The U.S.

employment rate when the minimum wage is

increased
FOR MORE CLASSES VISIT
www.tutorialoutlet.com
Running Head: MINIMUM WAGE AND EMPLOYMENT RATE 1
Chapter 4
Participants
There are no participants in this research as the entire data set was
retrieved from the
government agency websites. The minimum wage rates and the
unemployment rate of the years
from 2009-2016 were retrieved from the Bureau of Labor Statistics.
The unemployment was in
the unit of percentage of people unemployed in the given specific
year. The unit for minimum
wage rate was considered as $/hour.
The data on the social welfare spending, especially the unemployment
welfare spending
was extracted from the USA government spending website as well as
USA Census Bureau. The
sending was in the unit of billion dollars.
Research Questions
Research Question 1: What is the impact on the U.S. employment rate
when the minimum wage
is increased?
Research Question 2: What is the impact to reliance on social
programs reduced when minimum
wage in increased?
Sample Size:
The data was gathered for seven years spanning from 2009 to 2016.
The specific sample
size was selected as it made the results more specific for the analysis.
MINIMUM WAGE AND EMPLOYMENT RATE 2 Results
Hypothesis: There is no relationship between increased minimum
wage and the employment rate
for the United States economy.
Null Hypothesis: There is a relationship between increased minimum
wage and the employment
rate for the United States economy.
(DF): (r-1) * (c-1) = (7-1) * (2-1) = 6
Where DF: Degrees of Freedom; R= number of rows; C= number of
columns Year Unemployment Rate Minimum Wages Row Total 2009
9.3 7.25 16.55 2010 9.6 7.25 16.85 2011 8.9 7.25 16.15 2012 8.1 7.25
15.35 2013 7.4 7.25 14.65 2014 6.2 7.25 13.45 2015 5.3 7.25 12.55
Column Total 54.8 50.75 105.55 Er,c = (nr*nc)/n
E1,1 = (16.55r*54.8c)/105.55 = 8.59
E1,2 = (16.55r*50.75c)/105.55 = 7.95 MINIMUM WAGE AND
EMPLOYMENT RATE 3 E2,1 = (16.85r*54.8c)/105.55 = 8.74
E2,2 = (16.85r*50.75c)/105.55 = 8.1
E3,1 = (16.15r*54.8c)/105.55 = 8.38
E3,2 = (16.15r*50.75c)/105.55 = 7.76
E4,1 = (15.35r*54.8c)/105.55 = 7.97
E4,2 = (15.35r*50.75c)/105.55 = 7.38
E5,1 = (14.65r*54.8c)/105.55 = 7.6
E5,2 = (14.65r*50.75c)/105.55 = 6.97
E6,1 = (13.45r*54.8c)/105.55 = 6.98
E6,2 = (13.45r*50.75c)/105.55 = 6.47
E7,1 = (12.55r*54.8c)/105.55 = 6.51
E7,2 = (12.55r*50.75c)/105.55 = 6.03 X2 = [ (Or,c - Er,c)2 / Er,c ]
X2 = (9.3-8.59)2/8.59 + (7.25-7.59)2/7.59 + (9.6-8.74)2/8.74 + (7.25-
8.1)2/8.1 + (8.9-8.38)2/8.38 +
(7.25-7.76)2/7.76 + (8.1-7.97)2/7.97 + (7.25-7.38)2/7.38 + (7.4-
7.6)2/7.6 + (7.25-6.97)2/6.97 +
(6.2-6.98)2/6.98 + (7.25-6.47)2/6.47 + (5.3-6.51)2/6.51 + (7.25-
6.03)2/6.03 MINIMUM WAGE AND EMPLOYMENT RATE =
0.058 + 0.015 + 0.084 + 0.089 + 0.032 + 0.033 + 0.016 + 0.002 +
0.005 + 0.011 + 0.087 +
0.094 + 0.224 + 0.246
= 0.996
The P-value which will be deducted by using the statistical method of
chi-square with a degree
of freedom of 6 is found to be of less extreme range than the X2
value of 0.996.
The Chi-square critical value taken here is 7.
Using the Distribution calculator of Chi-Square, the value of P(X2
> 0.996) comes out to be:
0.68.
Thus, as deduced, the P-value comes out to be 0.68 which is more
than the level of
significance (0.05), and thereby the null hypothesis is true. Thus, the
paper concludes that there
is a relationship between increased minimum wage and the
employment rate for the United
States economy.
