Robert Xu
Mrs. Smith
Economics
16 July 2015
The Great Recession and Minimum Wage In 2008, disaster struck. The stock market tumbled, plunging America into a recession which many feared would bring our economy to its knees. The government frantically attempted to stop the bleeding by pumping money into the economy and bailing out the big corporations. Operating on the principles of Keynesian Economics and Monetarism, government officials then reasoned that cutting taxes and lowering interest rates would encourage consumers to begin buying and borrowing again, which would jumpstart the economy. However, a promising alternative existed that officials did not pursue: raising the minimum wage, which would inject money into the economy and raise
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However, a multitude of studies contradict their assertion. One such comprehensive study by the Center for Economic and Policy Research not only concludes that minimum wage changes do not lead to employment changes, but also offers an explanation: “The most likely reason for this outcome is that the cost shock of the minimum wage is small relative to most firms' overall costs...employers have many other channels of adjustment. Employers can reduce hours, non-wage benefits, or training” (Schmitt 22). The study notes that the cost of a minimum wage raise is often balanced with reduced labor turnovers, so that little to no discernible effect is present on employment. Watchdog sites such as Politifact also agree, citing that modern research tends to show that raising the minimum wage has little impact on employment. Another common argument is that many minimum wage workers are teens, so raising the wage won’t necessarily help the working class. However, data gathered shows the average age of a minimum wage worker is 35 and that over 80% of minimum wage workers are over 20. On average, these workers must provide half the income for their family, a situation that they struggle with, considering that the minimum wage is rarely enough to keep a family out of poverty. Several studies conducted by the University of Cambridge, IRL Review, and other institutes show that as minimum wage rises, poverty decreases. The acquired data strongly suggests that there are workers earning minimum wage, yet still in poverty. If the minimum wage isn’t enough to make a living, workers obviously won’t be active consumers. Consequently, raising the minimum wage will naturally boost consumption by raising the standard of