Sam Howard

Professor Davis
Econ-2010-007
November 12, 2014
Article Review: Minimum Wage
The name of the article I chose to review is The Last Thing We Should Do
Now Is Raise The Minimum Wage. It was written by Andrew Quinn and published
on October 28th, 2014 by the Federalist. Throughout the article, Quinn lists out
several reasons explaining why raising the minimum wage is a bad thing. He rants
about politics in most of the article, but he makes a few attempts to show other
perspectives, giving him some credibility. He accredits the popularity of raising the
minimum wage to political propaganda. They appeal to peoples emotions about
helping the poor, and he later points out that the working poor, or those employed
and in poverty, only accounts for 2.7% of the population working full time. He also
mentions that it was great campaigning by the Democrats in using the minimum
wage argument to get votes in this recent election, calling it an astute political
decision.
Quinn states that raising minimum wage mainly helps the wealthy that
already have jobs. He shares statics showing that the wealthy have a very high
employment rate, while the poor have an unemployment rate that he compares to
the great depression. He goes on to talk about people who lack extensive training
and education. If as many Americans work full-time for the minimum wage as
Democrats seem to suggest, then apparently it is a sufficient wage to keep people

out of technical poverty. Alternatively, if the minimum wage really isnt enough to
keep families out of poverty, then it follows that very few people who work full-time
earn the minimum. He follows that by talking about how inefficient raising the
minimum wage is when only 11% of the workers come from poor households.
He is a firm believer that raising minimum wages will always create a
reduction of jobs. The jobs that happen to be reduced the most are the ones that
happen to be paying the minimum wage. It mainly helps those who already have
jobs, and many of them will still lose their jobs. Raising minimum wage makes it
increasingly difficult for those who are unemployed to find jobs. He talks about how
Democrats and Republicans both view the negatives of raising minimum wage. He
feels that Democrats underestimate the amount of layoffs due to raising the
minimum wage, as well as the reduction of job opportunities.
An interesting analogy he made was between taxes compared to raising
minimum wages. If one looks at the increased cost of the labor as a tax, less labor is
better. Quinn also talked about what he believed to be a far superior alternative to
raising minimum wage. The alternative he favors is the Earned Income Tax Credit
(EITC), which acts as a subsidy and increases the amount of money individuals take
home. The reason he favors this subsidy is that it doesnt interfere with the market.
Quinn found it ironic that the Democrats who advocate raising minimum wage are
the ones who profit most, and it actually hurts those who voted for them.

The concepts I will attempt to relate to minimum wage are price floors,
supply and demand, income elasticity of demand, and taxes/subsidies. Some of

these points are stronger and more obvious than others. I hope I can tie them all in
correctly and in a way that makes sense. Ill start with price floors and supply and
demand, which are the probably the easiest ones to talk about.

This graph illustrates what happens when you introduce a minimum wage. A
minimum wage acts as a price floor, not allowing wages to be below wherever the
floor is set. When the price floor is set above the equilibrium wage, where labor
supplied and labor demanded naturally intersect, it creates a surplus in labor
supplied. This is commonly known as unemployment. The amount of people
unemployed is the difference in quantity between Ld (labor quantity demand) and
Ls (labor quantity supplied) on the graph. A change in price or wage leads to change
in quantity supplied. This is explained as a movement along the curve. Therefore
when minimum wage is raised, firms demand less labor while individuals are
willing to supply more labor causing a difference between the values of Ld and Ls,
creating unemployment.

The income elasticity of demand shows which goods are inferior and normal
by using a simple equation. A positive answer in the equation means the product is a
normal product, and a negative answer means the product is an inferior good. An
increase in income causes a rightward shift to the demand curve when a product is a
good quality product. When the demand curve shifts to the left after an increase in
income, the product is an inferior good. From the graph, a raise in minimum wage
has enough impact to have these effects. Cheap canned food could be an example of
an inferior good. As people earn more money, the demand for that canned food
would go down, and the demand for a quality product would increase. This will
result in an increase in excellent products and improve the economy. As peoples
income rises, so does the demand and cost for most goods. This makes their new
raise in minimum wage less effective. Whom it affects the most, however, are those
people who got laid off due to the raise in minimum wage as well as those who were
previously unemployed.
Minimum wage workers are generally lacking in skills and or education.
There is little distinction between one minimum wage laborer and another, making
them extremely elastic and flexible. There is nearly an unlimited source of
substitutes for a minimum wage employee, making their work generally unstable.
The more similar two substitutes are to each other, the more elastic they are. When
layoffs happen after an increase of minimum wage, it is the most elastic laborers to
lose their jobs first. It is up to them to try to set themselves apart form the others
with good work ethics, education, and other things to better themselves, in order to