Hypothesis 2: There is no significant difference of the usage of
government sponsored social
programs when the minimum wage is increased for those eligible for
social programs
Null Hypothesis: There is significant difference of the usage of
government sponsored social
programs when the minimum wage is increased for those eligible for
social programs. (DF): (r-1) * (c-1) = (7-1) * (2-1) = 6
Where DF: Degrees of Freedom; R= number of rows; C= number of
columns 4 MINIMUM WAGE AND EMPLOYMENT RATE 5
Federal unemployment
Social Welfare in
Year $billion Minimum Wages Row Total 2009 122.5 7.25 129.75
2010 160.1 7.25 167.35 2011 120.6 7.25 127.85 2012 93.8 7.25
101.05 2013 70.7 7.25 77.95 2014 45.7 7.25 52.95 2015 35 7.25
42.25 Column Total 648.4 50.75 699.15 Er,c = (nr*nc)/n
E1,1 = (129.75r*648.4c)/699.15 = 120.33
E1,2 = (129.75r*50.75c)/ 699.15 = 9.41
E2,1 = (167.35r*648.4c)/ 699.15 = 155.20
E2,2 = (167.35r*50.75c)/ 699.15 = 12.15
E3,1 = (127.85r*648.4c)/ 699.15 = 118.57
E3,2 = (127.85r*50.75c)/ 699.15 = 9.28
E4,1 = (101.05*648.4c)/ 699.15 = 93.71 MINIMUM WAGE AND
EMPLOYMENT RATE E4,2 = (101.05r*50.75c)/ 699.15 = 7.33
E5,1 = (77.95r*648.4c)/ 699.15 = 72.29
E5,2 = (77.95r*50.75c)/ 699.15 = 5.65
E6,1 = (52.95r*648.4c)/ 699.15 = 49.11
E6,2 = (52.95r*50.75c)/ 699.15 = 3.84
E7,1 = (42.25r*648.4c)/ 699.15 = 39.18
E7,2 = (42.25r*50.75c)/ 699.15 = 3.01 X2 = [ (Or,c - Er,c)2 / Er,c ]
X2 = (122.5-120.33)2/120.33 + (7.25-9.41)2/9.41 + (160.1-
155.2)2/155.2 + (7.25-12.15)2/12.15 +
(120.6-118.57)2/118.57 + (7.25-9.28)2/9.28 + (93.8-93.71)2/93.71 +
(7.25-7.33)2/7.33 + (70.772.29)2/72.29 + (7.25-5.65)2/5.65 + (45.7-
49.11)2/49.11 + (7.25-3.84)2/3.84 + (35-39.18)2/39.18
+ (7.25-3.01)2/3.01
= 0.039 + 0.495 + 0.154 + 1.976 + 0.0347 + 0.444 + 0.000001 +
0.000001 + 0.035 + 0.453 +
0.237 + 3.029 + 0.446 + 5.972
= 13.3147
The P-value which will be deducted by using the statistical method of
chi-square with a degree
of freedom of 6 is found to be of less extreme range than the X2
value of 13.317. 6 MINIMUM WAGE AND EMPLOYMENT RATE
7 The Chi-square critical value taken here is 15.
Using the Distribution calculator of Chi-Square, the value of P(X2
> 0.996) comes out to be:
0.98.
Thus, as deduced, the P-value comes out to be 0.68 which is more
than the level of
significance (0.05), and thereby the null hypothesis is true. Thus, the
paper concludes that there
is a relationship between increased minimum wage and the social
welfare for the United States
economy.
Discussion and Analysis
The P value which will be deducted by using the statistical method of
chi-square with a
degree of freedom of 6 is found to be of less extreme range than the
X2 value of 0.996. The
Chi-square critical value is taken here as 7. Using the Distribution
calculator of Chi-square, the
value of P(X2 > 0.996) comes out to be: 0.68. Thus, as deduced,
the P value comes out to be 0.68
which is more than the level of significance (0.05), and thereby the
null hypothesis is true. Thus,
the paper concludes that there is a relationship between increased
minimum wage and
employment rate for the United States economy.
