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Ia 1

  1. 1. COMMENTARY NUMBER 1 COVERSHEETEconomics commentary number: HL Number 1Title of extract: State minimum wage increase soonSource of extract: Highlands TodayDate of extract: 05/08/11Word count: 733Date the commentary was written: 05/08/11Section of the syllabus to which the commentary relates: Section 2Candidate name: Michael PollockCandidate number:
  2. 2. Michael PollockCommentary Number 1 ExtractState minimum wage increases soonBy William E. Lewis Jr. | Highlands TodayPublished: May 8, 2011What would an extra 48 cents a day, $2.40 a week, or $124.80 a year mean to you? Six-cents anhour may seem like small change, but for nearly $200,000 minimum wage workers in Florida, ithas resulted in litigation and an increased paycheck.Leon County Circuit Court Judge Terry Lewis ruled last week that the state violated FloridasConstitution by failing to raise the state minimum wage on Jan. 1 to reflect last years increase inthe cost of living. As a result, the rate will be increased from $7.25 to $7.31 an hour effectiveJune 1.In 2004, Floridians voted by a 72 percent to 28 percent margin to amend the constitution to enacta state minimum wage. Under the voter-approved amendment, the minimum wage wouldincrease every January to keep pace with any cost of living increase the past year. In those rareinstances where the cost of living decreased, the minimum wage would remain the same.In January, the National Employment Law Project (NELP) filed suit against Floridas Agency forWorkforce Innovation (AWI) for not raising Floridas minimum wage to keep pace with the costof living.Eight states have laws that tier their minimum wage to the federal rate, the cost of living andinflation. With the exception of Florida, each of these states€“ Arizona, Colorado, Ohio,Oregon, Montana, Vermont, and Washington€“ raised their minimum wage for 2011 toaccount for inflation.Impacted are approximately 647,000 Americans who earn minimum wage. Two hundredthousand of these low-wage workers live in Florida. Considering that the lower rate will continueuntil June 1, the mistake will cost each of the states minimum-wage workers about $52.According to the AWI, the lower rate was the result of bad accounting. For the year 2009, Floridareduced the minimum wage due to a rare period of deflation. According to the ruling, the rateshould have held steady during a deflationary period. No one noticed the mistake because thefederal minimum wage of $7.25 an hour exceeded the lower state rate.When the AWI announced no cost of living increase for 2011 and its intent to maintain thefederal minimum wage of $7.25 an hour, worker advocates began to take notice. When the statefailed to respond to complaints, four low-wage earners€“ a restaurant worker and three farmworkers sued claiming the minimum rate should be $7.31 an hour.In his ruling, Judge Lewis stated that the minimum wage can never be decreased and that thestate must use the formula laid out in the Florida Constitution to calculate future wages.“State minimum wage increases soon.” Highlands Today. 8 May 2011. 8 May 2011 <http://www2.highlandstoday.com/content/2011/may/08/state-minimum-wage-increases- soon/news- newbusiness/ >
  3. 3. The same six-cent increase will apply to minimum-wage tipped employees, whose rates will gofrom $4.23 to $4.29 an hour.In a prepared statement, the Agency for Workforce Innovation said the agency is "surprised anddisappointed at the judges ruling in the minimum wage lawsuit.However, we respect the judges order and effective June 1, 2011 Floridas minimum wage willbe $7.31 per hour."Tsedeye Gebreselassie, staff attorney at the National Employment Law Project, said she and hercolleagues were celebrating a victory for the states most vulnerable workers. "Were just gladthat workers are going to see that 6-cent increase in their paycheck," said Gebreselassie."Nobody disputes that the cost of food and gas and rent is going up a lot. Its hard to make endsmeet on $7.25 an hour, and its hard to make it on $7.31. But every little bit counts."According to NELP, the six cent an hour increase will result in $28 million more wages for low-income Floridians during 2011, and more than twice that amount in 2012.For more information on the Agency for Workplace Innovation, please visithttp://floridajobs.org/“State minimum wage increases soon.” Highlands Today. 8 May 2011. 8 May 2011 <http://www2.highlandstoday.com/content/2011/may/08/state-minimum-wage-increases- soon/news- newbusiness/ >
  4. 4. Michael PollockCommentary Number 1*In order to compensate for inflation in the USA and in accordance to the Florida Constitution, theminimum wage in Florida is being raised from $7.25 an hour to $7.31. This increase in theminimum wage is represented on the graph below.Diagram 1: Minimum Wage IncreaseMinimum wage can be represented with a price floor1, as it is a similar regulation put in place bya government. Price floors are always set above equilibrium to be effective. In our diagram wecan see that the equilibrium is located at the intersection of Se and De(the supply and demand ofemployees respectively) and at equilibrium, we would see a wage of We and an equilibriumquantity of unskilled labor supplied and demanded at Qe. The reason we specify unskilled laboris because minimum wage jobs are generally only offered to unskilled laborers such as teenagersand the inexperienced. Skilled laborers are rarely paid minimum wage.*All definitions have been adapted from:Sloman, John. Economics, 6th edition. Essex: Pearson Education, Ltd. 2006.1 A regulation making it illegal to pay a wage lower than a specified level
  5. 5. The previous minimum wage, located at $7.25, gave a quantity of labor demanded at Q1d and aquantity of labor supplied at Q1s. The increase in the supply of labor from Qe is due to morepeople entering the job market. Previously, these people were not interested in working, howeverat this new wage they gain interest. The decrease in the demand for labor from Qe to Q1d is arepresentation of people who had jobs, but lost them due to the raise in wages. It also representsthe fact that companies hire less labor as labor becomes more expensive.With a minimum wage of $7.25 there is already a surplus of workers, also known as excesslabor2, however when the minimum wage is increased to $7.31 we can more clearly see thissurplus. When the minimum wage is increased the demand for labor only decreases more,indicating that less people will be hired at this new wage which we can see at Q2d. The supply oflabor is yet again increased to Q2s, as more people are willing to work at this new wage. Thiswidens the surplus, which is the excess quantity of labor supplied at a particular price, as thenumber of people willing to work surpasses the number of people businesses are willing to hire.We see this as a surplus unemployment, indicated on the diagram.The reason for this increase in the minimum wage is due to an amendment passed in 2004, votedon by the people of Florida, stating that the state minimum wage would be increased accordingto the increase in cost of living. The intention of this is in order to assist those living off ofminimum wage alone, which could be up to 200,000 Floridians. Unfortunately, this couldbackfire due to the increase in unemployment caused by raising minimum wage, and instead ofgaining increased wages workers may simply be fired from their jobs as businesses are notwilling to pay a wage that high. Its also possible that the new entrants to the job market,attracted by increased wages, will face difficulty when attempting to find a job.Its also important to note that of the 200,000 people with minimum wage jobs, its very likelythat those people are simply in it for some extra money. Its doubtful that all of them areattempting to live off the money paid by those jobs, but more reasonable to assume they arespouses helping the cash flow, or teenagers in high school. A large portion of these workers arenttrying to “make ends meet” as the article suggests, but instead collect some extra spendingmoney. This is a common misconception when discussing minimum wage, and while there arestill some people whose main form of income is from a minimum wage job, many have otherforms of income as well.So whilst trying to help unskilled and unfortunate laborers, raising the minimum wage simplyeliminates jobs, and crowds the job market. Also, those who are searching for and working inminimum wage jobs usually dont live off of the money they make, but use it as extra pocketmoney.2 When the supply of labor exceeds the quantity demanded of labor