become less elastic, and less expendable. Therefore, they are not unemployed
because of the level of minimum wage but their level of expertise and skill.
A tax imposed on a producer acts as an increase to the cost of production,
which shifts the supply curve to the left, causing less production and higher cost. A
comparison can be made to companies being forced to pay the increased minimum
wage. Their labor costs raise, so naturally, as the supply curve shifts to the left and
so does the equilibrium, causing there to be less jobs available. An alternative to
raising minimum wage would be by promoting the Earned Income Tax Credit
(EITC). The EITC gives tax credits to families that meet certain criteria. The more
kids you have, the larger the credit you get back. The criteria are very easily met and
well above the poverty line. The EITC gives a credit after they pay their tax. It takes a
load off of employers, enabling them to hire more laborers. It would also allow the
labor market to function without the disturbance of minimum wage hikes. EITC
would be a much better solution to raising the minimum wage.

I have learned a lot about economics that apply to me. It has been one of the
easier classes for me, because things seem to stick in my mind better. Hopefully
minimum wage itself never applies to my life, but all the economic concepts I talked
about are useful. The main concept that was sort of eye opening is the elasticity of us
as individuals as a part of the work force. It makes it easier for me to understand
why I am going to school and gives me some perspective on things. It helps make life
a little more bearable.

I think it is helpful for everyone to have some understanding of supply and

demand. I know everyone just says supply and demand, like they know what
theyre talking about. It is fun to be able to see why things happen that apply to
supply and demand, and think about what changes might happen with the supply
curve, demand curve, and equilibrium. More focused on the topic of minimum wage,
I thought it was very cool you can use the supply and demand curve for labor. The
supply and demand curve can show how many fewer jobs there would be as well as
an overall shortage of people who would be willing to work at a higher minimum
wage.
The reason I put income elasticity of demand on my list of concepts to tie in
to minimum wage, is because it made me think of inflation. I didnt talk about
inflation in the concepts because it is more of a macroeconomics concept, and Im
not entirely sure how closely related the two are to each other. It seems to me that
as income rises and prices of goods go up, your dollar is worth less. I wasnt sure
about how well the two work together. I do know that if prices on normal goods rise,
people simply switch to inferior goods if they cant afford the normal good, and
theyre right back where they started. It seems like it might only be a temporary
inflation until it balances out, but I could also see it having permanent effects on the
market. Id still lean towards thinking raising minimum wage creates inflation.
I cant say that Im really into politics, but I love learning about how politics
are involved in different parts of economics, especially when it exposes the pathetic
groveling rats politicians are. Learning about politics using minimum wage as a tool
to further their political power was just one example, and its not even one of the

stronger ones. Its funny how we have all the studies about what raising minimum
wages does to the labor market, yet people still throw votes towards it like crazy.
Theres no such thing as a free lunch, which was previously discussed with
opportunity costs, but it still applies here. People want something for nothing, but
that never works. It turns out to be a negative-sum game, or a lose-lose situation.
Quinn quoted Pope Benedict saying, Truth is not determined by majority vote.
In Conclusion, Ive learned that there are a lot of misconceptions about
minimum wage. I now view it as little more that one of many tools used by
politicians. Based on the things Ive learned, I know that when minimum wages go
up, fewer jobs will be available. It is a hard thing to try to explain to someone
quickly, that raising the minimum wage is actually counter productive. But after
writing this paper, I feel a little more up to the challenge. I cant help but wonder
how much better off our country would be if everyone were required to take some
economics classes.