From the detailed calculations and analysis the conclusion that can be
arrived at is, that,
minimum wage rate is negatively or inversely correlated to
employment factor in the United
States economy. The minimum wage rate was proposed as a tool to
help the economically
weaker or the deprived strata of society, the unskilled and less-
talented labor force to attain a
better income and improve their standard of living. But the studies
conducted have shown that
increase in the minimum wage rate adversely affects this section of
the society and lowers their MINIMUM WAGE AND
EMPLOYMENT RATE 8 monthly income or sometimes leaves them
without any employment, and therefore, leaving them
dependant on state support. This, in fact leads to an increase on the
exchequers burden on social
welfare.
The people who are supposed to benefit most from the theoretical
increase in minimum
wages are unskilled workers or lesser skilled labor force, women,
recent immigrants, teenagers,
or other economically weaker sections of the society. But on studying
these parameters in detail,
it becomes very clear that the effectiveness of this policy is
undermined by some crucial factors.
Some of the groups may benefit, but overall rate of employability
comes down. Any type of hike
in the minimum wage rate leads to some sections winning out over
the others. The industry, to
balance out the increase in workforce cost or labor cost can resort to
increasing the price of the
services or manufactured goods. In case the cost of goods and
services starts going up then the
benefits of increase in the wage rate gets eroded for the very same
people it was initiated for.
This can also result in the industries reducing the number of
employees to cover for the
hike in the wages bill. Sometimes the businesses may compensate for
a wage hike by scaling
down the employee benefits, cutting back on the bonuses or other
such costs. And all these will
affect the annual income of the workers. If the industry decides to
scale down its employees then
the first people to fall under the axe are usually the most dispensable
to the industry. They are
usually the base line workers or the less skilled labor force. Therefore
the increase in wage rate
directly plays the role in rendering them unemployed. While the
skilled work force gets the
benefit of increase in their income, the lowest level workers or the
lower income group people,
for whom the wage rate hike was originally intended, often end up
losing their sources of
income. This leads to an increase in the number of poor families and
create an increasing burden MINIMUM WAGE AND
EMPLOYMENT RATE 9 on the state benefits. So the purpose of the
wage rate hike, that is to reduce the income disparity
or inequality among the society fails to achieve its objective.
Whenever there is a slowdown in the economy or the markets are on a
downward spiral
the employers are on a lookout for the better qualified or skilled
workers and at such times also
the lower or base level low skilled workers get affected the most. The
increase in the wage rates
normally leads to overcrowding at the lower levels. You can find
some highly-qualified and more
skilled workers applying for entry level positions due to better wages,
and they further cut into
the job availability for the less skilled labor force or lower wage
earners.
The businesses would also not be able to pay an employee more than
what he can
contribute to the development of the business. Therefore, they would
prefer to lay off the less
productive employees or at least reduce their working hours, and
substitute them with better
equipped or more qualified workers, who are willing to work for the
increased wages. Although
the policies are designed for the benefit of less qualified or workers
with less skills, but most of
the time these policies leave them even more deprived than before.
The law in its practical
version brings about more discrimination against such workers rather
than helping them in a
gainful manner.
This can also lead to more damaging scenarios like the employers
would start resorting to
hiring from the foreign workers who are illegal entrants to the
country. Many a times these
foreign born workers are less competent and have even a lower skill
quotient than the local born
uneducated or unskilled workers. And for all these reasons, such
people would be willing to
work for lower than the prescribed minimum wage rate. Although it is
not legal to hire such
workers, but many employers overlook the law and hire them to
reduce labor costs for MINIMUM WAGE AND EMPLOYMENT
RATE
10 themselves. This could pressurize the whole economical scenario
in the concerned area and also
lead to an increasing influx of such alien members in the society.
The employers can also resort to installing more economical and time
saving machines
who could replicate the work of a number of workers. The measure
would prove to be cost
effective for the companies, for besides the high wage bill, they would
also be cutting down their
subsidiary costs like labor welfare schemes, employee benefits, etc.
Such a measure would not
lead to an escalation of the prices of the goods and services but would
eat into the job share of
the lower level workers. All these factors combined together would
push these workers out into
the uncovered sectors and upset the wage balance in those sectors
also.
Another scenario which could emerge if the minimum wage rate is
fixed across the whole
country is that the companies would take advantage of the currency
rate variations and outsource
their jobs offshore to other nations. This could lead to further
reduction in the job opportunities,
in the already restricted job market, for the local people, especially at
the entry level job scene.
