induce workers to obtain more training on their own in order to qualify for the higher paying jobs. These papers show that a moderate minimum wage can have a positive effect on employment.
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