This could also result in anger against the political and social
environment and could be
damaging for the balance in the society on the whole.
In the low-skill labor segment, the teenagers and women also form a
part of the minimum
wage group. Findings and research show that most of the teenagers
come from families who are
not living below the poverty lines. The teenagers are generally not the
main breadwinners in their
families and constitute a part time or holiday work labor force, so
their earnings will generally
not affect the income level of their families. But they form a
substantial part of the base level
labor force and they would also be eating into the job share of the
economically poor or deprived MINIMUM WAGE AND
EMPLOYMENT RATE
11 section pushing them further down on the poverty radar. The same
conditions apply to a major
portion of the women at lower rung jobs.
Although the political thought aims at reducing the income disparity
and bringing the
general populace on the same economic footing, but the increase in
minimum wage rate could
actually increase the gap between the rich and the poor more than the
existing levels. While
designing such a policy one factor that has to be kept in the mind is
that many of the poor
Americans (approximately 60%) do not work and are dependent on
the state support.
Furthermore, the idea that people in the minimum wage earning
category are sustaining their
families on these wages alone is in itself not correct to begin with.
That is because most of these
workers (approximately 80%) are part of a family with more than one
earning member or they
are in the part time worker category.
Only a small percentage of these lesser income earners
(approximately 20%) are the ones
who have their families depending on these wages for their livelihood.
So the maximum benefits
of this policy would not reach the deprived class and majority of
people benefitting from this
policy would be the ones who are not in the poor people category to
begin with. The basic
problem with this minimum wage policy is that it is trying to increase
the earnings of the poor
families by targeting the low wage earning workers, rather than
stressing on improving the
income of families living below the poverty line. Both these
parameters are not always the same.
Many of these poor families may not have even a single earning
member and so the benefits of
any kind of wage hike automatically overlook them.
The paper also concludes that there is a relationship between
increased minimum wage
and the social welfare for United States economy. MINIMUM
WAGE AND EMPLOYMENT RATE
12 A very important reason stated by the policymakers for increasing
the minimum wages
has been to reduce the burden on the taxpayers hard earned money.
The revenue collected from
taxes goes to support government sponsored programs like SNAP,
Medicaid, TANF, WIC and
the FRPL programs.
As it been discussed the hike in minimum wages creates a void in the
employability of
the lower wage earning members of society. There are of course, a
certain percentage of
unskilled workers who gain by the hike in the minimum wage rate,
but, by and large any hike in
wages without the balancing any of the other parameters, raises the
rate of unemployment and
widens the economic disparity between the rich and the poor sections
of society.
The wage rate hike would prove to be substantial only if value of the
wage rate hike
remains unchanged or if it is not diminished by the other economic
factors surrounding the
increased wages. There would be a few workers from the poverty
stricken section who would
benefit from higher income and would, in due course of time, stop
depending on the state aided
welfare schemes for their support. But there would also be a much
larger percentage of the needy
people who would end up at the bottom of the economic chain by
losing their jobs and would
come to depend more on the state for support. If these two factors are
weighed against each
other, then the benefits of the hike are cancelled out by the negative
employment.
On studying these factors in detail, the inference that could be drawn
is that any kind of
mandatory wage hike results in shrinking of fresh job opportunities
and reducing the current
number of jobs. The employers tend to cut down on the number of
working hours of the current
workers, reduce the fringe benefits being given to the workers and in
some cases could reduce
the number of workers. The people who get affected are the unskilled
low wage earners, the MINIMUM WAGE AND EMPLOYMENT
RATE
13 uneducated workers, the unemployed youth and the elderly or
persons with disabilities who are
forced to rely on low level jobs for livelihood.
The employers can also pass on the increased wage bill by the means
of increasing the
prices of goods and services, which would raise the prices of
corresponding basic goods and
services, leading to eroding the benefits of wage hike as the extra
wages would no longer remain
the surplus income. The wage raise could prove to be beneficial only
in the perfect
macroeconomic scenario where all the demand and supply curves
correspond favorably to the
wage hike. But such a scenario is not possible, so the wage raise
proves insufficient to remove
poverty lines and reduce the income disparity between rich and the
poor. If nothing, it widens the
gap even more.
The policy of increasing the minimum threshold wages stems from
the idea of providing
better income to the poor and nearly poor population of United States.
But the ground reality is
that many of these poor people do not work to earn their living and
are living on the state support
to begin with. So any increase or decrease in wages has no affect
whatsoever on their living
conditions or on their income. They remain in the clutches of poverty
and dependant on state
support as before. Now in the nearly poor or the poverty borderline
families, the hike in wages
has a mixed effect.
Some of the workers retain their jobs and move up a little in their
yearly income levels.
Some workers lose their jobs owing to layoffs and cutbacks imposed
by the employers to counter
the cost of increasing wage bill and so they are pushed down and are
likely to become dependent
on state support. This increases the influx of people on the state
sponsored support programs MINIMUM WAGE AND
EMPLOYMENT RATE
14 thereby increasing the welfare expenditure by the state which in
turn leads to an increasing load
on the taxpayers.
The effect of hike in minimum wages is applied differently to people
in different
government sponsored welfare and assistance programs. For example
the maximum number of
participant in the SNAP program is the ones with low income and low
asset base. It is a
mandatory provision under law that the recipients of SNAP who are
between the age group of 18
years and 60 years who have no disabilities must be either employed
or be looking for active
employment to avail the benefits of this program. So any hike in the
minimum wage rate would
give maximum benefits to these people and reduce their dependence
on welfare programs as they
are most likely to be part of the currently employed labor force.
At the same time the state provides cash help to poor and nearly poor
families with
children. These families are in the category of less income group and
generally do not have more
than one earning member. These families belong to the recent
uneducated immigrants, low
qualified single mothers, non-whites and the less educated high
school dropouts. These people
are the ones who fall at the bottom of the food chain and are the ones
who are the most
dispensable labor class. Prior to the increase in wages the people from
this class are normally
employed at low level jobs and at times as part time workers. Any
shrinking of job opportunities
due to the changing economic conditions like increase in the wage bill
of the industry is most
likely to render them unemployed. This would push them either
towards the uncovered sector
jobs or they are likely to move on state support to sustain themselves.
Similarly there are many people like the old and the infirm, pregnant
women, and also
those who are not working on a full time job. These people are
dependent on one or the other MINIMUM WAGE AND
EMPLOYMENT RATE
15 state aided program and the benefits they get out of the welfare
programs are much more than
they can expect from the job opportunities available in the market.
The hike in wages aims to
increase the earnings of the needy people but without creating
additional jobs for the people who
are enrolled in state aided programs.
The industries will try to economize by either cutting down on the
number of jobs at the
bottom level or by passing on the price hike to the consumers leading
to an overall scenario of
inflation. Some industries may easily replace the workers with robots
or machines which in long
term will help to cut down the cost bill and will lower the wage bill by
a considerable amount. In
some cases the companies might find it easier to wrap up some of its
operations and take them
overseas to the third world countries to take advantage of the currency
rate fluctuations as well as
save on the increasing costs of wages. By doing this they would not
have to increase the prices of
their products but it would come at the cost of the local people or the
Americans losing their
jobs. This would worsen the economic conditions of the needy instead
of improving them. So the
industries to increase the wages without changing their policies would
need some incentives to
do so.
The people at the receiving end are the ones who are in the low
income group because
they are not educated and do not have employable skills. Just a hike in
wages will not eliminate
poverty until the people are trained to be more gainfully employed.
Many people in the unskilled
class cannot afford better education for themselves or their children
and likely to get caught in
the economic downturns unless the policy is designed not just to raise
their wages but also to
impart training programs to acquire skills which would help them to
move up in the ladder. It can
be concluded that the hike in wages alone without creating more job
opportunities and favorable MINIMUM WAGE AND
EMPLOYMENT RATE
16 economic conditions is likely to do more harm than good and will
lead to more people becoming
dependent on state support.
Validity
This research is valid and true in all its contents. The simulation
method used here is the
Chi-square method. The data used for analysis has been sourced from
reliable government
organizations and the surveys carried out by Government agencies
and leading universities by
prominent economists. The articles used to support the research
findings have been written by
leading economists and eminent professors and specialists in the
American economy. The
references from the internet used in this article are from the IZA
World of Labor websites,
publications from American Legislative Exchange Councils, and all
the other government and
reliable publications websites.
The one constraint which can hamper the validity of the results is that
the years taken for the
analysis had the same minimum wage rate. But this can be argued as
to the value of the money or
the minimum wages for specific year deflecting according to the
dollar value or economic
growth rate.